Bankruptcy Laws Information

Filing for bankruptcy, personal or business, can be a very challenging process considering all bankruptcy information that you need to know before making that decision to start fresh. Before even starting the filing process, one must first qualify for a bankruptcy type let that be chapter 7 chapter 13  or chapter 11 and understand all bankruptcy laws.

Chapter 7 Bankruptcy Explained:

Do You Qualify for Chapter 7 Bankruptcy?

A Chapter 7 Bankruptcy can be sought by any individual personally or by a business entity. Other requirements under the October 2005 amendment to bankruptcy law subject applicants to an eligibility process made up of two parts. The first part analyzes the applicant’s income and determines if they are able to pay back 25% of unsecured debt. When making this calculation, essential expenses such as rent are reduced from the total dispensable income. After this first test, the income is compared to the median income for the state in which the debtor resides. If the applicant’s income is higher than the state median or they are found able to pay back 25% of their debt, then they will be denied.

How Does Chapter 7 Bankruptcy Works?

Chapter 7 is essentially asset liquidation. In this process, a court-appointed trustee will try to get as much money as possible to repay your creditors. This will mean having to give up things like cars, boats, savings and whatever liquid assets you may have. Putting something in the safekeeping of a friend or family member is easily traceable and can result in criminal charges. It does not waive student loan debts, child support or court-ordered payments due to damages caused by malicious actions or intoxication. You can only declare bankruptcy once every eight years.

Chapter 7 Bankruptcy  & Your Business Assets:

With a Chapter 7 bankruptcy, a business can expect total liquidation and an overall end to normal business transactions. Everything that can be used to satisfy creditors will be sold off. This can be seen almost everywhere today when court-appointed liquidation companies take over businesses and start liquidation sales. The business can no longer operate under its own name and all proceeds from sales go towards satisfying the creditors. Anyone who has attended one of these sales has probably noticed that nothing is marked very low. This is because creditors want as much of their money back as possible.

Chapter 7 Bankruptcy Pros and Cons:

One of the biggest advantages to seek a Chapter 7 bankruptcy is the “automatic stay.” Once a person or entity files for bankruptcy, creditors cannot seek payment or continue with other debt collection proceedings. They will need to seek permission from the court to do something like foreclose on a home, evict a tenant or reposes objects. Although the bankruptcy will stay on your credit report, all debts that qualify for Chapter 7 relief will be canceled. You will be able to end lawsuits, rebuild your credit and stop license suspensions. A vehicle that was financed at a much higher price than it is currently worth may be forcefully lowered down to its actual value by the court if it is your only mode of transportation. Garnishments will stop during the “automatic stay” and those debts will be reevaluated during your hearing.

Chapter 13 Bankruptcy Explained:

Do You Qualify for Chapter 13 Bankruptcy?

The first and main requirement to file for Chapter 13 bankruptcy is that any individual who files must have a source of income to repay. Even if you are self employed or operate an unincorporated business you will qualify. There are debt limitations on the debt that is accrued though. Unsecured debt such as medical bills and credit cards must be under $360,475.00.Secured debts such as home mortgages and car notes must be less then $1,081,400.00.There must also be no Chapter 13 bankruptcies in the last 2 years or no Chapter 7 bankruptcies in the last 4 years. There can not be any Chapter 13 bankruptcies that have been dismissed by the court within the previous 180 days either. It is required that within 180 days before filing you must receive credit counseling from a court approved credit counselor.

How Does Chapter 13 Bankruptcy Works?

Chapter 13 is a reorganization of your debt while paying back your outstanding debt to creditors. The amount of repayment is based on your income and paid back in either a 3 or 5 year plan. To figure out the length of repayment a state median income is compared to yours. If your income is lower then the median it will be a 3 year plan, and higher it will be a 5 year plan. For the bankruptcy petition you will need to provide a list of all your creditors, properties, monthly expenses and source of income. You are also required to file a repayment plan that lists your current creditors and how much you intend to repay them. Be sure to include all secured debts, and the amount you are delinquent on them. Debts that are considered high priority such as federal taxes, child support or alimony must be paid back in full. The amount of money left over will then go to unsecured debts. Within 180 days a creditors meeting, also known as the 341 Meeting, will be held. If the court agrees with the plan then it will become a legal obligation through an order of the court. After completing the repayment plan any debt left over will be discharged by the court.

