Quick Guide to Navigating the Bankruptcy Code [2019]

Whether you are contemplating filing bankruptcy yourself, or know someone who is considering that option, this concise rundown will help you understand the different options within the bankruptcy code and empower you, or your friend or family member make the most informed decision to achieve financial security. If you are contemplating bankruptcy for yourself, contact an experienced bankruptcy attorney and schedule a free consultation so that you can discuss your options.

One Code, Coast to Coast

As established by the United States Constitution, the power to set bankruptcy laws rests exclusively with Congress. As a result, there is one national bankruptcy code that applies in all 50 states. 

A lot of what the general public knows about bankruptcy comes from consumer debt and common remedies, like filing Chapter 7, when someone can’t pay their bills or is about to lose their house. This term, as well as Chapter 13 and Chapter 11, describes the most common options available in the bankruptcy code.

The bankruptcy code is a lot more robust than most people realize. In its modern form, bankruptcy is designed to protect both debtors and creditors. Bankruptcy can be filed by individuals or couples whose personal finances are in a downward spiral. It can also be filed by business corporations, charities, and even public institutions and government entities that are unable to meet their financial obligations.

Chapter 7: Asset Liquidation

Chapter 7 is the most frequently sought bankruptcy protection, both by individuals and by corporations. This kind of bankruptcy is described as asset liquidation. An estate is created, and a neutral trustee is appointed to oversee the sale and distribution of a debtor’s non-exempt assets. 

To qualify for Chapter 7 bankruptcy, one must pass the means test which calculates whether the debtor earns too much to qualify to file Chapter 7. If a debtor’s income is above the median for their state and family size, there are some special circumstances where Chapter 7 can still apply, or they may choose to file for Chapter 13 bankruptcy and partially repay their unsecured debt.

Disabled soldiers, sailors, marines, and airmen can file for Chapter 7 even if their disposable income is well above the media. There are only two conditions for this special relief: the veteran must be at least 30% disabled from a service-connected injury, and more than half of their debt must have been incurred while they were on active duty.

Chapter 11: Restructuring Debt 

Chapter 11 is designed for businesses and high-income individuals who need bankruptcy protection. This bankruptcy chapter is tailored to complex financial holdings, such as multiple mortgaged properties or a publicly-traded company with extensive obligations to creditors, bond-holders, and shareholders  

For companies, filing Chapter 11 allows them to continue operating and attempt a corporate restructuring to save the business. Even if this plan fails, the shareholders and creditors usually receive more out of a confirmed Chapter 11 plan than they would if the company simply ceased operations and liquidated its assets. And many companies have been able, through belt-tightening and restructuring, to survive Chapter 11 and emerge as profitable and stable, a win for the company and its creditors.

Chapter 11 cases by private citizens only constitute a small percentage of all bankruptcies filed. When private filers seek Chapter 11 protection, it usually represents an attempt to renegotiate the mortgages on multiple properties, or a single, extremely valuable property whose worth exceeds the upper limits of a Chapter 13 filing. Chapter 11 cases require all creditors to confirm an equitable restructuring. Many lenders are willing to agree to renegotiate the balance of a property loan into a 30-year mortgage if it means the debtor won’t default. This is especially true in a weak housing market.

Chapter 13: A Partial Payment Plan

Chapter 13 bankruptcies are the second most common form of bankruptcy relief in the United States. Chapter 13 is not a liquidation action, but rather a partial repayment plan. It is most commonly used by individuals with a steady income who need time to cure arrears in a mortgage or car loan. 

To qualify for this Chapter 13 you must have enough income to continue paying your priority debts (such as taxes and child support) and for any secured assets you wish to keep (like a car or a house). You must also have enough income to meet basic support obligations, like food, medical insurance, and childcare. Any remaining disposable income is used to pay your monthly Chapter 13 plan payment to the Trustee. This will cure arrears and partially pay your unsecured debt.

If you successfully make all plan payments for a period of 36 to 60 months, your outstanding debts will be discharged and you will come current with your car loan or mortgage.

Rare and Obscure Forms of Bankruptcy: Chapters 9, 12, and 15

Chapter 9: When Towns and Schools Go Bankrupt

Chapter 9 is an incredibly obscure part of the bankruptcy code. The modern American bankruptcy codes were first enacted in the 1890s. Since then, this chapter has mainly been a hypothetical, and in most states, no municipality has ever tried to request protection under the statute.

When cities have attempted to file bankruptcy, their cases have become national scandals, mired in allegations of mismanagement and betrayal of city employees whose pensions and benefits are at risk in such an action. Detroit’s 2013 filing was one of the most dramatic bankruptcies in modern history; Detroit’s art museum was nearly forced to liquidate its priceless collection, and retired city employees had to accept pension cuts and cost-of-living freezes. 

