How Do I Get Out Of Bankruptcy
Generally, there are 4 methods to get out of bankruptcy:
Depending on which method is used, it is also possible to have your name removed from the bankruptcy register after that.
For more information on these 4 methods, please refer to our article on getting out of bankruptcy.
The Single Asset Real Estate Debtor
Single asset real estate debtors are subject to special provisions of the Bankruptcy Code. The term “single asset real estate” is defined as “a single property or project, other than residential real property with fewer than four residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental.” 11 U.S.C. § 101. The Bankruptcy Code provides circumstances under which creditors of a single asset real estate debtor may obtain relief from the automatic stay which are not available to creditors in ordinary bankruptcy cases. 11 U.S.C. § 362. On request of a creditor with a claim secured by the single asset real estate and after notice and a hearing, the court will grant relief from the automatic stay to the creditor unless the debtor files a feasible plan of reorganization or begins making interest payments to the creditor within 90 days from the date of the filing of the case, or within 30 days of the court’s determination that the case is a single asset real estate case. The interest payments must be equal to the non-default contract interest rate on the value of the creditor’s interest in the real estate. 11 U.S.C. § 362.
Single asset real estate cases are ineligible for the small business or subchapter V election. 11 U.S.C. § 101, 1182.
What Is The Role Of The Us Securities & Exchange Commission In Chapter 11 Bankruptcies
Generally, the SEC’s role is limited. The SEC will:
- review the disclosure document to determine if the company is telling investors and creditors the important information they need to know and
- ensure that stockholders are represented by an official committee, if appropriate.
Although the SEC does not negotiate the economic terms of reorganization plans, we may take a position on important legal issues that will affect the rights of public investors in other bankruptcy cases as well. For example, the SEC may step in if we believe that the company’s officers and directors are using the bankruptcy laws to shield themselves from lawsuits for securities fraud.
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Appointment Or Election Of A Case Trustee
Although the appointment of a case trustee is a rarity in a chapter 11 case, a party in interest or the U.S. trustee can request the appointment of a case trustee or examiner at any time prior to confirmation in a chapter 11 case. The court, on motion by a party in interest or the U.S. trustee and after notice and hearing, shall order the appointment of a case trustee for cause, including fraud, dishonesty, incompetence, or gross mismanagement, or if such an appointment is in the interest of creditors, any equity security holders, and other interests of the estate. 11 U.S.C. § 1104. Moreover, the U.S. trustee is required to move for appointment of a trustee if there are reasonable grounds to believe that any of the parties in control of the debtor “participated in actual fraud, dishonesty or criminal conduct in the management of the debtor or the debtor’s financial reporting.” 11 U.S.C. § 1104. The trustee is appointed by the U.S. trustee, after consultation with parties in interest and subject to the court’s approval. Fed. R. Bankr. P. 2007.1. Alternatively, a trustee in a case may be elected if a party in interest requests the election of a trustee within 30 days after the court orders the appointment of a trustee. In that instance, the U.S. trustee convenes a meeting of creditors for the purpose of electing a person to serve as trustee in the case. 11 U.S.C. § 1104.
As discussed above, a trustee is appointed in each subchapter V case. 11 U.S.C. § 1183.
Chapter 7 Bankruptcy Petition
A debtor initiates a Chapter 7 bankruptcy by filing a Petition with the bankruptcy court. The bankruptcy petition is a universal federal form that covers a substantial amount of financial information about the debtor and his family. Debtors must sign their Petition under oath.
The bankruptcy Petition requires the debtor to list all his unsecured debts separately from his secured debts. Unsecured debts include personal loans and credit cards issued by banks, such as Visa, MasterCard, American Express, or Discover, and other credit cards used to purchase consumable items. Vehicle leases, medical bills, and personal loans are also unsecured debts. Tax debt is also unsecured until the IRS issues a tax lien.
Secured debts include those debts where the creditor has a security interest in the debtors property to guarantee payment. Examples of secured debts include mortgages, car loans, and loans from finance companies . If a debtor has purchased goods using a store credit card, such as a card from Rooms to Go, Best Buy, etc., the store probably has a security interest in certain items purchased, which makes the store a secured creditor.
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Do People Usually Lose Property In A Chapter 7 Bankruptcy Case
Not at all. Most Chapter 7 cases filed in the United States are no-asset cases and the filer is able to obtain debt relief without giving up any of their property. In some cases, a filer may choose to get the much-needed debt relief by filing Chapter 7 bankruptcy even though they may lose certain property. After all, filing bankruptcy and eliminating tens of thousands of debt provides a much greater benefit than keeping a $2,000 piece of real estate that hasn’t increased in value in a decade.
