Bankruptcy – Types and Frequently Asked Questions

Federal bankruptcy laws are designed to help both individuals and businesses take control of their debts by allowing them to request a complete liquidation under Chapter 7 of the Bankruptcy Code and/or a repayment plan under Chapter 11 or Chapter 13 of the Bankruptcy Code.

The attorneys and counselors at Invictus Law work closely with its clients to construct practical and innovative approaches to achieve its clients’ objectives in an efficient and cost-effective manner. Our bankruptcy attorneys and counselors have substantial experience with Chapter 7, Chapter 11 and Chapter 13cases. In this unstable financial environment, our firm regularly assists its clients in various creditor-debtor matters, including personal and business bankruptcy, reorganizations, liquidations, insolvency, asset protection and debt consolidation and credit management.

Chapter 7 Bankruptcy: Liquidation

Chapter 7 is the most common type of bankruptcy, and it typically results in liquidation of the debtor’s assets to pay debts owed to creditors. Upon filing a Chapter 7 case, all of the debtor’s assets pass to a trustee-administered estate, and the trustee is then charged with liquidating all assets of value. The debtor may seek to have certain specific assets declared as “exempt” pursuant to the Bankruptcy Code. Thereafter, creditors are permitted to file claims against the estate, and the creditors’ claims are paid pursuant to the priorities set forth in the Bankruptcy Code. Unless a creditor can establish sufficient grounds under the Bankruptcy Code to deny the debtor’s discharge, the debtor receives a discharge of all existing debts, other than debts that are considered non-dischargeable pursuant to the Bankruptcy Code (i.e., taxes, student loans, domestic support and settlement obligations, etc.). Before a discharge may actually be entered, the debtor must also satisfy certain credit counseling and other requirements, as well as complete a comprehensive course regarding personal financial management.

If you are in danger of losing your house, your car or other property, and/or are tired of being harassed by creditors, CONTACT US TODAY. We can help you decide if Chapter 7 bankruptcy is right for you.

Chapter 7 Bankruptcy FAQ

Who can file a Chapter 7 bankruptcy?

Eligibility for bankruptcy relief under Chapter 7 for individual debtors with primarily consumer debt is typically governed by the “means test”. Under the “means test”, an objective analysis of the debtor’s income and expenses is conducted in order to ascertain whether the individual debtor is be able to repay all or a portion of the debts owed to unsecured creditors.

What is the process for filing a Chapter 7 bankruptcy?

Generally speaking, in Chapter 7 cases, an actual court appearance is unnecessary. Instead, the debtor and his or her bankruptcy attorney appear at a meeting (referred to as a “Section 341 Meeting”) approximately five weeks after filing the petition. During this meeting, a court-appointed trustee will typically ask the debtor a few questions to determine whether the debtor has any assets that are considered non-exempt under the Bankruptcy Code. The debtor’s creditors are also provided notice of the meeting, and are permitted to appear at the meeting to ask the debtor certain limited questions.

How long does the Chapter 7 bankruptcy process typically take?

Typically, in a Chapter 7 bankruptcy case, you attend the 341(a) Meeting of the Creditors about a month after your Chapter 7 bankruptcy petition is filed. A discharge is usually issued approximately 2-4 month thereafter.

How much is the court filing fee for Chapter 7 bankruptcy?

$245 filing fee, $39 administrative fee, $15 trustee surcharge: Total court filing fee $229.

Will I lose my house if I file Chapter 7 bankruptcy?

It depends on how much equity you have in your house. In Chapter 7 bankruptcy cases, you will be able to keep your home if you have no equity in the house (which is calculated by taking the current value of your home and subtracting the costs of the sale, payoff balances and any liens), or you are able to exempt (protect) whatever equity you do have in your home, using the homestead exemption. However, it should be noted that if you are behind in your mortgage payments, you might eventually lose your home outside of the Chapter 7 bankruptcy process (i.e., through the foreclosure process).

Will I lose my car if I file Chapter 7 bankruptcy?

Generally speaking, you will not lose your car if you file for Chapter 7 bankruptcy. However, in order to retain your car in a Chapter 7 bankruptcy, you must remain current with your car payments, and agree to honor the car loan on the car after the Chapter 7 bankruptcy.

Will my Chapter 7 bankruptcy affect my spouse’s credit?

Generally speaking, no. As long as none of the debts scheduled by you are joint debts (i.e., debts with your spouse), your spouse’s credit is generally not affected.

Will I risk losing my job if I file Chapter 7 bankruptcy?

No. It is unlawful for any employer to discriminate against an existing employee because they filed for Chapter 7 bankruptcy.

How long will a Chapter 7 bankruptcy remain on my credit report?

A bankruptcy notation cannot be removed from a credit report unless 10 years has lapsed.

What’s the difference between a secured debt and an unsecured debt?

When a debt is secured, the creditor has rights in the collateral in addition to the rights against the debtor. If you fail to make required payments, the creditor can recover the collateral from you. Secured debts may be voluntary or involuntary. Generally, home mortgages and car loans are examples of voluntary secured debts. By contrast, real property taxes are involuntary secured debts.

An unsecured debt is a debt that does not have specific property serving as collateral for repayment of the debt. If you fail to make a required payment on an unsecured debt, the creditor cannot take any of your property without filing suit and obtaining a favorable court judgment.

What is a Chapter 7 bankruptcy “discharge”?

One of the primary reasons people file bankruptcy is to obtain a “discharge” of debts. A “discharge” is a court order that states that you do not have to pay most of your debts. However, some debts cannot be discharged. Most notably, you cannot discharge debts for:

• taxes
• student loans
• domestic support and settlement obligations (i.e., alimony and child support)
• court files and criminal restitution obligations

Furthermore, if a creditor can prove that the underlying debt arose under fraud, breach of fiduciary duty or theft, the bankruptcy court may determine that the debt should not be discharged.