Chapter 12 – Family Farmers and Fishermen

Yes, farmers and fishermen have their own chapter of the bankruptcy code. Under the Bankruptcy Code, family farmers or fishermen are individuals who earn more than half of their annual gross income from farming or commercial fishing. 

A Chapter 12 bankruptcy is similar to a Chapter 11 restructuring. It simply offers more protections to boats, farm equipment, and farmland so that family-owned farms and fishing boats can continue to operate during their bankruptcy. These protections are available to family farms only, not commercial operations, and the debt in question has to come from the operation of the farm or fishing boat.

Chapter 15 – International companies

This section of the bankruptcy code touches on international law. When a foreign company seeks bankruptcy protection, tradition and international law (specifically, the  United Nations Commission on International Trade Law’s Model Law of Cross-Border Insolvency) allow it to seek bankruptcy protection in any other nation where they have business assets. Chapter 15 regulates these requests. 

Chapter 15 was recently invoked by Alitalia, Italy’s flag carrier. While the Italian government approved a massive bailout for the airline, it was at risk of losing its lease on a terminal at JFK International Airport. By filing under Chapter 15, the airline was able to keep operating flights from New York until the bailout was complete.

Tackling the Bankruptcy Code 

You now have a basic understanding of what bankruptcy options are available and how they are implemented. With this new knowledge, you can more confidently navigate the process, or help another to do so. Remember to contact an attorney for a free consultation – especially now after you have learned a bit about how bankruptcy works.

Veronica Baxter is a writer, blogger, and legal assistant operating out of the greater Philadelphia area.

6 months ago Bankruptcy Law No comment

Bankruptcy 101: What Are the Pros and Cons of Filing Bankruptcy?

Recent reports have suggested that as many as 20 million Americans could benefit from filing for bankruptcy. But despite this, only about 500,000 people do it every year.

Are you thinking about filing for bankruptcy right now? Before you do it, you should consider the pros and cons of filing bankruptcy to see if it’s really right for you.

Let’s take a closer look at some of these pros and cons to find out if bankruptcy would be the best option for you based on your current financial situation.

Pro: Gets Creditors Off Your Case Almost Immediately

Do you have creditors calling you almost every day and sending you letters in an effort to collect on a debt that you owe? This can take a huge toll on you and make it difficult for you to go about your normal business.

Once you find out how to file bankruptcy, this won’t be an issue anymore. You’ll notice that the collection calls will stop almost right away once you’ve filed for bankruptcy. This is because most, if not all, of your debts will be discharged once you file.

This can give you some sense of hope for the future. It can also eliminate a lot of the stress you feel at the moment as a result of your financial issues.

Con: Doesn’t Cover Every Kind of Debt

Some people are under the impression that bankruptcy will wipe away all of their debt. But there are certain types of debt that will stick around even after you file for bankruptcy.

Some of the debt that will linger includes:

• Debts owed to the IRS
• Student loan debts
• Mortgage-related debts

A good bankruptcy lawyer can break down which types of debt will stick around after you file bankruptcy and advise you on whether or not bankruptcy would make sense for you.

Pro: Allows You to Rebuild Your Credit Over Time

If you’re able to discharge some of the debts you owe, it’ll put you in a better position to rebuild your credit over the years. You can put yourself back on the right track by eliminating debts that will be impossible to conquer.

Although bankruptcy will knock your credit score way down, there’s a good chance that your debt has already done a number on it. By knocking it down a little further and getting rid of debt at the same time, you can start the rebuilding process.

Con: Makes It Difficult to Get Loans in the Short Term

Bankruptcy will stay on your credit report for anywhere from 7 to 10 years. That means that, for the next decade or so, it’s going to be very hard to get a mortgage, a car loan, or even a credit card.

Of all the pros and cons of filing bankruptcy, this is probably the one you should spend the most time thinking about. You need to be mentally prepared to live without credit for up to a decade once your bankruptcy goes through.

Weigh the Pros and Cons of Filing Bankruptcy Before Making a Decision

Does bankruptcy sound like it might be a good move for you?

As long as you’ve weighed the pros and cons of filing bankruptcy, you should pursue it further. Talk to a lawyer about the process of filing for bankruptcy and all that it entails.

Read our blog for tips on finding the right lawyer to help you along the way with bankruptcy.