If youâre worried about your state’s exemptions or specific types of property and whether they’re protected, consider speaking to a bankruptcy attorney. Most law firms offer free consultations for Chapter 7 bankruptcy cases, so the most you have to lose is an hour of your time.
File on your own with Upsolve
If you donât have anything that isnât protected by an exemption and canât afford to hire a law firm to help you file Chapter 7 bankruptcy, know that you donât have to hire a bankruptcy attorney to file your case. If youâre eligible, you can use Upsolveâs free web app to prepare your bankruptcy forms. See how it works in our 10-step guide on how to file bankruptcy for free.
What Will Happen To My Stock Or Bond
A company’s securities may continue to trade even after the company has filed for bankruptcy under Chapter 11. In most instances, companies that file under Chapter 11 of the Bankruptcy Code are generally unable to meet the listing standards to continue to trade on Nasdaq or the New York Stock Exchange. However, even when a company is delisted from one of these major stock exchanges, their shares may continue to trade on either the OTCBB or the Pink Sheets. There is no federal law that prohibits trading of securities of companies in bankruptcy.
Note: Investors should be cautious when buying common stock of companies in Chapter 11 bankruptcy. It is extremely risky and is likely to lead to financial loss. Although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares. In most instances, the company’s plan of reorganization will cancel the existing equity shares. This happens in bankruptcy cases because secured and unsecured creditors are paid from the company’s assets before common stockholders. And in situations where shareholders do participate in the plan, their shares are usually subject to substantial dilution.
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For Bankrupt Retailers Reorganization Is Increasingly Unlikely
The system that Squire described, one in which a company can restructure via Chapter 11 bankruptcy protection, isnt a realistic option for many retailers today. Thats in part due to the Bankruptcy Abuse Prevention and Consumer Protection Act , a 2005 amendment to the US Bankruptcy Code.
Previously, bankrupt retailers had 60 days to either reject or accept their store leases, but they could ask the court for repeated extensions of that deadline often for the full duration of a debtors bankruptcy case, according to the American Bankruptcy Institute. Under BAPCPA, retailers now get a maximum of 210 days to make that decision. No further extensions are granted without the landlords consent.
Retailers now have significantly less time to figure out which stores they ought to keep open and which they should close
This matters because it put a massive time crunch on retailers, which now have significantly less time to figure out which stores they ought to keep open and which they should close. It takes 120 days to organize and run a going-out-of-business sale, says Kibler, effectively giving the retailer a mere 90 days to figure out its store closure strategy. On the flip side, BAPCPA leveled the playing field for landlords: If a bankrupt retailer wants to get out of a store lease, it generally only has to pay between one and three years rent, even if it has another nine years left on its contract.
S In Development Of The Plan:
- The debtor company develops a plan with committees.
- Company prepares a disclosure statement and reorganization plan and files it with the court.
- SEC reviews the disclosure statement to be sure it’s complete.
- Court confirms the plan, and
- Company carries out the plan by distributing the securities or payments called for by the plan.
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Debt That Can’t Be Forgiven
While bankruptcy can eliminate a lot of debt, it can’t wipe the slate completely clean if you have certain types of unforgivable debt. Types of debt that bankruptcy can’t eliminate include:
- Most student loan debt .
- Court-ordered alimony.
- A federal tax lien for taxes owed to the U.S. government.
- Government fines or penalties.
What Is Bankruptcy Protection
When an individual or business is unable to make payment to creditors to pay off their debts, they can file for bankruptcy protection under the bankruptcy laws of the United States. For an individual, bankruptcy protection may involve either a cancellation of most debts, along with the selling off of some of their assets, or a structured plan to pay down the debts that are owed. For a business, bankruptcy protection may either provide complete or partial relief of debts and contracts, assuming the business will remain in operation, or the business may cease operation and sell off its assets to pay debts.
There are two types of bankruptcy protection commonly used by individuals: Chapter Seven, and Chapter 13, where chapter refers to the chapter of the bankruptcy code that describes each one. In Chapter Seven, also called a straight bankruptcy or liquidation, a trustee is appointed to control the individuals assets. The trustee then liquidates, or sells the assets, then gives the money to creditors in order to pay off debts, to the extent that this is possible. However, the individual is allowed to keep some personal property, depending on the laws of the state they live in.
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What Does Bankruptcy Protection Mean
What does Bankruptcy Protection really mean? What does bankruptcy protection actually protect for the average consumer?
When you read a press release about a company or individual filing for bankruptcy, it is common to hear the phrase has declared bankruptcy and is reorganizing under bankruptcy protection or has filed for Chapter 7 bankruptcy protection. The term Bankruptcy Protection is used because a bankruptcy filing in a court of law stops all collections activity and legal proceedings regarding debt and financial matters. All bankruptcy filings including Chapter 7 and Chapter 13 will place an Automatic Stay on the bankruptcy estate.