Chapter 11 Bankruptcy: Reorganization

Generally speaking, Chapter 11 bankruptcy cases are designed for business reorganizations or controlled liquidations. However, individual debtors are also eligible to file Chapter 11 cases. In most cases, the debtor is permitted to continue business operations and to retain possession of property. Unlike Chapter 7 and 13 cases, when the debtor files a petition, a trustee is not automatically appointed. A creditor must prove fraud or gross mismanagement to have a trustee appointed. Similar to Chapter 13 cases, the debtor has the option to file a plan, but there is no time limit for filing. Filing a Chapter 11 case can be very complex, so in a vast majority of cases. It is strongly advised that debtors consult with a bankruptcy attorney prior to proceeding with a Chapter 11 case.

If you are in danger of losing your business or other property, and/or are tired of being harassed by creditors, CONTACT US TODAY. We can help you decide if Chapter 11 bankruptcy is right for you.

Chapter 11 Bankruptcy FAQ

How much is the court filing fee for Chapter 11 bankruptcy?

$1000 filing fee, $39 administrative fee: Total court filing fee $1039.

Does the court appoint a trustee in Chapter 11 bankruptcy cases?

Generally speaking, in Chapter 11 bankruptcy proceedings a trustee is not automatically appointed. The court may decide to appoint a trustee in Chapter 11 bankruptcy cases, but usually decides against it.

Who determines whether my Chapter 11 bankruptcy plan is accepted?

Acceptance of a Chapter 11 bankruptcy plan is determined by a group of interested creditors. Acceptance of the plan must be supported by a majority vote within this group.

Can I continue to operate my business during the Chapter 11 bankruptcy proceedings?

In Chapter 11 bankruptcy reorganization or restructuring proceedings, the “debtor in possession” may continue to operate its business throughout the bankruptcy proceedings, unless a creditor can prove that the “debtor in possession” has engaged in some type of fraud or dishonesty, in which case an appointed trustee will manage the business and preserve its assets.

Can a business get a discharge of its debts?

A business entity that is being operated as a sole proprietorship may be entitled to a discharge of its debts. However, corporations and most other business entities are not entitled to a discharge.

Chapter 13 Bankruptcy: Repayment

Chapter 13 bankruptcy permits individual debtors with regular earnings to propose a plan for paying their debts. The court will enjoin (suspend) collection actions while the debtor makes payments pursuant to the approved plan. The debtor is also permitted to retain possession of property while the plan is in effect.

Soon after filing the Chapter 13 petition, the debtor must file a plan that specifies how the debtor will pay the debts from future earnings or existing assets. Generally speaking, the plan will provide for payments to be made over a period of three to five years. Shortly thereafter, the debtor must begin making payments to the trustee, unless the court orders otherwise. If the proposed plan is approved, the trustee will apply the debtor’s payments in accordance with the approved plan. If, for some reason, the proposed plan is not approved, and the case is dismissed or converted to a Chapter 7 case, the trustee must promptly return the funds (less administrative fees) to the debtor or the Chapter 7 trustee. At the end of the Chapter 13 plan, any amounts still owing on the debtor’s unsecured debts are forgiven.

If you are in danger of losing your house, your car or other property, and/or are tired of being harassed by creditors, CONTACT US TODAY. We can help you decide if Chapter 13 bankruptcy is right for you.

Chapter 13 Bankruptcy FAQ

What is the process for filing a Chapter 13 bankruptcy?

In Chapter 13 bankruptcy cases, after filing the petition, the debtor submits a plan in which the debtor sets forth a budget detailing earnings and living expenses. All excess income is paid to the trustee, who then distributes the money to the debtor’s creditors. Generally, the plan is in effect for three to five years, depending upon the debtor’s income and other various factors. After the plan has concluded, all outstanding amounts owed to unsecured creditors are forgiven.

How much is the court filing fee for Chapter 13 bankruptcy?

$235 filing fee, $39 administrative fee: Total court filing fee $274.

How long will my repayment plan last if I decide to file for Chapter 13 bankruptcy?

It depends on your income over the life of the plan, and the amount of your debts. Generally speaking, the plan will be anywhere from 3 (36 months) to 5 years(60 months).

What if I'll need more than 5 years to pay off my creditors?

Some creditors may be willing to work with you to come up with manageable payment options. However, if your creditors are unwilling to work with you, then your case will likely be converted to a Chapter 7 bankruptcy.

What happens if I stop making payments or can't pay the trustee?

If you fail to make the required payments, then the trustee will likely have your case either converted to a Chapter 7 bankruptcy or completely dismissed (i.e., you'll lose all bankruptcy protection).

If I file for Chapter 13 bankruptcy, can I keep my home if I am facing foreclosure?

If you're trying to save your home from foreclosure, then Chapter 13 bankruptcy may be a good option for you.Once you file your Chapter 13 bankruptcy petition, the “automatic stay” stops foreclosure proceedings until the court either approves or rejects your repayment plan. If you stay current on your regular monthly payments, and make all required payments up to the end of your approved repayment plan, you'll likely avoid foreclosure and keep your home.

Invictus Law – Bankruptcy Attorney Specialists

At invictus law we specialize in helping you through the process of bankruptcy to make sure you are receive all of the protection under the law you are guaranteed. Our Bankruptcy Attorneys specialize in bankruptcy proceedings in Utah - with offices in Salt Lake City,Orem, and Lehi - and California – with an office in Irvine