1 / 70

Basic Bankruptcy

Basic Bankruptcy. Is filing bankruptcy the best solution? If so, Chapter 7 or Chapter 13? When should case be filed? Pre-bankruptcy planning How to file a case. How a bankruptcy affects other cases. Purposes of Bankruptcy Code. Fresh start For the honest but unfortunate debtor

Ava
Download Presentation

Basic Bankruptcy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Basic Bankruptcy • Is filing bankruptcy the best solution? • If so, Chapter 7 or Chapter 13? • When should case be filed? • Pre-bankruptcy planning • How to file a case. • How a bankruptcy affects other cases

  2. Purposes of Bankruptcy Code • Fresh start • For the honest but unfortunate debtor • Who can’t afford to pay debts – see “means test” • Reorganization (Chapters 11, 12, 13) • Plan to pay at least some debts • Individual debtor retains property • Business can continued to operate and save jobs

  3. Bankruptcy is for Creditors Too • Promotes fairness among creditors • Equal treatment of similarly situated creditors • Discourages race to the court house

  4. Key concepts • Automatic Stay • Protects debtor • Protects property of the estate • Property of the bankruptcy estate • Broad definition– all property rights & interests • Discharge • Injunction against collection of debts • Some debts may not be discharged

  5. Property of the estate All legal or equitable interests of the debtor • Wherever located and by whomever held • Whether listed on bankruptcy schedules or not • Equitable vs. legal interest • If debtor has equitable interest but not legal title, this is property of the estate • Exception – does not include defined benefit pensions and spendthrift trusts

  6. Exempt property • Debtor keeps exempt property • Property must be listed and claimed as exempt • Illinois has opted out of federal exemptions • Debtor can claim • Illinois exemptions • Non bankruptcy federal exemptions

  7. Illinois exemptions735 ILCS 5/12-1001 & 12-1006 • Necessary clothing • Child support reasonably necessary • In practice, 100% • Retirement plans or accounts – unlimited • Social security & public assistance • Includes earned income credit • Principal residence owned in tenancy by the entireties is exempt from unsecured debts owed only by one spouse • Except child support owed to former spouse?

  8. Illinois Exemptions735 ILCS 5/12-901 & 5/12-1001 • Homestead - $15,000 one; $30,000 two or more • Wild card any personal property - $4,000 • One motor vehicle - $2,400 • Can stack unused wild card onto motor vehicle exemption

  9. Exemption issuesLimits on exemptions • Will not stop mortgage foreclosure • Purchase money security interests • Debts for child support or alimony • Non purchase money security interests • Can avoid liens on household goods, tools of the trade • Special rules if lived out-of-state in last 2 years

  10. Discharge of debts • Purpose – fresh start for debtor • Discharge is injunction against collection attempts • Remedy for violation is contempt • Can only get Chapter 7 discharges once every 8 years; Chapter 13 discussed later • Doesn’t cover post-petition debts • Must complete debtor education

  11. DischargeFresh start • Utility service • Cannot be denied because of dischargeable debt • Must pay deposit but not old bill • If stolen service, Chapter 13 • Drivers license • Restored if suspended for nonpayment of tort debt • No discrimination by governmental units or employers

  12. DischargeExceptions to discharge • Some debts are never discharged • Creditor can collect once automatic stay ends, does not need express permission from court • Debts which are discharged unless creditor takes timely action in bankruptcy court • Student loans are only discharged if debtor proves undue hardship in bankruptcy court • Alternatives – loan consolidation, deferrals

  13. DischargeDebts that are never discharged • Child support and alimony • Criminal fines and restitution orders • Drunk driving resulting in personal injury • Trust fund taxes

  14. DischargeDebts that may be discharged • Income taxes ~ > 3 years, 3 months & 15 days old, return filed • Debts where creditor fails to timely object • Fraud • Theft, embezzlement, breach of fiduciary duty • Willful and malicious injury

  15. DischargeChapter 13 - enhanced discharge • Chapter 13 need not pay 100% of unsecured debts • Successful Chapter 13 discharges a few debts which would not be discharged in Chapter 7 • Civil fines • Debts incurred to pay taxes • Property settlements and division of debts arising out of divorce

  16. Discharge and secured debtOnly personal liability is discharged • Personal liability on a debt is discharged • Non filing co-obligors are still liable • But valid liens on property survive • Debtor not liable for any deficiency after repossession or foreclosure

