Bankruptcy Questions

This information is provided by the United States Bankruptcy Court Web Site. It is not meant to be taken as legal advice by our company.

They have 33 questions on the site. If you have a more specific question, please to to the contact us page and ask. I cannot offer legal advice, but your question may be answer already by an attorney, and we can send you the links. This information is taken strictly from court website since the most common of the common questions:

Although the information presented in response to these questions was accurate on the date of publication, it should not be cited or relied upon as legal authority. The Bankruptcy Code (Title 11, United States Code), the Federal Rules of Bankruptcy Procedure, and Local Rules of the United States Bankruptcy Court for the Eastern District of California are complex.

1. What is bankruptcy?

Bankruptcy is a way for people and businesses who owe more money than they can pay right now (‘debtors') to either work out a plan to repay the money over time in a case under chapter 11, chapter 12 or chapter 13, or to wipe out (‘discharge') most of their bills in a chapter 7 case. The filing of a bankruptcy petition immediately stops most actions to collect debts which were due at the time of filing, including law suits, repossessions, and foreclosures. Based upon the circumstances, the court may, however, permit some eviction, repossession and foreclosure actions to continue even after the case is filed.

What chapter you choose to file under, what bills can be eliminated, how long payments can be stretched out, and other details are controlled by the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. These are federal laws, which means they apply all over the United States. The Code and Rules are found in Title 11 of the United States Code. The various sections of the Bankruptcy Code are referred to throughout this booklet as "11 U.S.C. § ____." In addition to the Bankruptcy Code and Rules, what property you can keep will be affected by sections 703 and 704 of the California Code of Civil Procedure.

# Tax Returns - Individual debtors must provide a copy of their most recent tax return (or a transcript of the return) to the trustee and any creditor who requests a copy no later than seven days before the date first set for the meeting of creditors.

# Wage Statements - Copies of all wage statements, payment advices, or other evidence of payment from an employer provided to the debtor within 60 days before the date of filing of the case must be provided by the debtor to the trustee not later than seven days before the date first set for the meeting of creditors.

# Means Test - Individual debtors who file a chapter 7 petition must file a new form which will give detailed information about their income for the purpose or determining whether a debtor's filing represents an abuse of the bankruptcy system. Some debtors may be prohibited from filing a chapter 7 case if their income would permit them to make payments to their creditors. This form is included in the forms needed to file a bankruptcy case which are posted on this site and must be filed within 15 days of the filing of the petition.

6. What are the different "chapters" in bankruptcy?

Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as "straight bankruptcy" or "liquidation" cases, and may be filed by an individual, corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property exempt.(1) In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts. (2) Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership's or corporation's debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.

Chapter 9 is only for municipalities and governmental units, such as schools, water districts, and so on.

Chapter 11 is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization which must be approved by the court. In addition to the filing fee paid to the Clerk, a quarterly fee shall be paid to the U.S. Trustee in all chapter 11 cases.

There is no debt limit under Chapter 11. To qualify as a "small business chapter 11," the debtor must be engaged in commercial or business activities, other than the ownership of real property, and the total of its secured plus unsecured debts must be less than $2,190,000. Due to the expense and complexity of chapter 11, the decision to file a chapter 11 petition should be made in consultation with an attorney.

Chapter 12 offers bankruptcy relief to those who qualify as family farmers or family fishermen. There are debt limitations for chapter 12, and a certain portion of the debtor's income must come from the operation of a farming or fishing business. Family farmers and family fishermen must propose a plan to repay their creditors over a period of time from future income and it must be approved by the court. Plan payments are made through a chapter 12 trustee who also monitors the debtor's farming or fishing operations while the case is pending.

Chapter 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,347,550 ($336,900 in unsecured debts and $1,010,650 in secured debts), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan which must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a percentage fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.

Chapter 15 is a new chapter to deal with insolvency cases involving debtors, assets, claimants, and other parties in interest in more than one country. Due to their complexity, these "cross border insolvency cases" will always need a lawyer.

13. How do I know if a debt is secured, unsecured, priority or administrative so I can fill out my schedules correctly?

A. Secured Debt

A secured debt is a debt that is backed by property. A creditor whose debt is "secured" has a right to take property to satisfy a "secured debt." For example, most homes are burdened by a "secured debt." This means that the lender has the right to take the home if the borrower fails to make payments on the loan. Most people who buy new cars give the lender a "security interest" in the car. This means that the debt is a "secured debt" and that the lender can take the car if the borrower fails to make payments on the car loan.

B. Unsecured Debt

A debt is unsecured if you have simply promised to pay someone a sum of money at a particular time, and you have not pledged any real or personal property to collateralize that debt. A debt is unsecured if you have simply promised to pay someone a sum of money at a particular time, and you have not pledged any real or personal property to collateralize that debt.

C. Priority Debt

A priority debt is a debt entitled to priority in payment, ahead of most other debts, in a bankruptcy case. A listing of priority debts is given, in general terms, in 11 U.S.C. § 507 of the Bankruptcy Code. Examples of priority debts are some taxes, wage claims of employees, debts related to goods and services provided to a debtor's estate during the pendency of a bankruptcy case, and alimony, maintenance or support of a spouse, former spouse, or child. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.

D. Administrative Debt

An administrative debt is also a priority debt and is one created when someone provides goods or services to your bankruptcy estate. The best example of an administrative debt is the fee generated by an attorney or other authorized professional in representing the bankruptcy estate.

E. Consumer Debt

Consumer debt is either secured or unsecured debt incurred by an individual primarily for a personal, family or household purpose. The mortgage on your personal residence is considered consumer debt, however income taxes are not. Debts which are incurred in pursuit of a business would also not be consumer debt.


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This website contains information related to law and is NOT LEGAL advice. It contents is for information only. If you need legal advice, please consult an attorney or act as your own.
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