6 months ago Bankruptcy Law No comment

Banks Can Freeze Your Accounts in Bankruptcy

Normally, when someone files for Chapter 7, all of the funds left in their personal accounts can be protected by bankruptcy exemptions. This is a function of bankruptcy protection, which is meant to equitably satisfy creditors without taking the shirt of a debtor’s back. There is just one loophole to this protection: the right of offset.

Many people are under the mistaken impression that once they file bankruptcy, their assets are completely safe from further collection efforts. Bankruptcy protections do include a stay of further collections. This protection has the power of a court order. It can prevent repossession of a vehicle, take a home scheduled for sheriff’s sale off the auction block, or even freeze a divorce proceeding. There is one entity that the stay of collections can’t block: banks.

Chapter 5 Bankruptcy

Under Chapter 5 of the Federal Bankruptcy Code, banks and other lenders have a right of offset–that means they can freeze assets sufficient to satisfy any outstanding debts to that institution by the holder of the account. People who try to file bankruptcy on their own often fall into this trap and lose access to their funds shortly after filing, but no bankruptcy lawyer would allow his client to make this mistake.

There is a simple way to avoid the issue of offset: create a checking account at an institution to which you don’t owe money, and transfer what’s left in your checking account there. As long as this account is included in your bankruptcy estate, there is nothing fraudulent about such a transfer.

Money frozen under the right of offset is unlikely to be unfrozen in any reasonable amount of time. If your bankruptcy was planned poorly, or if you tried to file bankruptcy without the help of an attorney, this can leave you with no access to any of your bank accounts. 

Under offset, banks can freeze some or all of your assets in their institution. Most banks will only freeze funds up to the value you owe Some banks will freeze more, and Wells Fargo (formerly Wachovia) has a policy of freezing all assets of a bankrupt customer until the bankruptcy trustee takes control of the funds.

Offset in Action

You Owe Money to the Bank that Holds Your Checking or Savings Accounts

Let’s look at the case of “John Smith”, a middle-aged man filing bankruptcy. John keeps his checking and savings accounts at PNC, with $1,000 between the two. 

John also has a personal loan through PNC for $3,000 that he thought would help him pay off his debt; instead, he has fallen behind on that payment too.

When you owe money to a bank at the time your bankruptcy is filed, they can treat the debt as a lien against their client’s checking or savings account. They can apply the frozen money to whatever fines, fees, or debts you owe them. This right is an exception to both your automatic stay and your federal exemptions. Even if John claimed that money in his bankruptcy filing under a wildcard exemption, the bank’s lien has priority; he is unlikely to see that money again.

If PNC asserts their right of offset, they could freeze all of John’s remaining money to protect their interest in his loan.  However, if John had more money in his accounts than he owed to the bank, they would only freeze his funds up to his liability with the bank. Say the situation was reversed; John had $3,000 total at PNC but owed the bank $1,000. They would freeze $1,000, leaving John without 2/3rd of his remaining assets. 

To prevent losing money to the right of offset, you should transfer funds out of any bank to which you owe a debt before filing bankruptcy. You should also cancel any direct deposit you have set up, such as work or school reimbursement, or risk losing it to the bank.

You’re an Authorized User on Another Account

By filing bankruptcy, you can cause other people’s accounts to be frozen. This happens when you are an authorized user on another person’s account and owe money to their bank. Even if you have never deposited into that account, banks might freeze any accounts you are authorized on as a precautionary measure. They will wait for the trustee to decide who’s money is who’s and if they are entitled to claim any funds in the account under the right of offset.

If you ever deposited funds into that account, the situation could get even uglier. The bank will likely claim the right of offset and attempt to freeze what you owe from that authorized account. Sorting that kind of situation with your bank and trustee could become a lengthy and expensive process. In the meanwhile, someone who trusted you enough to give you access to their bank account now has no access to their money and might be struggling to pay their mortgage or certain medical bills.

The Sign of the Stagecoach

If you bank with Wells Fargo, your accounts will be frozen after filing bankruptcy. It’s a corporate policy. You don’t have to owe a single dime to Wells Fargo. Their official corporate position is that they have a legal duty to protect the assets until a bankruptcy trustee can decide what belongs to who. It’s an unusual reading of the laws, and Wells Fargo is the only American bank to assert a perceived “duty” to freeze the accounts of clients who file for bankruptcy. They call it an administrative freeze. 

Citizens bank originally used this tactic in the 1990s as a way to force bankrupt clients to pay as much of their debt to the bank as possible. In a case which eventually landed before the Supreme Court, Citizens Bank argued that the right of offset entitled them to $3,500 from the accounts of a man who had fallen behind on a $5,000 loan. He initially argued that the funds were protected under the rules of the automatic stay; Citizens retorted that they were not collecting the money (yet), just placing it in administrative hold until the bankruptcy concluded and they could claim the right of offset. Thus it was not a collection action, and not prohibited under the law. The Supreme Court agreed.

