Nielsen & Senior’s attorneys have over 20 years’ experience in bankruptcy law, both creditor and debtor, in Chapters 7, 11 and 13. Bankruptcy can impact all other areas of the law because if a party to a lawsuit or contract or even a spouse files bankruptcy, the other parties will be affected.
“Consumer bankruptcy” means a bankruptcy that involves an individual (as opposed to a business) AND the individual is not engaged in business. The two types of consumer bankruptcies are Chapter 7 and Chapter 13. The types are named after the chapter of the United States Code where the laws governing those kinds of bankruptcies are found. Thus, Chapter 7 is found in Chapter 7 of Title 11 of the United States Code, while Chapter 13 is found in Chapter 13 of Title 11.
Chapter 7: This is the kind of bankruptcy most people think of first. It’s also called a straight bankruptcy or liquidation. In a Chapter 7, a person called a trustee is appointed by the court. It is the trustee’s job to sell all of the debtor’s (the debtor is the person who files bankruptcy) non-exempt assets to raise cash. The trustee then distributes the cash to the creditors according to rules set out in the Bankruptcy Code. A debtor who completes a Chapter 7 receives a discharge, which is a court order saying the debtor no longer owes the debts discharged.
Chapter 13: A Chapter 13, also called a wage-earner plan, is a bankruptcy where the debtor keeps all of her assets but, in effect, buys the non-exempt assets back from the trustee by making regular monthly payments of her disposable income. Basically, disposable income is excess income above normal living expenses, excluding payments on debt that is paid through the bankruptcy. A Chapter 13 plan lasts from three to five years. At the end of the plan, the debtor receives a discharge. In most Chapter 13 cases, creditors do not receive 100% of the debt that is owed to them.
Exempt Assets: The Bankruptcy Code and state law provide a number of exemptions of property. Some of these include a homestead exemption, car exemption, personal belongings (such as clothes, household furnishings, food storage, heirlooms, etc.) and qualified retirement accounts. The amount and extent of these vary from case to case.
Businesses can file either Chapter 7, which works the same way as a consumer bankruptcy, or Chapter 11, which is a business reorganization. Chapter 11 cases involve the debtor putting together a plan under which it will repay its creditors.
Creditors
Creditors of people who file bankruptcy have certain rights and duties in bankruptcy. One of the first duties is the obligation to halt all collection activity against a debtor. Violation of this duty, called the automatic stay, can subject the creditor to serious penalties. Creditors also have rights, especially in Chapter 13 and Chapter 11 cases. The attorneys at Nielsen & Senior have several years’ experience representing creditors in bankruptcy.