Bankruptcy Law | The Law Office of Pelayo Duran

BANKRUPTCY LAW

Bankruptcy law is generally a Federal Law contained in Title 11 of the United States Code. However, few people actually know that Bankruptcies are contained in Article I Section 8 Clause 4 of U.S. Constitution of 1787. Congress is constitutionally obligated to establish uniform rules and uniform laws on the subject of bankruptcies throughout the United States.

Filing for Bankruptcy, could be argued as a Constitutionally guaranteed right for all in America.

The primary goals of bankruptcy law, is to provide an honest debtor who is experiencing financial difficulty with an automatic stay of all debt collection activity and the opportunity have of a fresh start.

The type, form and length of a bankruptcy, will depend largely on whether the debtor files a Chapter 7, Chapter 13 or Chapter 11 bankruptcy and/or the type of debts that you are trying to address.

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is what is commonly referred to as “a straight liquidation” designed to be a quick an orderly court-supervised procedure by which a trustee (hypothetically) collects all the assets of the debtor, reduces them to cash, and makes distributions to the eligible creditors.

Liquidation is always subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Your states exemption laws or federal exemption laws outline all specific asset exemptions available to individuals seeking Bankruptcy protection.

Because there is usually little or no non-exempt property (or practically speaking all property can be protected), most chapter 7 cases, do not result in an actual liquidation of the debtor’s assets but instead only result in the discharge of most of debtor’s financial obligations.

Generally, in Florida, a debtor may be able to protect 100% of equity in their primary residence in any bankruptcy chapter.Chapter 7 cases are commonly referred to in Bankruptcy law as: “no-asset cases.”

In most chapter 7 cases, the debtor receives a complete discharge of all dischargeable debts related to the debtor. Therefore, Debtors are released from personal liability for certain dischargeable debts like credit cards, medical bills, civil judgments, wage garnishments and most other loans.

In Chapter 7, a debtor can generally modify theor mortgage through the MMM portal, rescind contracts, surrender secured assets and discharge any debts that may normally arise as result of most contracts however certain debts may not be discharged.

Normally, the debtor can expect to receive a discharge three to four months after the Chapter 7 bankruptcy petition is filed.

Chapter 13 Bankruptcy

Typically, most people can file for chapter 13 bankruptcy protection reorganization. Generally, only persons with disposable income and/or non-exempt assets (that would not be otherwise adequately protected in a chapter 7 bankruptcy) file for Chapter 13 Bankruptcy reorganization. In addition, due to the long duration of the plans any person who has fallen behind with their regular mortgage payments or other secured payment obligations may be able to benefit from filing a Chapter 13 Bankruptcy. This usually includes situation where a debtor is unable to otherwise cure or reinstate their loans and want to avoid a foreclosure and/or maintain their property secured by the debt by coming current over time.

In many cases, the court can also be asked to value the property and reduce the debt to the fair market value of the asset on the date of filing. Although this benefit does not generally apply to a primary residence, it can be applied to reduce or cram most other secured obligation.

Unlike Chapter 7, a chapter 13 bankruptcy is a reorganization (not a liquidation like Chapter 7).

In furtherance of this goal, Chapter 13 bankruptcy provides for the development of a bankruptcy plan that allows a debtor the opportunity to resolve their debts through the equitable distribution of their future monthly income among their creditors, over time.

With the right bankruptcy plan, at the end of a (3) three to (5) five-year period, all debts can brough current, and all remaining unsecured debts can be generally, discharged.

In a Chapter 13, creditor holding an unsecured claim (like credit cards or medical bills) will generally only get a very small distribution from the bankruptcy estate if the case is an “asset or income case” and if the creditors files a timely proof of claim with the bankruptcy court. This can vary from cases to case based on a number of factors.

Chapter 13, is a court supervised process which provides an orderly manner for a debtor to protect their non-exempt assets and to divide their income and the value of their assets proportionately among all the creditors, and over time with some measure of equality and protection.

Chapter 13 Bankruptcy also provides the debtor with the opportunity for a fresh start, free from all the financial obligations incurred prior to filing the bankruptcy.

Generally, in Florida, a debtor may be able to protect 100% of equity in their primary residence in any bankruptcy chapter.

Chapter 11 Bankruptcy

Usually, most persons (or in the case of a chapter 11, a corporation) with sufficient income, assets and debts (that cannot otherwise be adequately protected or forbidden from a chapter 7 or a chapter 13 bankruptcy) may be able to file for Chapter 11 Bankruptcy Reorganization Protection.

In addition, most debtors who have fallen behind with their regular mortgage or rent payments or other secured payment obligations that they are unable to cure the arrears in a maximum of (5) five years can file for Chapter 11 Bankruptcy reorganization.

In a Chapter 11 Bankruptcy, you may be able continue the operation of the business, you can potentially avoid obligation under personal guarantees becoming due. You may be able to recover payments made to some creditors within 90 day prior to filing the case and you may be able to briefly stop making all payments of rents or to other vendors or creditors during the reorganization process and most legal actions can be stayed.

Generally, in most cases a bankruptcy reorganization plan will not need to be filed until after 90 to 180 days after filing of the initial Bankruptcy. This will allow a business/person with valuable time to asses and evaluate an ongoing financial crisis and to negotiate with creditors.

In a Chapter 11 Bankruptcy, a Debtor can possibly re-negotiate leases, loans, cash flow loans, merchant services loan, employment contracts with employee and vendors and state and federal agencies, resolve or address some potential litigations arising out many possible scenarios including breaches of obligations and defaults.

Debtors can also possible continue to operate their business, pay employee salaries and defer taxes and avoid payroll penalties.

In many cases, the court can also be asked to value the property and reduce the debt or payments to the fair market value of the asset on the date of filing. Although this benefit does not generally apply to a primary residence in a chapter 13 it can be applied to reduce the mortgage of a primary residence so long as the loan proceeds can be traced back to a business purpose. Otherwise a debtor can attempt to reduce or cram most other secured obligation and leases in Chapter 11 to their fair market value.

Unlike a Chapter 7 or Chapter 13 Bankruptcies, a Chapter 11 Bankruptcy can last as long as reasonably needed.

Like in a Chapter 13, a Chapter 11 Bankruptcy is a reorganization plan, where the debtor creates a bankruptcy plan that lasts for a desired period of time during which they can possibly continue to operate their business make regular monthly payments to their creditors, cure their arrears and pay down or discharge a portion of their total unsecured debt.

If he Debtor is a person, as with a Chapter 7 and 13 at the end of this payment period, the bankruptcy is completed and all remaining unsecured debts and other obligations may be forever discharged. However, most Chapter 11 debtors emerge from Bankruptcy after a brief period of time.

Generally, in Florida, a debtor may be able to protect 100% of equity in their primary residence in any bankruptcy chapter.