Wells Fargo uses this reasoning and takes it even further; if the bank can administratively freeze a portion of an account without invoking the right of offset, they can freeze the entire account until the trustee decides who has a right to the funds. At a purely legal level, this does make it easier for bankruptcy trustees and eliminates the possibility of fraud. On a practical level, Wells Fargo is just punishing customers for filing, as the vast majority of people seeking Chapter 7 do not have funds exceeding the federal bankruptcy exemptions.

Armed With Knowledge

You now have a decent grasp of how banks can seize your money during a bankruptcy proceeding. Talk to an experienced bankruptcy attorney to devise the best defense against the banks that are holding your savings.

Veronica Baxter is a legal assistant and freelance writer located in Southern New Jersey.

7 months ago Bankruptcy Law No comment

Filing for Bankruptcy in Court

It is important that while you are on the verge of falling bankrupt, you also know what kind of filing you are dealing inside the courts, as to how your bankruptcy lawyers (in Ontario CA/ https://lglawoffices.com/bankruptcy ) dwell on the matter in the court.

According to Stroock & Stroock & Lavan LLP (2010), in their Stroock: A Guide to Bankruptcy Law in the United States, there is this part in bankruptcy filing wherein debtors or applicants must identify the type of filing they are giving the courts, and there are two (2) types: 

1. Voluntary Filing

 According to the abovementioned authors, “A voluntary bankruptcy case is commenced when the debtor files a petition under the particular Chapter of the Bankruptcy Code under which it wishes to proceed. The filing of the petition bring about the stay that is automatic (and constitutes the order for relief under the Chapter under which the petition is filed(11 U.S.C. §§ 301, 362(a)).The entry of such order for relief, however, is not a binding determination of either a debtor’s eligibility to be a debtor under the Bankruptcy Code or any other substantive matter.”

2. Involuntary Filing

 For the second type of bankruptcy filing in the court, it is the Bankruptcy Case that is involuntary, which according to Stroock, et.al, “may be commenced only under Chapter 11 or 7 and only against a person that is eligible to be a borrower covered by the selected Chapter, unless the person is a farmer or a corporation that is not a business or commercial corporation. If a borrower has more than twelve creditors, an involuntary case begins  by filing a petition by more than three bodies holding undisputed and non-contingent allegation against the debtor, provided that such claims agglomerate $14,425 which is higher than the value of any lienor property of the borrower that secures such claims. If a borrower has less than twelve creditors which excludes employees, however, the petition that is not voluntary  can be brought by more than one body holding undisputed and non-contingent allegations contrary the debtor as long as such claims agglomerate $14,425 higher than the cost of the collateral. (11 U.S.C. § 303(b). The automatic stay can be triggered by the filling of a petition that is involuntary (discussed below in Chapter V.C.).11 U.S.C. § 362(a).”

Finally, we recommend that you check out the book made by the author mentioned in  order to extract the full details with regard Bankruptcy cases. Additionally, it is a must for any client with similar concerns as in this article to be assisted by an expert and effective lawyer from your place, or just like the LG Law Firm that has records of wins in bankruptcy cases. At the very least, this article only aims to give you a glimpse of how bankruptcy procedural cases works, for basic educational purposes.

7 months ago Bankruptcy Law No comment

A Multitude of Losses: Is this what Bankruptcy offers us?

“Bankruptcy is synonymous to financial losses…and that is a fact!” A very disdaining thought that many people perceive about the term bankruptcy, unless given the right supplemental thought that ‘Filing for Bankruptcy’ only with additional two pre-words, makes the concept a whole lot positive than the former one. Does bankruptcy or filing for one, results to one’s losses? In this article, we would like to present the different types of bankruptcy, and finally, give the general thought of every kind to the one filing it.

According to the book with the title, The Bankruptcy Book: The Truth About Ending Your Bill Problems And Getting Back The Good Credit You Deserve, written by Christopher McAvoy in 2010, he highlighted the types of bankruptcy commonly used in the United States, they are the following:

• Chapter 7, also known as straight bankruptcy. This is the fastest, easiest, and least expensive kind of bankruptcy.

• Chapter 11 reorganization is used primarily by businesses but also by people with substantial debts and assets.

• Chapter 12, which is used solely by family farmers as a way to reorganize their finances.