  17. Serial filings – waiting periods for getting another discharge • Filing a Chapter 7 now, must wait • 8 years since previous Chapter 7 • 6 years since previous Chapter 13 • Previous Chapter 13 with 70-100% payment • Filing Chapter 13 now, no discharge if • Chapter 7 within 4 years • Chapter 13 within 2 years • Measured from filing date to filing date

  18. Repeat filingsCan file even if no discharge • Can file even if debtor would not be eligible for discharge • Chapter 13 filed within 4 years of Chapter 7 • Not eligible for discharge but • Can save property • by catching up on mortgage • or by paying secured debt in full

  19. Automatic StayAutomatic nature • Filing petition invokes stay • Exception if this is 3rd case pending during last 12 months • No court order is necessary • Actions in violation of stay are void

  20. Automatic StayBroad scope • Applies to acts against debtor • Lawsuits & other action to collect debts • Applies if debt nondischargeable unless DSO • Applies to acts against property • to recover property for pre-petition debts • to recover property of bankruptcy estate

  21. Extension of time • Trustee has up to 60 days to take action if the time for such action had not expired when the case was filed. 11 USC §108(b) • This can be used to get more time to redeem property taxes • Debtor may get more time by filing Chapter 13.

  22. Automatic StayNotable exceptions • Criminal and regulatory • Domestic relations (almost everything) • Establishing paternity • Establishing or modifying alimony or support • Collecting alimony or child support • Stay does apply to division of property • Post-petition debts

  23. Automatic StayRelief from automatic stay • Grounds • No adequate protection of creditor’s interest • Debtor has no equity in property AND not needed for effective reorganization • Other “cause” • Examples • Recover car which is not insured • Foreclose when debtor not making payments

  24. Repeat filingsLimits on automatic stay • If case filed within 1 year after previous case dismissed, stay expires after 30 days • Stay can be extended by court. • Motion must be filed and granted within 30 days. Must show clear and convincing evidence of changed circumstances. Stay may still apply to property of the estate • If 2 dismissals in previous year, no automatic stay • Must file motion to impose stay

  25. Automatic StayExpiration • When discharge granted (or denied) • When case dismissed or closed

  26. Sources of law – jurisdiction, venue & substance • Jurisdiction & venue in Title 28, U.S. Code Judiciary & Judicial Procedure • Substance - Bankruptcy Code, Title 11 • “means test” use IRS collection standards and Census Bureau statistics • Property rights based on state law and nonbankruptcy federal law

  27. Sources of law - procedure • Procedure – • Bankruptcy Rules • Incorporates some sections of Federal Rules of Civil Procedure • Bankruptcy code has some procedural rules • Administrative office of US Courts • N.D. Illinois local rules & general orders • mandatory electronic case filing (ECF) • Individual judges standing orders – • Web site www.ilnb.uscourts.gov – “judges” tab

  28. Bankruptcy players • Case Trustee • Chapter 7 – panel trustee • Chapter 13 – standing trustee • United States Trustee ************* • Auditors • United States Attorney

  29. Bankruptcy events • Creditors meeting (341 meeting) – all cases • Confirmation hearing – Chapter 13 • No asset report by trustee - Chapter 7 • Discharge (no hearing required) • Reaffirmation hearing when presumption of undue hardship • Closing of case • Dismissal of case,

  30. Discovery & mandatory disclosures • Required documents – tax returns, pay advices, bank statements, • Debtor’s duty to cooperate with trustee (or auditor) • Failure to cooperate can lead to denial of discharge • Discovery – when there is a contested matter or an adversary proceeding • Rule 2004 exam. When discovery not available

  31. Litigation • Contested matters – within bankruptcy case • Adversary proceedings – separate case • More like normal litigation

  32. Practice & procedure Important differences • Motions must be served on represented debtor in addition to debtor’s attorney • Motion filed by debtor’s attorney to withdraw or for approval of fees must be served on debtor • US Trustee and/or case trustee must be served

  33. Important differences, cont. • Notice required - 5 business days, unless • Service by ECF- 3 business days • Personal delivery - 2 business days • Rules require longer period • Emergency - attorney must file Rule 9011 certification, give as much notice as possible

  34. Important differences, cont. • Time to file motion to vacate or for “reconsideration” is only 10 days • Time to appeal is only 10 days • Jury trials rare; • by filing bankruptcy, debtor has waived jury • filing claim waives jury

