GLR attorneys advise clients on debt relief options, assisting insolvent businesses through each phase of a federal bankruptcy filing. Our attorneys will also assist creditors in securing their rights in any bankruptcy filing by a debtor. The primary focus of the firm’s practice in bankruptcy law is to provide services to businesses in this arena.
The Basics of Bankruptcy
Generally speaking, bankruptcy law seeks to benefit both debtors and creditors insofar as debtors obtain relief from debts they are unable to pay and creditors obtain payment from the remaining assets of the debtor. Bankruptcy law is controlled by the federal law, found in the United States Code at Title 11. As a federal law, it supersedes any conflicting law of the various states because of the Supremacy Clause of the Constitution.
Different Kinds of Bankruptcies
There are four basic types of bankruptcy proceedings. They are referred to by the chapter of the federal Bankruptcy Code that describes them.
Chapter 7 is a common form of bankruptcy that liquidates the debtor’s non-exempt assets. These are sold by a trustee appointed by the Bankruptcy Court, with the proceeds distributed to creditors according to certain priorities between the creditors. Chapter 7 bankruptcy is available to individuals, married couples, corporations and partnerships. The debts of individual debtors are discharged within approximately 6 months of filing the case. If the debtor has assets which are not exempt, the trustee takes control of these assets, sells them and pays creditors as much as the proceeds permit. The wages of the debtor as earned after filing remain the property of the debtor, with no claim from the creditors to these earnings.
Chapter 11 is typically for corporations or partnerships, wherein the entity is reorganized.” Individuals, especially those whose debts exceed the limits of Chapter 13, may file Chapter 11. In a Chapter 11 filing, the debtor often remains in possession of his assets and continues to operate their business, subject to the constraints of the court and the creditors committee. A plan of reorganization must be proposed by the debtor which if accepted by a majority of the creditors, is approved by the court and binds both the debtor and the creditors to its terms of repayment. Plans may require repayment out of future profits, sales of some/all of the assets of the company, or a merger or recapitalization.
Chapter 12 is a reorganization that has been simplified for family farmers, as modeled after Chapter 13, where the debtor retains his property and pays creditors out of future income.
Chapter 13 is a repayment plan for individuals with regular income and unsecured debt less than a certain amounts.
Under this option, the debtor maintains his/her property but must make regular payments to the Chapter 13 trustee out of future income to pay creditors over approximately 3-5 years. Repayment in Chapter 13 can range from 10% to 100% depending on the debtor's income and the composition of the debt. Some debts that cannot be discharged in Chapter 7 may be discharged in Chapter 13. Under Chapter 13, there is also a means for individuals to prevent foreclosures and repossessions, while catching up on their secured debts.