Bankruptcy

Bankruptcy Practice

Bankruptcy law is a major focus of the firm. Chris has handled matters addressing virtually every aspect of bankruptcy law on behalf of debtors and creditors. Chris has successfully represented clients in Chapter 11 bankruptcy cases across a variety of industries and business types, such as real estate, food distribution, manufacturing, shipping/logistics, trucking, medical and dental fields, gas stations, car washes. Many of these cases spawned litigation in bankruptcy court addressing issues such as preferential transfers, lien avoidance and dischargeability of debt issues. We represent debtors and creditors in bankruptcy proceedings.

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Chapter 7

Chapter 7 bankruptcy can be filed by businesses or individuals. Referred as a liquidation bankruptcy, Chapter 7 is typically nothing more than a liquidation of a debtor’s non-exempt assets by a bankruptcy trustee. The trustee reviews the debtor’s schedules and then discusses them during a meeting roughly 30 days after the case is filed. If the trustee determines a debtor has equity in any non-exempt assets (state and federal law provide a list of exemptions every debtor may claim), the trustee will then distribute such equity to the debtor’s creditors. The vast majority of chapter 7 cases are “no-asset” cases that do not involve a debtor losing assets to a trustee. At the end of the case, assets from the bankruptcy estate are abandoned back to the debtor and the debtor obtains a discharge of personal liability on his/her debts. An individual Chapter 7 debtor is allowed to keep certain assets that are defined as exempt under applicable state or federal law, and still receive a full discharge of debts.

For businesses, Chapter 7 is typically used as a means to effect and orderly and efficient wind-up a failed business’s affairs in a timely and cost-effective manner. This is a particularly attractive option if state court lawsuits are threatened or pending. Once a Chapter 7 bankruptcy case is filed, an automatic stay goes into effect that prohibits any creditor from taking any further action to collect a debt owed by the debtor. All actions related to any debt owed by the debtor must be pursued in the bankruptcy court.

Chapter 13

Chapter 13 is available to individuals. It is known as the “wage earner” bankruptcy as it’s geared towards debtors with regular income to fund a plan.  Chapter 13 is often pursued by individuals whose home is in foreclosure because Chapter 13 allows the debtor to cure mortgage arrears over time (up to 60 months) with protection of the automatic stay preventing foreclosure (stay may terminate if payments are not made). To do that, a chapter 13 plan must be confirmed by the bankruptcy court, and once confirmed, it will serve as an overriding agreement between the debtor and its creditors. 

 

Chapter 13 also helps people who are deeply in debt with credit cards, medical bills and other unsecured debt. Under a 

Chapter 13 plan, the Debtor can wipe out significant credit card debts by making one monthly through the Chapter 13 trustee calculated by determining your disposable income (income, less payments for secured and priority claims). Given the Bankruptcy Code’s definition of disposable income that must be contributed to unsecured creditors under the plan, a Chapter 13 bankruptcy often allows individuals to discharge their credit card debt for pennies on the dollar. Chapter 13 can be complicated as it involves interpretation of the Bankruptcy Code and various rules of bankruptcy procedure. The success rates for unrepresented Chapter 13 debtors is extremely low.

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Chapter 11

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Chapter 11 reorganization cases can be filed by businesses and individuals and involve the debtor creating a Chapter 11 plan that, if confirmed by the bankruptcy court, becomes a legally binding agreement among the debtor and the creditors as to how the debtor’s debt will be repaid. Chapter 11 cases are more often filed by businesses than individuals and, in either case, determining the advisability and feasibility of filing Chapter 11 involves a complex analysis.

Chapter 11 is often used by individuals whose debts exceed the chapter 13 debt limits and wish to keep properties from foreclosure or “cram down” mortgage balances to their properties are no longer “underwater”.  Chapter 11 is also commonly used to liquidate assets and other property on the debtor’s terms, and in an orderly, timely manner to achieve fair market value (as opposed to fire-sale prices at a foreclosure action). A chapter 11 debtor manages its assets and operates its affairs, much like it did prior to bankruptcy, but with the oversight of the bankruptcy court.

 

The Bankruptcy Code recently added Subchapter V to Chapter 11, making small business debtor bankruptcy more streamlined and cost-effective than a traditional Chapter 11 bankruptcy.

For details on the new Subchapter V small business bankruptcy, read here.