• Chapter 13 is the personal version of Chapter 11. Individuals with a regular source of income can put together a payment plan in exchange for keeping all of their property. It’s used heavily by people who are looking to save a home from foreclosure or a car from repossession.

Plus two (2) types of reorganization bankruptcy:

 Chapter 11 bankruptcy can be filed by businesses who are struggling financially to restructure their affairs. It is also applicable to individuals. However, Chapter 11 bankruptcy is costly and it consumes so much time, it is commonly filed only by those people or businesses whose credit exceeds the limitation of Chapter 13 bankruptcy or who own considerable assets that are non-exempt such as some real estate properties. If you are considering Chapter 11 bankruptcy, you will need an assistance of a lawyer.

 Chapter 12 bankruptcy  is almost the same with Chapter 13 bankruptcy. But the difference is that, to be qualified  for Chapter 12 bankruptcy, it should be minimum of 80% of your debts must appear from the operation of a farm owned by a family. Chapter 12 bankruptcy has higher debt margin to cater the extensive debts that may come with farm operation, and it offers the borrower more control to terminate several types of charges. Only few people use Chapter 12 bankruptcy; you will need an assistance of a lawyer to file Chapter 12 bankruptcy..”

 If you have read the claims of Mr. McAvoy, you will notice that these types of bankruptcy have commonality, that is, to solve one’s financial dilemma or debts, and lessen the burden on the debtor/in-debted person.

 Now, do you still believe that bankruptcy causes a multitude of losses? It is all about the mind-setting that one must impose in him/herself, for a better result/s. Nevertheless, one must also be assisted by a great mentor or bankruptcy lawyer such as the KT Bankruptcy Lawyer which caters the Best Bankruptcy Attorney in Irvine, or other law firms that has records of winnings in bankruptcy cases.

8 months ago Bankruptcy Law No comment

What to Know When Filing for Bankruptcy

No matter how prepared you may think you are, bankruptcy can still impact your business, family, and personal life. While it is a stressful and intimidating procedure to go through, it is better to look at it as a necessary step towards moving on from financial trouble. It’s will protect you in the long run. 

If you have found yourself faced with a possible bankruptcy and are looking for some clear answers, here’s everything you need to know so you can move forward:

Hire a Lawyer

This is the most important tip we can provide you with and is one that we highly recommend you follow.

Handling a personal bankruptcy is incredibly stressful and nearly impossible to battle all alone. Despite the costs, bringing on legal help will ultimately give you a much better outcome than if you were to proceed alone.

During the bankruptcy process, your financial scenario is very vulnerable. When you hire a bankruptcy lawyer, you’re fostering a relationship with some that has experience dealing with your exact situation. They are prepared to commit to your unique situation and help you every step of the way.

Logistics

Once you have hired on help, you need to establish who will be handling what. During the bankruptcy process, there are many loose ends that need to be tied up, and lucky for you, some law offices will take all matters into their own hands.

With that being said, ensure that you are part of the process and know how and when things are being completed. Don’t hand your legal matters over and then think you can kick back and relax. You want to make sure your finances are cared for.

Amount You Currently Owe

While the legal help you hire will be able to aid in this process, you will need to compile a definitive amount of what you owe and how far your debt extends.

When you are researching this amount, you must ensure to include all lines of credit that you have and the amount that has accumulated on each line. You must have documentation to prove these numbers and to use throughout the entire process.

Another tip regarding your lines of credit: We recommend that you contact each company that you are a part of to ensure that the credited amounts are correct and accounted for.

Additionally, some companies will offer a little leeway in certain circumstances. If you reach out to a credit company, and they see that you are faced with bankruptcy, there is a chance that they will offer forgiveness and excuse whatever amounts you may have owed.

While this happening is relatively rare, it is worth it to take the time and contact the companies from each line of credit under your name.

Length of Time

The biggest issue when facing a personal bankruptcy is understanding that it will impact you for years to come. Again, hiring on legal help early on is your best bet in having as smooth a process as possible.

When filing for bankruptcy, ensure that you know how long the report is going to affect your credit. It will likely be at least a few years before the bankruptcy can drop off of your name, so be prepared to take the time to rebuild your credit under different circumstances.

Additionally, bankruptcy will almost always impact your ability to go through with large purchases. Understand that buying a house, car, or any other large investment may prove to be incredibly difficult during this time.

It is not impossible to recover quickly, though it usually takes years to rebuild your credibility in the eyes of most banks and credit companies.

Overall, bankruptcies are not ideal. That being said, there are many circumstances in which they become necessary. If you find yourself facing bankruptcy, we highly recommend that you hire expert help to guide you through the process. You don’t have to go through this stressful and exhausting experience the right guidance.

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