If you would like to learn more about how Bankruptcy Protection can help you, contact our Orange County bankruptcy attorneys or Riverside bankruptcy attorneys at . We look forward to hearing from you.
The Role Of An Examiner
The appointment of an examiner in a chapter 11 case is rare. The role of an examiner is generally more limited than that of a trustee. The examiner is authorized to perform the investigatory functions of the trustee and is required to file a statement of any investigation conducted. If ordered to do so by the court, however, an examiner may carry out any other duties of a trustee that the court orders the debtor in possession not to perform. 11 U.S.C. § 1106. Each court has the authority to determine the duties of an examiner in each particular case. In some cases, the examiner may file a plan of reorganization, negotiate or help the parties negotiate, or review the debtor’s schedules to determine whether some of the claims are improperly categorized. Sometimes, the examiner may be directed to determine if objections to any proofs of claim should be filed or whether causes of action have sufficient merit so that further legal action should be taken. The examiner may not subsequently serve as a trustee in the case. 11 U.S.C. § 321.
Examiners may not be appointed in subchapter V cases. 11 U.S.C. § 1181 .
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What Is The Goal Of Ch 11 Bankruptcy
The primary objective of the Ch.11 bankruptcy process is to stabilize the finances of a Debtors business and restructure its debts with the goal of exiting as a financially healthier and viable business. For this reason, the terms bankruptcy protection or relief are often used interchangeably in reference to the Ch. 11 debtor.
- Reduce or pay off debts and liabilities
- Liquidate assets
- Reorganize into a healthier structure or entity
Ch.11 bankruptcy was created for the purpose of helping debtors stabilize their financial affairs and keep their creditors at bay. At the same time, the justice upheld in the law provides Creditors their rights of recourse against the Debtor within the legal proceedings. Ultimately, the goal of the bankruptcy process is to protect the Debtor and address the health of its business, while upholding the rights of its Creditors.
Understanding Chapter 11 Bankruptcy
A Chapter 11 filing stops debt collection, giving a company time to create a plan to become profitable again by cutting costs and increasing income. Chapter 11 bankruptcy can help companies with significant debt reorganize and restructure, allowing them a second chance. But the filing also has negative consequences. For example, afterward.
According to Epiq, a legal services provider, commercial Chapter 11 filings in May 2020 were up 48 percent from May 2019, while filings in September 2020 were up 78 percent over September 2019. For the first six months of 2020, total filings were up 26 percent from the same period in 2019.
As part of a reorganization, a debtor may assume or reject its executory contracts . There are special issues around what happens to intellectual property if the debtor rejects an intellectual property agreement in which it is a licensor. Our study on intellectual property and bankruptcy can help distressed companies and creditors understand the protections that specific contractual clauses provide in the event of bankruptcy.
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Who Can File A Plan
The debtor has a 120-day period during which it has an exclusive right to file a plan. 11 U.S.C. § 1121. This exclusivity period may be extended or reduced by the court. But in no event may the exclusivity period, including all extensions, be longer than 18 months. 11 U.S.C. § 1121. After the exclusivity period has expired, a creditor or the case trustee may file a competing plan. The U.S. trustee may not file a plan. 11 U.S.C. § 307.
A chapter 11 case may continue for many years unless the court, the U.S. trustee, the committee, or another party in interest acts to ensure the case’s timely resolution. The creditors’ right to file a competing plan provides incentive for the debtor to file a plan within the exclusivity period and acts as a check on excessive delay in the case.
Only the debtor may file a plan in a subchapter V case. 11 U.S.C. § 1189.
What Only Chapter 13 Bankruptcy Can Do
Chapter 7 and 13 each offer unique solutions to debt problems. The two bankruptcy types work very differently. For instance, how quickly your debt will get wiped out will depend on the chapter you file:
- Chapter 7 bankruptcy. This chapter takes an average of three to four months to complete. Learn more about erasing your debt in Chapter 7 bankruptcy.
- Chapter 13 bankruptcy. If you file for Chapter 13 rather than Chapter 7, you’ll likely have to pay back some portion of your unsecured debts through a three- to five-year repayment plan. However, any unsecured debt balance that remains after completing your repayment plan will be discharged. Find out how to pay off or discharge your debts in Chapter 13 bankruptcy.
Chapter 7 is primarily for low-income filers, and therefore, it won’t help you keep property if you’re behind on payments. But, if you have enough income to pay at least something to creditors, then you’ll be able to take advantage of the additional benefits offered by Chapter 13.
Here are some of the things that Chapter 13 can do.
Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan that will allow you to make up the missed payments over time. To make this plan work, you must demonstrate that you have enough income to pay back payments and remain current on future payments. Learn more about your home and mortgage in Chapter 13 bankruptcy.
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