baNGk rup(t)see
n.Law A debtor that, upon voluntary petition or one invoked by the debtor's creditors, is judged legally insolvent. The debtor's remaining property is then administered for the creditors or is distributed among them A person who is totally lacking in a specified resource or quality: an intellectual bankrupt
adj.Having been legally declared financially insolvent Financially ruined; impoverished
Definition from 'The Free Dictionary'
Anyway you look at it, whether you need a fresh start or just copping out of a bad or embarrassing situation, bankruptcy is like divorce: BAD MEDICINE! This road is not recommended, although there may be times when it is the only avenue. This article will present just that avenue - so, "hang on to your butts, its gonna get bumpy!"
Business Bankruptcy, Kentucky Bankruptcy Lawyer, San Jose Bankruptcy Lawyer,
A Fresh Start Or A Cop-out?
Some people look at divorce as a quick and easy way out of a bad relationship. Well, the relationship may have been abusive and it may have gone very cold, or it might have not looked as nice as the heifer on the other side of the fence. Any way it is looked at, the long term results will be the same; in-law problems! Even so, bankruptcy will leave a bad taste in the mouth for a long time, if not for the rest of one's working life.
Ranked up near divorce, severe illness, disability and the loss of a loved one, bankruptcy is one of the top five negative life-altering events one can experience. Those that have gone through it can be left with emotional wounds and bad credit. A fresh start will in actuality be stale, and a cop-out will only turn into a feeling of being imprisoned.
The Not-So-Good, The Bad And The Ugly
Bankruptcy can take on three personalities:
The Not-So-Good (aka chapter 11) The Bad (aka chapter 13) The Ugly (aka chapter 7)
Lets have a closer inspection of all three faces of bankruptcy, hopefully without being inundated by the bad breath... since the regular use of an effective mouthwash, Professional Liability Insurance, was not used! Shame, shame shame.
Also be aware that these three chapters do not read as easily as a good novel (Pun very much intended!).
The Not-So-Good
Chapter 11 is more commonly used for simple business debt. The small business with a debt of more than that allowed by chapter 13 (unsecured $250,000 and secured $750,000) and an aggregate non-contingent secured and unsecured debts of $2,000,000.00 or less (yet not those who own or operate real estate). If the debtor it qualified they can be treated differently than large corporations.
This Chapter allows the business to maintain normal business activities during the time it is reorganizing (similar to chapter 13) its finances. The debtor can still pay its employees, reduce responsibilities to its creditors and produce keep the stock holders happy. The debtor keeps hold of their assets and continues business as usual. This plan could last up to 6 years.
Behind the Not-So-Good is the theory that a living business is of greater value than a dead and dying one. At the end of a successful chapter 11, the business can continue with a restructured debt load and operate more efficiently than before and so preserve jobs and assets. Repayment of debts is made from future profits, sale of some assets, mergers or recapitalization.
The Bad
Though the BAD is better than the UGLY, it is worse than the Not-So-Bad (for lack of a better term). So what is so bad about the Bad, and better than the Ugly?
Chapter 13 allows individuals past-due on mortgage payments or auto loans to work out a repayment plan in a bankruptcy court. Those who also have credit card debt or those who have medical debt may attempt to reduce or eliminate their bills.
Generally, debtors who have a valuable asset, such as a house that is not completely covered by exemptions and that they wish to keep, prefer is this chapter. Under this chapter this is possible because the debtor suggests a plan to pay back creditors over a three to five year period. During this time the debtor can make up overdue payments on assets and pay into the plan the equivalent value of any assets not covered by exemptions. Since the debtors plan will require monthly or biweekly payments. Chapter 13 is usually only available for the debtor who has a regular line of income.
At a confirmation hearing, the court either approves or disapproves the plan, depending on whether the plan meets the Bankruptcy Code's requirements for proof. Chapter 13 is very different from chapter 7, since the chapter 13 debtor usually maintains possession of the property of the estate and makes regular payments to creditors, through a trustee, and based on the debtor's expected income over the duration of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. Protection from lawsuits, garnishments, and other creditor action while the plan is in effect. The discharge is also considerably more extensive (i.e., more debts are dealt) under this chapter than under chapter 7.
The Ugly
Chapter 7 is ugly! Chapter 7 is brutal! Chapter 7 is a last resort! Where Chapter 7 eliminates debt, Chapter 13 reorganizes it.
Chapter 7 is the most common of the three. It wipes the slate clean, as it were. Unfortunately, it wipes the debtor's credit clean as well! Debts, like credit cards, medical bills and utility bills, can be completely annihilated. Some of the property may be used to repay creditors - however, various bankruptcy laws allow individuals to keep much of their most valuable assets.
Bankruptcy law is very complex and difficult to navigate. A debtor, with their bankruptcy attorney, submits a request that the bankruptcy court agree that the debt that is owed cannot be paid. The court is told of the specific bills that are owed and the property the individual wishes to hang on to. The paperwork submitted to the bankruptcy court is called the "Petition." Skill is needed in planning and preparing the petition to allow the debtor to get rid of the most debt while retaining the most property. Making a mistake at this point can cause significant harm to the person submitting the "Petition." If not correctly completed it can be rejected by the court and the property lost. Its also crucial to work out the most appropriate time to file the "Petition", thereby avoiding rules preventing abusive bankruptcies.
In Chapter 7 bankruptcy cases, the debtor files several forms disclosing personal and real property, income and expenses, debts and property transactions. The Court then will allocate a person, called a "Trustee", to take your case. Around 30 days after filing for bankruptcy, a "Meeting of Creditors" is arranged, where the trustee will review the case, verify the debtor's identity, and may ask a few basic questions. In spite of the name, creditors rarely attend this meeting, which may last only a few minutes. The debtor should receive a notice from the court a couple of months later that "all debts that qualified for discharge were, in fact, discharged."
So, as squeaky clean as this all may appear, do not be blind to the Ugly fact that in business the debtor is essentially starting at square one! Advice: Get Professional Liability Insurance!!!
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