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Bankruptcy
Bankruptcy is a federal law whose object is to give honest debtors a fresh start, and its provisions are superior to state laws governing the treatment of debtors. When used for the purpose of gaining a real fresh start, it is a powerful tool to help debtors start a new life. Bankruptcy law is also written to protect certain rights of creditors. There are several different kinds of bankruptcy, depending on the type of debtor and the purpose of the particular bankruptcy All bankruptcies have certain things in common, including the automatic stay, which prevents creditors from pursuing debtors after the filing of the bankruptcy petition without permission of the Bankruptcy Court. All persons filing bankruptcy must attend the meeting of creditors (“the 341 hearing”) in which the debtor meets with the Trustee and creditors may, if they wish, question the debtor (creditors very rarely show up, however). In all bankruptcy filings, it is necessary to be honest and complete in the information you give to your attorney and to the Bankruptcy Court. Not all debts in bankruptcy can be discharged. Chapter 7 (Liquidation Bankruptcy) Chapter 7 bankruptcy is for individuals, married couples, corporations and other corporate type business entities, and partnerships. For individuals and married couples, it provides a discharge from most debts, making them unenforceable. Corporations and other corporate type entities such as LLC’s do not get a discharge. Chapter 7 (and all bankruptcies) require the filing of a petition and schedules which give a complete picture of the debtor’s property, the debts sought to be discharged, and the income and expeditures of the debtor. Since October of 2005, when the latest significant statutory amendements were effective, Chapter 7 debtors are required to file additionally a “means test,” unless their debts arose principally from business losses. If the income of the debtor or debtors exceeds a certain level (which increases with the size of the family unit), the debtor or debtors may be forced to file a Chapter 13 bankruptcy, which would require some payment to creditors over a period of 36 to 60 months. A Chapter 7 bankruptcy for individuals provides a discharge from most unsecured debts. Secured debts (for example, mortgages and auto loans) must be paid for if the debtor wants to keep the property. Some debts cannot be discharged, such as recent IRS debts, student loans, alimony, child support and marital property settlement debts. Debtors can keep certain property, including some or all the equity in a homestead, personal property of a value of $1000 or less per debtor (or $5000 per debtor if there is no homestead), and $1000 equity in a motor vehicle for each debtor. Chapter 13 is a reorganization for individuals or married couples and is also called a “wage earner plan.” Chapter 13 can only be filed by individuals or married couples who have regular income and whose unsecured, liquidated and noncontingent debts do not exceed $336,900 and whose secured, liquidated and noncontingent secured debts do not exceed $1,010,050 (these debt limits are adjusted every three years). . The concept of a Chapter 13 is that with the petition for bankruptcy, a debtor also files a plan. Under the plan, unsecured creditors (for example, credit cards) are paid something over 36-60 months and the payments usually amount to much less than you are currently paying. If your home mortgage is in arrears, you can spread out the unpaid back payments over the life of the plan. Your payments to the mortgage company will be the regular mortgage payment plus a fraction of the back payments (for example, in a 60 month plan, the regular mortgage payment would be increased each month by 1/60th of the back due payments). Payments on debts are made to a single person, the Chapter 13 Trustee. This Trustee then remits the payments to the appropriate creditor. The Chapter 13 Trustee also takes a commission (currently 10%) on the payments made through the Trustee. If the plan proposed by the debtor is confirmed by the Court and if the debtor makes the payments promised in the plan, at the end of the plan period the debtor is reinstated in his home mortgage and his unsecured debts are then discharged. If a debtor cannot make his or her payments under the proposed plan, the debtor may choose to dismiss the Chapter 13 (which leaves the debtor as if no bankruptcy had been filed) or convert to a Chapter 7. Chapter 11 is also called “reorganization.” Chapter 11 can be filed by corporations, individuals, or partnerships. Chapter 11 cases are much more complex than Chapter 7 and Chapter 13 cases and much more expensive. In a Chapter 11 case, the debtor ordinarily retains control of his or her business or affairs and is known as a “debtor-in-possession,” but under the oversight of a division of the U.S. Department of Justice called the United States Trustee. The debtor is required to make monthly reports to the United States Trustee and to pay a fee for the U.S. Trustee’s oversight. Chapter 11 debtors must file a plan of reorganization which divides the creditors into classes and in which the debtor tells its creditors how it will restructure its debts to them. The debtor must also file a disclosure statement which tells creditors how the debtor will financially accomplish what it has promised in its plan. The Court must approve the disclosure statement. After Court approval of the disclosure statement, the proposed plan and disclosure statement are sent to all creditors. The creditors then have an opportunity to vote on the plan. If the plan is approved by more than one half of the allowed claims of creditors in each class holding more than two thirds the debt of that class, the plan will be submitted to the Bankruptcy Judge, who may confirm the plan if it meets all the statutory requirements and if it is “feasible,” that is, that he believes the debtor can meet the obligations of the plan. If the plan is confirmed by the Bankruptcy Judge, it becomes the new contract between the debtor and its creditors. If the debtor fulfils the obligations of the confirmed plan, the debtor is discharged from the debts it had before it filed its bankruptcy petition. Chapter 12 is a “family farmer” bankruptcy. Its form is similar to a Chapter 13 and is available to family farmers or fisherman with regular income. Its use in Central Florida is rare. Bankruptcy Fees and Charges and Other Important Information: Talk to your lawyer about what fees, court filing fees charges and extra charges (depending on what is needed) you will be liable for in filing a bankruptcy. Most lawyers demand that all their fees and the filing cost be paid prior to the filing of a Chapter 7 petition. Some lawyers require partial payment before filing a Chapter 13 and then take the rest of their fee through the Chapter 13 plan. The current filing fee for a Chapter 7 is $299 in addition to all fees charged by the lawyer. Many lawyers charge extra fees for work in addtion to the basic petition and supporting documents and the meeting of creditors. Also, individual debtors must take two financial management courses, one within 180 days before filing bankruptcy and one before the bankruptcy is closed. There are several authorized providers for this service and their fees vary from $25 to $50 per course per person. Most providers have facilities for taking their courses on-line, by telephone or in person. Although an individual debtor may file a bankruptcy without an attorney, this is risky and the Clerk of Court , the Trustee and the Bankruptcy Judge cannot give legal advice. Beware the “petition preparers,” who are not lawyers but pretend to be able help you fill out the bankruptcy forms. They are allowed under the law to help a debtor put down what the debtor tells the petition preparer to put on the forms, not to give any sort of legal advice. It is almost impossible to fill out all the required bankruptcy forms without giving some sort of legal advice. There are strict limits on what a petition preparer can charge, but many petition preparers invent extra charges to avoid these limits. Practicing law without a license from the Supreme Court of Florida is a third degree felony under Florida law. You may be asked at the meeting of creditors whether you used a petition preparer, what he or she did for you, and how much you were charged. Also beware anyone who promises to arrange a settlement with your mortgage company, as there are many scams which take the money and property of the distressed homeowner and provide no relief with the
mortgage company.
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