Chapter 13, 11

Chapter 13 introduction

(I would be glad to help you decide which chapter is right for you. Call for a free consultation on any bankruptcy matter at (619) 702-5015. Or you can visit my websites for more bankruptcy information at: www.farquharlaw.com or www.freshstartsandiego.com.)

A chapter 13 bankruptcy is basically a debt payback plan.  It allows you to pay back your debts out of disposable income over a period of 3 to 5 years to the extent that you can and you receive a discharge of the remaining debts at the end of the period.  Chapter 13 has advantages to it like being able to strip off unsecured mortgages and cramming down the loans to the value of the underlying asset.

The reality of the chapter 13 though is that like the chapter 11 most people fall out of them during the payment period and the case is thus usually dismissed or converted to a chapter 7.  You can though dismiss a 13 your self though whereas you are locked into a chapter 7 once you file.  Most people prefer chapter 7s if they qualify but a chapter 13 does make sense under certain circumstances.

What is a chapter 13 bankruptcy?

Chapter 13 bankruptcy filing is a way for individuals in the United States to undergo a financial reorganization supervised by a federal bankruptcy court. The Bankruptcy Code anticipates the goal of Chapter 13 as enabling income-receiving debtors a debtor rehabilitation provided they fulfill a court-approved plan. Compare the goal of Chapter 13 with the relief contemplated in Chapter 7 that offers immediate, complete relief of many oppressive debt(s).

Under Chapter 13, the debtor proposes a plan to pay his creditors over a 3 to a 5 year period. This written plan details all of the transactions (and their durations) that will occur, and repayment according to the plan must begin within thirty to forty-five days after the case has started. During this period, his or her creditors cannot attempt to collect on the individual’s previously incurred debt except through the bankruptcy court. In general, the individual gets to keep his property, and his creditors end up with less money than they are owed.

During the pendency of a Chapter 13 case the debtor is not permitted to obtain additional credit without the permission of the bankruptcy court. Moreover, creditors may not be willing to risk lending money to such an individual. However, this disadvantage is not unique to Chapter 13; it may also apply to individuals currently in a Chapter 11 case, case or those who are in or have recently been in a Chapter 7 case.

The advantages of Chapter 13 over Chapter 7 include: the ability to stop foreclosures although a foreclosure would be reinstated upon completion of the bankruptcy; to achieve a super discharge of debts of kinds not dischargeable under Chapter 7; to value collateral; to bifurcate the security interest of creditors in certain property that creditors are either charging too much interest for, or are over-secured, or both, and leading to a cram down modification of the debt; to prevent collection activities against non-filing co-signers (co-debtors) during the life of the case.

Call (619) 702-5015 to speak to a knowledgeable attorney if you have any questions regarding this information.

For much more bankruptcy information see my websites at: www.farquharlaw.com or www.freshstartsandiego.com

What is a Chapter 11 bankruptcy?

A chapter 11 bankruptcy is a business bankruptcy that allows businesses to re-organize, shed some debt, and continue in business if at all possible.  It was created to save businesses and jobs by giving them time to pay off some of their debts.  After a chapter 11 is filed a creditors committee is set up to approve a reorganization plan unless it is a small business and then a creditors committee is often not necessary.

The business owner then becomes the debtor-in-possession and he/she then runs the business.  Individuals can file for chapter 11 if they have too much debt for a chapter 13.  A chapter 11 is very useful in real estate cases where people are behind on mortgage payments and they need time to catch up.  In a chapter 11 liens can be avoided, debts can be reduced, leases and contracts can be rejected and thus it can be very advantageous.

Filing one is a very difficult and lengthy and expensive process though as many motions need to be filed along with an eventual reorganization  plan.  You are constantly in court and it s possible to lose managerial control of the business if a creditor demands it.  Often people believe want to file a chapter 11 but it is sometimes not the best course of action.

When do you file a chapter 11 bankruptcy?

When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11.

In most Chapter 11 cases, the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court.

Chapter 11 bankruptcy retains many of the features present in all, or most bankruptcy proceedings in the United States. It also provides additional tools for debtors as well. Most importantly, 11 U.S.C. § 1108 empowers the trustee to operate the debtor’s business. In Chapter 11, unless appointed for cause, the debtor acts as trustee of the business.

Bankruptcy affords the debtor in possession a number of mechanisms to restructure its business. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business’ earnings. The court may also permit the debtor in possession to reject and cancel contracts. Debtors are also protected from other litigation against the business through the imposition of an automatic stay. While the automatic stay is in place, most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.

If the business’s debts exceed its assets, the bankruptcy restructuring results in the company’s owners being left with nothing; instead, the owners’ rights and interests are ended and the company’s creditors are left with ownership of the newly reorganized company.

Call (619) 702-5015 to speak to a knowledgeable attorney if you have any questions regarding this information.

For much more bankruptcy information see my websites at: www.farquharlaw.com or www.freshstartsandiego.com