Chapter 13 Bankruptcy  & Your Business Assets:

According to Chapter 13 bankruptcy codes no corporation or limited Liability Corporation (LLC) are eligible. It also states that a business owner can not file in the name of a business, they can only file the debts from the business that they are personally responsible for. Only sole proprietors(an individual doing business as) are eligible. But if the circumstances are right there is a way for a “debtor engaged in business” to file Chapter 13.If the owner of the business offers to buy all of the assets of the business, he then becomes responsible for all of the debt. Once that occurs the business is considered a sole proprietorship making it eligible.

Chapter 13 Bankruptcy Pros and Cons:

There are many benefits such as an automatic stay that stops pending lawsuits and foreclosures. The business doesn’t have to be sold to a outside party and Chapter 13 protects both the owner and the business. While Chapter 7 shuts down the business, Chapter 11 liquidates the business, with Chapter 13 you can keep the business open while you are rebuilding.

Chapter 11 Bankruptcy Explained:

Do You Qualify for Chapter 11 Bankruptcy?

Businesses who have financial problems and are overwhelmed with debt may consider filing Chapter 11 bankruptcy. Chapter 11 is also called a reorganization bankruptcy, as it is normally filed by businesses that wish to continue to operate. There is no maximum debt load for Chapter 11, so it is often used by large businesses that have large debts. In order to qualify for Chapter 11 bankruptcy, the debtor must not be in the process of another type of bankruptcy proceeding and must voluntarily file with the court.

How Does Chapter 11 Bankruptcy Works?

Debtors usually file chapter 11 when the potential future earnings of the company are worth more than the individual assets of the company. This allows the business to reorganize, implement a payment plan for debts and continue to operate. The business owner is still in control of the business, becoming a debtor in possession, but must submit to the court the detailed financial status and operations of the business. The larger the business and the more creditors the business has, the more complex this undertaking is. Then the debtor proposes a reorganization plan, and the creditors vote to accept the plan or not. If the plan is not accepted, negotiations will ensue. Larger businesses creditor negotiations can become quite complex and lengthy. During the bankruptcy process, the business is allowed to operate normally, but cannot engage in major transactions such as selling a portion of the business, selling major assets or expanding without approval of the court. If the debtor continues to have problems paying the debts under the reorganization plan, does not comply with the agreement and is unable to operate profitably, then the court may convert the Chapter 11 to Chapter 7, and the business will be closed.

Chapter 11 Bankruptcy  & Your Business Assets:

Business assets may not be affected by Chapter 11 bankruptcy, unless it is required that they be sold in the reorganization plan. Since the business is likely still operating, the assets that are needed to operate will be untouched. However, if there is a large amount of cash on hand, then this may be required under the reorganization plan to repay some creditors. If the debtor is a retail chain, the reorganization may call for certain retail locations to be closed and assets sold to repay certain creditors. If the debtor wishes to sell or acquire a major asset or property, he must have approval of the court to do so.

Chapter 11 Bankruptcy Pros and Cons:

The main benefit of filing Chapter 11 bankruptcy is that the business is normally allowed to operate under the debtor’s ownership. The purpose of Chapter 11 is the reorganization of the company to repay the debts owed and allow the company to eventually become profitable again. The debtor may only have to pay a portion of the total debts owed. However, if the court finds fraud or gross mismanagement of the business has occurred, a trustee may be appointed to operate the business while the bankruptcy is in effect. Another benefit of Chapter 11 is that it allows the debtor to cancel contracts, such as union contracts, real estate contracts, or supplier contracts in order to provide debtor relief.