  35. Case analysisAlternatives; Chapter 7 or 13; cost • Doing “nothing” • “Judgment proof” client; • claiming exemptions, preserving exempt property • Negotiating workouts, refinancing • State court litigation, Fair Debt Collection Practices Act, etc. • Chapter 7 or Chapter 13 • Costs – filing fee; opportunity cost; reduced access to credit

  36. Access to credit • Bankruptcy stays on credit record for 10 years • Effect on credit score • Paradoxically, can improve after bankruptcy • Usually 2 years before qualified for mortgage • Beware of post-discharge vultures • Credit during Chapter 13? • Requires court authorization

  37. Secured debtsChapter 7 – approved ways to retain property • Lien avoidance, exempt property • Judicial liens that impair exemptions • Non purchase money liens on household goods • Redemption (redemption lenders for cars) • Has to be at retail value, not wholesale • Reaffirmation on original terms • As if bankruptcy never happened for this debt • Must perform choice stated on Form 8 (statement of intentions) within specified time

  38. Secured debtsChapter 7 – other ways to retain property • Other options, not mentioned in Code • Reaffirmation on better terms than original contact? • Will creditor act in its own best interests? • Making all payments without reaffirmation? • Can lead to repossession of vehicles even if current

  39. Secured debtChapter 13 strategies • “Cram down” • If creditor is “under secured” • Pay value of collateral, not amount of debt • Plus interest – prime rate is starting point • Can’t cram down home mortgages • Unless creditor takes additional security • “Strip off” • Wholly unsecured junior lien (e.g. 2nd or 3rd mortgage) can be “stripped off”

  40. Secured debtChapter 13 strategies – limits • Can’t cram down • cars bought within 910 days of filing • personal property bought w/in 365 days • Will have to pay contract amount even though collateral worth much less • Can lower interest rate

  41. Case analysisChapter 7 • Liquidation analysis • Is there non exempt property? • Dischargeability analysis • Debts that can never be discharged • Debts that could be discharged in Chapter 13 • Secured debts, leases • What property can debtor keep? At what cost? • Could debtor keep property in Chapter 13 at less cost? • Disposable income analysis

  42. Case analysisChapter 7 • Disposable income – means test • If “current monthly income” > state median, debtor must pass means test or no Chapter 7 • Based on 6 month average; • Even low-income must fill out part of form • If “current monthly income” < state median, disposable income should not matter

  43. Case analysisChapter 13 • Best interests of creditors (cf. liquidation) • What debts will be discharged • Ch 13 discharges a few more debts than Ch 7 • Secured debt options • Cure, cram down, strip off • Best efforts • Must pay all disposable income for 3 years

  44. Case analysisChapter 13 • Debtor may want to file Chapter 13 even if no discharge, to save property • Unsecured debt that can be paid 100% even when other debts are paid less • Rent arrears if lease being assumed • Utility service obtained by fraud or theft (only the nondischargeable portion) • Long term debts not in default (student loans)

  45. When to FileReasons to file sooner • Losing or about to lose property • Foreclosure sale • Tax deed • Garnishment/ offset of benefits [tax intercept] • Repossession / sale • Eviction – 5/10/14 day notice for rent • Utility shutoff/ restoration • Involuntary transfer <90 days/ 2 yrs / 4 yrs

  46. When to fileReasons to wait • Expenses still exceed income • No health insurance • Recent credit card charges • over $500 for luxury goods within 90 days • Over $750 for cash advances within70 days • Recent voluntary transfers • Exemption planning • Tax refund • Income taxes owed will be dischargeable

  47. Who can/should file ? • Husband and wife can file joint petition • Joint filing fee same as for individual • Ch 13 codebtor stay protects non filing spouse • If only one files, non filing spouse will still owe joint debt, but can file own case later • Heirs • Debtor who owns property but didn’t sign mortgage can file Chapter 13 to save property

  48. How to file What to file - paperwork • Forms require full financial disclosure • Credit counseling certificate • “Emergency” filing – can be done same day • If represented, electronic filing required • 15 days to file the rest • (can move for more time)

  49. Credit counseling • Has to be from approved agency • Provided without regard to ability to pay. • Within 180 days before filing case • But not on same day? • Limited exception • can file petition if exigent circumstances & attempted to get counseling at least 5 days before. But Judge has discretion.

More Related