August 21, 2017

Should I Wait to File Bankruptcy Until After I Receive My Tax Refund?

This article is posted in a strange part of the year (August), but this question comes up usually starting around October:  “Should I wait to file bankruptcy until after I receive my tax refund?” Or a variation of this question: “If I file bankruptcy right now, will I lose a portion of my 2014 tax refund?”   [Read more…]

The Many Chapters of Bankruptcy

As a consumer bankruptcy attorney, I limit my practice to chapter 7 bankruptcy and chapter 13 bankruptcy filings.  Most individuals and small businesses fall into either one of these two types of bankruptcies.  But there are many other chapters of bankruptcy beyond just a chapter 7 bankruptcy and a chapter 13 bankruptcy.  This article discusses chapter 7 and chapter 13 bankruptcy along with the lesser known chapters of bankruptcy, and when and why these chapters may be appropriate.

Chapter 7 Bankruptcy: A chapter 7 bankruptcy is the most common bankruptcy for consumers.  Also known as a liquidation bankruptcy, chapter 7 eliminates most, if not all, consumer debts.  The time frame, from start to end, is usually about 90 days.  When people think about bankruptcy, they usually think of chapter 7.

Chapter 9 Bankruptcy: A chapter 9 bankruptcy is a bankruptcy specifically tailored for government municipalities to reorganize debt.  For example, both Stockton, California, and Detroit, Michigan are currently in chapter 9 bankruptcy proceedings.

Chapter 11 Bankruptcy:  A chapter 11 bankruptcy usually applies to businesses and is used as a restructuring tool.  A few of the major car manufactures have entered into a chapter 11 bankruptcy, and have come-out of the process as a restructured company (such as Chrysler); however, other companies have attempted a chapter 11 restructuring, but failed, and ultimately converted to a chapter 7 bankruptcy (Hostess, for example).

Chapter 12 Bankruptcy: A chapter 12 bankruptcy is exclusively available to family farmers and fishermen.  This form of bankruptcy is similar in substance and procedure to a chapter 13 bankruptcy.

Chapter 13 Bankruptcy:  A chapter 13 bankruptcy is the second most common type of bankruptcy, following chapter 7.  A chapter 13 bankruptcy allows for the restructuring of a consumers debt over 3-5 years, where the consumer makes monthly payments to the plan for the benefit of creditors.  Often, a chapter 13 bankruptcy is used to stop a foreclosure and catch up on mortgage arrears, pay down tax debt and domestic support obligations, cram down vehicle loans in terms of a principal reduction of loan amount and interest rate,avoid second liens on properties (in some instances) such as home equity lines of credit, and so on.  In some instances, a consumer may not be eligible to file for a chapter 7 bankruptcy due to high income or a prior chapter 7 bankruptcy filing, and therefore must file a chapter 13 bankruptcy instead.

Chapter 15 Bankruptcy: A chapter 15 bankruptcy is designed for ancillary or cross-border claims; this includes debtors, assets, and claimants involving multiple countries.

Chapter 7 bankruptcy and chapter 13 bankruptcy are the most well-known of the bankruptcy chapters in the United States.  However, there are other chapters available for a debtor (individual, business, municipality), provided the right circumstances exist.

If you are interested in learning more about bankruptcy and how it may benefit your financial situation, please call today for a free in-office bankruptcy consultation in Eugene.

Chapter 7 Bankruptcy: Voluntary vs. Involuntary

When it comes to a chapter 7 bankruptcy, there are two options available: 1.) it can be filed voluntarily by the debtor; or, 2) it can be filed by a debtor’s creditors, thereby resulting in an involuntary bankruptcy.  This post discusses both voluntary and involuntary bankruptcies, and when involuntary bankruptcies may occur (which is rare).

The vast majority of chapter 7 bankruptcy cases are voluntarily filed; a person has decided that he or she wants to file bankruptcy, and does so.  However, there is a second, yet very uncommon type, of filing: an involuntary chapter 7 bankruptcy.  Involuntary bankruptcy filings usually involve a business as the debtor.  In the common situation, the business owes creditors money and has defaulted on contracts with the creditors.  The creditors are having difficulty getting paid or pursuing the business’s assets.  Faced with the difficulty of recovery, some creditors may file an involuntary bankruptcy for the business.  This is particularly true if the creditors know the business can repay or liquidate assets to pay its debts, but refuses to do so.    It is extremely rare that creditors would file an involuntary bankruptcy for an individual, though.

Once the creditor files a bankruptcy petition “for” the business, the business will receive notice of the bankruptcy filing.  The business will then have 20 days to respond.  If the business does not respond, the bankruptcy court will allow the bankruptcy to proceed.  But if the business does respond, there will be a hearing before a bankruptcy judge to determine whether the petition was filed in good faith and if the business has failed to pay its debts.  If the court determines that the bankruptcy petition was indeed filed in good faith and that the business is refusing to pay its creditors, the chapter 7 bankruptcy proceeding will continue. If the judge, however, rules for the business, the bankruptcy case will be dismissed and the business may be entitled to any damages as a result of the involuntary bankruptcy filing.

If the bankruptcy moves forward, however, a Chapter 7 Trustee will be appointed to administer the bankruptcy estate for the business.   The Chapter 7 Trustee will be in a position to liquidate the assets of the business in order to pay some (if not all) of the debt owed to the creditors.  Such assets would include, but are not limited to, accounts receivables, investments, inventory, goodwill (selling the business name), tools, intangible property such as copyrights, patents, and other various assets.   As a result of a chapter 7 bankruptcy, creditors may be in a better position to be paid on contract; however, such a maneuver should be saved only for the most extreme cases.  Therefore, involuntary chapter 7 bankruptcies are extremely uncommon for business debtors, and even more uncommon for individuals.

 

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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