The Floyd Law Firm, PC is here to help you when the burden of financial strain has become unbearable, and the concept of filing for bankruptcy may bring much needed relief. The process of filing for bankruptcy allows individuals, couples, small businesses, and large companies to be excused from repaying some or all of their debt. For those that can no longer meet their financial obligations, bankruptcy may be the last resort. The procedures and rules for filing for bankruptcy are governed by United States federal law, and individual states are prohibited from legislating in this area of the law.
There are two general kinds of bankruptcy: liquidation and reorganization. A liquidation bankruptcy means that debtors must surrender their property to be sold, and the proceeds of the sale is then distributed to the creditors to discharge the debts. A reorganization bankruptcy is when the debtors are allowed to keep their property, however they must agree to adhere to an installment payment plan to repay their creditors at least a portion of the total amount owed.
The process of filing for bankruptcy involves first submitting a petition and paying a fee to the bankruptcy court. The bankruptcy petition is made of documents and the sworn statements of the debtor(s) relating to the amount of money owed, expenses, income, and a list of all of property and assets. Once the petition is filed, the hearing is scheduled for the review of the information in the petition by the court.
Bankruptcy is not always an option that is available to everyone, and determining the type of bankruptcy to file for is important. Seeking experienced legal advice to determine the correct method to use can make all the difference. Professional legal representation may help to protect the rights of the individual debtor or business, and helps to ensure that all of the necessary paperwork is filled out properly.
Each debtor must consider the type of bankruptcy filing – whether Chapter 7, 11, or 13. The federal laws and regulations must be followed carefully because any errors during the process could result in the court refusing to approve the petition to discharge the debtor’s liabilities. Understanding the differences between Chapter 7, 11 and 13 bankruptcy, and choosing the right method, has important implications for the debtor’s future financial obligations and assets.
A Chapter 7 bankruptcy means that the court is petitioned to discharge all or most of the debts in exchange for the debtor’s agreement to allow a bankruptcy trustee to assume control of any property or assets owned that are not deemed to be exempt from collection. The assets are then sold and the proceeds are distributed to the creditors.
Certain property can be exempt such as the debtor’s primary home, vehicle needed for transportation, clothing, retirement plans, insurance, tools for work, and other necessities. Public benefits, such as Social Security and unemployment insurance, are fully protected. The debtor may choose the property that is eligible to keep from a list of state exemptions. Any balance of the debtor’s obligations and loans are forgiven and can never be collected. Creditors who may attempt to collect these remaining debts that were discharged can face serious penalties under federal law.
Chapter 7 bankruptcies are the most common, can take three to six months to fully process, and those who have had debts discharged in a Chapter 7 cannot refile within eight years. The bankruptcy is reported on credit reports for up to 10 years.
The Bankruptcy Means Test may be applied to ensure that the person filing has sufficiently low disposable income, and the disposable income remaining after the bills are paid is not enough to start repaying liens, loans, and other debts.
Businesses or small companies that have become insolvent, but want to stay in business, may be able to file for a Chapter 11 bankruptcy. Similar to a reorganization, a Chapter 11 filing allows businesses to obtain protection from their creditors while agreeing to a repayment plan. The debts and liabilities may be restructured and reduced in order to give the business the opportunity to work towards achieving profitability.
With a business bankruptcy, an LLC is similar to both a partnership and a corporation and treated the same as a corporation for Chapter 11 Bankruptcy, as long as the LLC filing has not already been dissolved.
The Chapter 11 Bankruptcy is like a business reorganization in that it provides the business debtor the powers and obligations of a trustee. Some exceptions occur, but typically the business filing for bankruptcy assumes the role of the trustee to propose the schedule. For an LLC bankruptcy, this can affect the extent to which each member of the LLC can participate in the bankruptcy filing based upon equity holdings. In some cases in which a trustee has been appointed by the bankruptcy court to handle the bankruptcy, the operating agreement of the LLC becomes null because an individual member or members of the LLC may be facing investigation or the threat of litigation.
Debtors who are in a higher income bracket may file a Chapter 11 bankruptcy if they fall outside of the debt limits for filing a Chapter 13, and they can propose a plan of reorganization to repay creditors over a period of time. As of April 2019, the adjusted debt limits to qualify for Chapter 13 are $419,275 for a debtor’s non-contingent, liquidated unsecured debts and $1,257,850 for a debtor’s non-contingent, liquidated secured debts.
A Chapter 11 bankruptcy may provide the means for which an individual gets the time needed to properly reorganize their assets and affairs for liabilities considered to be non-dischargeable under the federal bankruptcy code. Non-dischargeable means that the debt is not fully canceled out in bankruptcy – such as payroll taxes. Payroll taxes are serious. If an individual or business fails to pay the taxes, they can be held personally liable. Filing Chapter 11 will stop the fees and penalties from accruing on the unpaid payroll taxes, and legal representation can work with the IRS to structure a repayment plan or an affordable settlement offer.
A Chapter 13 bankruptcy is for debtors that earn higher than average income and have enough disposable income to pay off some of their debts. This allows the debtor to reorganize open loans, liens, and other debts in order to make payments more manageable. As a a reorganization bankruptcy, Chapter 13 allows debtors to retain their property by agreeing to make monthly payments toward their debt over the course of three to five years.
Filing Chapter 13 can mean that specific kinds of secured debt, such as a vehicle loan, may be restructured by reducing principal to the market value of the assets, and lowering payments by extending the repayment period to sixty months. Obligations such as mortgages and taxes owed may be modified as well. Some debts cannot be discharged such as priority debts that include child support, spousal support, and some taxes.
For Chapter 13, the discharge occurs after all the payments under the bankruptcy plan have been made, which takes three to five years. Those who have had debts discharged in a Chapter 13 cannot refile within six years and the bankruptcy is reported on credit reports for the 5 years of repayment.
The amount of the monthly payments will depend on the location of filing and is based on the income of a similarly-situated family in the same geographic area. A bankruptcy trustee also collects a fee and this administrative fee is typically a percentage of the amount that is paid to the creditors. The repayment plan must also state that the debtor will dedicate all disposable income to the creditors for a minimum of three years. Prior to beginning to make payments under the plan, the bankruptcy court handling the case must confirm it and the bankruptcy trustee, or the creditors, may lodge objections to the payment plan.
Secured debts, such as valid liens against any property – whether real estate or personal property – will still apply. This is because the debt itself is considered to be secured with an interest in the property, and a secured creditor may enforce the lien to recover the property secured by the lien, although the personal obligation to pay off the debt may be discharged.
Federal student loans are another example of a type of debt which generally cannot be discharged in bankruptcy by law.
Only those debts that existed before the date of filing will be discharged and the debtor will be responsible for any debt incurred after the filing of a bankruptcy petition. Any fraud or misconduct suspected in connection with any discharged debt will affect the outcome.
While a majority of debt can be discharged through filing for Chapter 7 bankruptcy, not all debts can be, such as secured debts and federal student loans. The United States Bankruptcy Code lists 19 categories of debt that cannot be discharged. An experienced bankruptcy attorney at The Floyd Law Firm can advise you of which debts can be subject to discharge and what type of filing may be best for your situation. Contact us for further information and consultation.
At The Floyd Law Firm PC, our firm is committed to helping individuals and small business owners navigate the stressful event of bankruptcy. We work as a team when solving problems and we understand how to protect our client’s interests. Our firm was one of the first in Surfside Beach, and we have been helping people there for over 45 years. Our focus is on fostering long solid relationships with all of our clients.