Bankruptcy Law (federal law)

Bankruptcy: bankrupt insolvent, can’t pay your debts

I. Personal Bankruptcy Law

 3 amendments to make it hard for individuals to file bankruptcy
 Before can file for bankruptcy, have to take credit counseling course
o Do you really need to file for bankruptcy
o Which type of bankruptcy you need to file for
 Once filed, take debtor education class
o Help person prepare budget, won’t repeat problem
 If you get legally discharged by bankruptcy charge
o Can only do it once every 8 years
 Public information

II. 3 types of bankruptcy

1. Chapter 7
2. Chapter 11
3. Chapter 13

III. Chapter 13:

 Only available to individuals
 Used by people who need more time to get current on their debt
 File plan/schedule with bankruptcy court and get approved (usually 3-5 years)
 As soon as you file bankruptcy, everything is frozen
 Can switch to chapter 7 filing if you can’t get current with chapter 13

IV. Chapter 11
 Counterpart of business
 Business needs more time to get current on debt
 Business continues to operate, has employees, has wages
 File repayment plan (no max time but usually 3 years)
 Bankruptcy court appoints a trustee in bankruptcy (trustee gets fee)
 Trustee and judge are partners in business, no decisions without their approval
 Can switch to chapter 7 filing if can’t get current

V. Chapter 7 (liquidation)
 Hopelessly in debt
 Individuals and businesses
 Trustee in bankruptcy
o takes all non-exempt assets
o sells at auction
o proceeds distributed
 business terminates
  any debt leftover, bankruptcy court can legally discharge/eliminate
 few debts can’t be discharged
 bankruptcy proceeding
 trustee sells extra assets
 file complete financial statement with court
 if you hide assets, they’ll refuse your case
 if you file false financial statement, that’s a crime
 if you the debtor transfer assets to anyone within 90 days of filing bankruptcy,
considered fraudulent, court will seize assets

VI. how cash from assets get distributed

1. secured creditors
(no cash go to a lowered tier until judge satisfied with upper tier)
2. cost of preserving and administrating debtors’ estate
3. unpaid wages
4. claims of farmers and fisherman
5. refund security deposits
6. unpaid alimony and child support
7. unpaid taxes
8. general unsecured creditors

VII. Debts that don’t’ get discharged in Bankruptcy

1. Alimony
2. Child support
3. Backed taxes
4. Most student loans
5. Debt bankrupt filer got right before filing
6. Fraud involved debt

Bankruptcy filing public information

Deter from getting job

Non bankruptcy alternatives

No public filing/record
Voluntary
Debtors and creditors have to be in agreement
3 common ones
1. Debt extension
 Debtor goes to creditors
o I need more time to get current
o I can pay .60 on the dollar in full satisfaction of what I owe
 Motivation: prevent you from filing bankruptcy (they may not get $$)
2. Bank workout
  Most of debt owed is to banks/financial institution
o I need more time to pay you back
o I need you to lend me more money
 Motivation:
3. Assignment
 Ill transfer all my assets to assignee, assignee to sell assets
 Detailed plan on how assets distributed
 Motivation: prevent you from filing bankruptcy