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The Bankruptcy Process of Chapter 7 and Chapter 13

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by , 10-07-2011 at 05:45 PM (958 Views)
A Chapter 7 bankruptcy case begins when the debtor files a petition with the bankruptcy court in the area where the debtor resides. When the debtor files the petition, he or she must pay a case filing fee and a miscellaneous administrative fee. These fees must be paid for a bankruptcy under any Chapter, but the case filing fee differs depending on under what chapter the case is filed. With the petition, the debtor must also file with the court a schedule of assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, and a schedule of executor contracts and unexpired leases. When a Chapter 7 case is filed, the bankruptcy court appoints an impartial trustee to oversee the liquidation of the debtor’s nonexempt assets. The debtor must provide the trustee with a copy of the debtor’s last tax return, as well as any tax returns filed during the case. If an individual has any primary consumer debts, he or she must also file a certificate of credit counseling, a copy of any debt repayment plan created during counseling, evidence of receiving payment from employers within 60 days before filing, a statement of monthly net income, a statement of any anticipated increase in income or expenses after filing for bankruptcy, and a record of any interest the debtor has in federal or state qualified education or tuition accounts. A husband and wife have the option of filing jointly or individually. However, even if filing jointly, a husband and wife are subject to the same document filing requirements as if they had filed individually. The official document filing forms may be downloaded from www.uscourts.gov/bkforms/index.html.

Filing a bankruptcy petition under Chapter 7 automatically stays most actions any creditor may have against a debtor for collection of debts. This means that creditors cannot take any action toward collection of payments on the debt. The stay occurs automatically by law and no judicial action is required to put the stay in effect. All creditors listed in the document filing will be notified of the stay by the clerk of the bankruptcy court.

Within 40 days after the case is filed, the trustee will hold a meeting with the creditors. At this meeting, the trustee will put the debtor under oath and the trustee and the creditors are allowed to ask the debtor questions regarding the debtor’s financial affairs and property, which the debtor is required to answer. One of the purposes of the meeting of the creditors is for the trustee to determine whether the debtor has initiated the bankruptcy proceeding as an abuse, trying to defraud creditors by having his or her debts discharged. If the trustee and the bankruptcy court are satisfied that an abuse is not taking place, most Chapter 7 debtors are discharged.

An individual receives a discharge for most of his or her debts under Chapter 7. After a discharge, a debtor is no longer personally liable for his or her debts and creditors are prohibited from taking further action to collect payment on the debts. Not all debts can be discharged. Some debts that will not be discharged include child support and alimony payments, certain taxes, debts incurred as a result of operating of a vehicle while intoxicated, and debts for certain criminal restitution orders.

Chapter 11 bankruptcies are typically filed by businesses, although Chapter 11 is available to individuals as well. Because the purpose of Chapter 11 is to reorganize the debtor’s debts, the debtor remains in possession of his or her assets, making the debtor a “debtor in possession.” A Chapter 11 bankruptcy begins when the debtor files a petition which must include the same document filings as a Chapter 7 bankruptcy. The debtor will file a plan for reorganization. Some of the creditors’ claims might be impaired, meaning that, under the plan, they will not recoup the full value of the debt owed. After the plan is submitted to the court, the creditors whose claims will be impaired under the plan vote on the plan. Then the judge holds a confirmation hearing to determine whether to confirm the plan. A discharge under Chapter 11 occurs after a confirmation of the reorganization plan. A Chapter 11 discharge discharges the debtor from liability of debts that originated before the confirmation of the reorganization plan.

A Chapter 13 bankruptcy begins when a debtor files a petition with the bankruptcy court. The Chapter 13 bankruptcy has the same document filing requirements as Chapter 7 and Chapter 11 along with the case filing and miscellaneous administrative fees. A trustee is appointed and an automatic stay, identical to the automatic stay from Chapter 7, is put in place. There is also a special automatic stay that protects co-debtors. The trustee holds a meeting of the creditors, similar to that of a Chapter 7 bankruptcy, where the debtor is placed under oath and the trustee and creditors are able to ask the debtor questions regarding the debtor’s financial status and property. The court then holds a confirmation hearing similar to that of a Chapter 11 hearing where the court will make a determination on whether to confirm the adjustment plan. It is not necessary for the plan to pay unsecured claims in full. It is only necessary that the debtor pay all disposable income and that unsecured creditors will receive as much as they would have under a Chapter 7 liquidation.
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