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What is bankruptcy?
Bankruptcy is a way for people or businesses who owe more money than they can pay right now (a "debtor"), to either work out a plan to repay the money over time, under Chapter 11, 12 or 13, or for most of the bills to be wiped out ("discharged"), as in a chapter 7 case. While the debtor is either working out a plan or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor.
Who can file a bankruptcy?
Any person, partnership, corporation or business trust may file a bankruptcy. If the person or entity who owes the money, referred to as the debtor, starts the bankruptcy, it is called a voluntary bankruptcy. The people or entities that are owed money, referred to as the creditors, can also file a petition against a person or an entity who owes them money, and that is called an involuntary bankruptcy. In an involuntary case, the debtor gets a chance to contest the petition and contend it should not be in bankruptcy.
What is a joint petition?
A joint petition is the filing of a single bankruptcy petition by an individual and the individual's spouse. Only people who are married on the date they file may file a joint petition. Unmarried persons, corporations and partnerships must each file a separate case. If you are an individual and have a business, you may not file a single petition for yourself and your business; each must be a separate bankruptcy case.
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 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 as exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts. 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 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 or 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 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 also be approved by the court. In addition to the filing fee paid to the Clerk, a quarterly fee is paid to the U.S. Trustee in all chapter 11 cases.
There is no debt limit under Chapter 11. However, only a chapter 11 debtor that qualifies as a small business may request expedited treatment under chapter 11. To qualify as a "small business," 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 $2,725,625. 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 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,677,125 ($419,275 in unsecured debts and $1,257,850 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 small 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.
What chapter is right for me?
You have a choice in deciding which chapter of the Bankruptcy Code will best suit your needs. The decision whether to file a bankruptcy and under which chapter to file depends on the particular circumstances of the debtor. There is no way that a simple statement can spell out all the different things to be considered. Also, considering your personal facts, comparing them to each chapter's requirements, and deciding which chapter to select, would be giving you legal advice. The Clerk's Office staff and bankruptcy petition preparers, including typing services and paralegals, are prohibited from giving you legal advice. Only a lawyer can give you legal advice.
The decision whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all of the relevant facts of the debtor's case.
What services can a bankruptcy petition preparer provide?
Bankruptcy petition preparers are permitted to provide services limited to the typing of forms. They may not advise you in any way. Their services are subject to various statutory requirements and limitations.
Please note that although bankruptcy preparers are required to sign all documents prepared for filing, they are not authorized to sign any document on your behalf. Therefore, you and your spouse, if filing a joint petition, must also sign all documents. Copies of all prepared documents should be furnished to you by the bankruptcy petition preparer at the time they are presented to you for signature. Likewise, bankruptcy petition preparers are prohibited by law from collecting or receiving any court fees connected with the filing of your case. Consequently, all court fees connected with the filing of your case, including the filing fee and miscellaneous administrative fee, should be paid directly by you to the court. The failure of any bankruptcy petition preparer to comply with the law should immediately be brought to the attention of any trustee appointed in your case and the local office of the United States Trustee.
What does the Clerk's Office do?
The Clerk's office provides a variety of services to the bankruptcy judges, attorneys and the public. Clerk's Office staff provides clerical and administrative support to the court by filing and maintaining case-related papers, signing ministerial orders, collecting authorized fees, sending notices, entering judgments and orders, and setting hearings. The services provided by the Clerk's Office to attorneys and the public include responding to requests for information and making copies of papers in bankruptcy court files.
Although Clerk's Office staff cannot give you legal advice, the U.S. Bankruptcy Court is a source for many forms and local rules which you will need to file your bankruptcy petition and related documents.
What documents do I need to file a bankruptcy?
- Form 101--Voluntary Petition
- Form B122A-1, B-1 or C-1, depending on chapter - Statement of Current Monthly Income and Means Test Calculation
- Form 106Sum--Summary of Assets and Liabilities and Certain Statistical Information
- Schedules A/B through J
- Form 106Dec - Declaration About an Individual Debtor's Schedules
- Form 107--Statement of Financial Affairs
- Form 108--Statement of Intention
- Creditor Matrix (list of people you owe money to)
- Verification of Creditor Matrix
- Application to Pay Filing Fee in Installments (if applicable).
These are the forms required for either a Chapter 7 or Chapter 13 filing, however, if you are filing a Chapter 13, the Chapter 13 Plan is a required document as well. You must also submit certification that you have received credit counseling from an approved credit counseling provider.
The filing fee for a Chapter 7 case is $335.00 and the filing fee for a Chapter 13 case is $310.00, payable in either cash, money order or certified bank check. Current fees can be found on the Fees Page of this Web Site. Please be advised that this office does not accept personal checks.
If you need to start your case quickly, you can file only Form 1--Voluntary Petition and your Creditor Matrix with the accompanying Verification. You have an additional 14 days to file the certificate of credit counseling, statement of current monthly income and means test calculation, and the rest of your bankruptcy papers. Your failure to timely file these additional required documents or seek an extension of time to do so will result in the dismissal of your case, denial of discharge, or the imposition of sanctions.
Official Bankruptcy Forms may be obtained at the public counters of the Bankruptcy Court. One set of forms is provided and these may be photocopied. You can also find them on the Forms Page of this web site.
Make sure you put a response to every question. If your answer is "none" or "not applicable", make sure you indicate that in writing. Use continuation pages if you run out of room. Make sure you sign each form where required as this is very important. Also, if you are filing a joint case, make sure that your spouse signs as well. When filling out the Means Test form for a chapter 7, be sure to check the appropriate box on the front of the form to indicate whether a presumption of abuse arises.
Prepare your creditor matrix (a mailing list of your creditors) according to the matrix format instructions. You can find this under the Creditor Matrix section of this web page. The Clerk's Office uses an Optical Character Reader to scan matrices and if you do not follow the instructions exactly, the scanner will not be able to read the matrix properly.
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 as collateral for 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 claims for domestic support obligations, some taxes, and wage claims of employees. 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 fees generated by attorneys and other authorized professionals in representing the bankruptcy estate
What are exemptions?
11 U.S.C. § 522(b) allows an individual debtor to exempt real, personal, or intangible property from the property of the estate. Exempt assets are protected by state law from distribution to your creditors. Typically, exempt assets include vehicles up to a certain dollar amount, the equity in your home up to a certain amount, and tools of the trade.
Exemptions are claimed on Schedule C. As with all schedules, it is important to fully complete and provide all the information requested. If no one objects to the exemptions you have listed within the time frame specified by the bankruptcy court, these assets will not be a part of your bankruptcy estate and will not be used to pay creditors through your bankruptcy case.
Deciding which assets are exempt and how and if you can protect these assets from your creditors can be one of the more important and difficult aspects of your bankruptcy case. It is extremely important to consult an attorney if you have any questions regarding the issue of exempt assets.