Bankruptcy is a legal process where you can discharge certain unsecured debts and modify obligations owed to secured creditors. Secured debt refers to loans that are guaranteed by collateral or property. For instance, a mortgage is secured by the home and a car loan is secured by the vehicle itself. If you default, then the home or car may be returned or seized by the lender. Examples of unsecured debt include credit card and department store obligations, medical bills, personal loans and most payday loans.
There are 3 common types of bankruptcy for consumers and businesses. Individuals who file must meet certain eligibility criteria before they are allowed to file.
Chapter 7 Bankruptcy
A Chapter 7 is also called a straight bankruptcy. Individuals must meet certain income limits to file based on their household size. For instance, an individual in a household of four persons in Massachusetts cannot have income that exceeds $113,651. This figure goes up periodically. You may still qualify if your income exceeds the median amount by passing a means test. We can evaluate this for you.
We will also evaluate your assets to see if they can be protected by certain exemptions. For example, you are entitled to $500,000 in the value of your home if you filed a Declaration of Homestead with the Registry of Deeds. Other exemptions include a vehicle, retirement accounts, household items, jewelry and others.
If you qualify, you have to complete a short debt counseling class that we can arrange for you. Our office will prepare your petition that lists your assets, liabilities, expenses and various financial transactions. Once your petition is filed, all creditor activity including any contact with you, wage garnishments or other asset seizures automatically cease.
Generally, your only appearance in your case is before a trustee who reviews your petition. We will prepare you for the meeting and accompany you. Within 90 days from this meeting, certain debts will be discharged but you will have to complete a financial management class first. Dischargeable debt includes credit card debt, department store bills, medical bills, payday loans, promissory notes, personal loans and some taxes. Most student loans and any court-ordered support payments are not dischargeable.
Regarding secured debt, you have the option to reaffirm the debt, surrender it without incurring further obligations, or redeem it by paying the creditor its replacement value.
Businesses that wish to wind up their operations may file Chapter 7 and discharge all business debt. Its assets are sold and a trustee distributes the funds to creditors to repay them to some degree but without any further obligations by the business.
Chapter 13 Bankruptcy
If you do not qualify for Chapter 7, you have the option of filing Chapter 13, a repayment plan. There are secured and unsecured debt limits but these are considerable and most consumers will qualify to file.
You do have to complete the same classes as in Chapter 7. The benefit of a Chapter 13 is that all your assets are protected. If your mortgage is in danger of foreclosure or your car subject to repossession, a Chapter 13 can avoid these measures.
We will prepare a repayment plan that includes your liabilities and arrearages for a mortgage, car loan or support payments. You will make a single payment to a trustee who distributes the funds to your creditors in order of priority. Creditors with priority include secured creditors and employees owed back wages. Only businesses that are sole proprietorships can use Chapter 13 and include debts that are personally guaranteed.
The repayment plan is generally for 3 years though it can be extended to 5 years in some cases. For mortgages and other secured loans, you do have to meet your monthly payments in addition to making the monthly payments to the trustee under the plan.
At the conclusion of the case, any unsecured debts not paid under the plan are discharged.
Chapter 11 Bankruptcy
Struggling corporations, LLCs and partnerships may elect to file Chapter 11 or be forced into an involuntary filing by certain creditors. Chapter 11 is a reorganization and repayment proceeding similar to a Chapter 13 but much more complicated and involves considerable filing and reporting requirements as well as costs. We will prepare a reorganization plan that restructures the debt of certain creditors that pays them back over time and includes information about how the business will achieve solvency. The plan is submitted to creditors whose debts have been adjusted who vote to confirm or reject the plan.
If the plan is confirmed, the debtor company retains control over its assets and daily business operations. If any major business decisions such as selling assets or equipment, breaking existing contracts, licenses and leases and re-negotiating new ones are to be implemented, the business requires approval by the bankruptcy court.
There are filing and reporting requirements that we will see are met. Individuals with significant debt but with considerable assets who do not qualify to file under either Chapter 7 or 13 may file as well.
Call the Law Offices of Jason C. Matalas
Bankruptcy is not a solution for every individual or business but can be an option that can give you considerable relief from crushing debt and give you a fresh start. Call the Law Offices of Jason C. Matalas to discuss bankruptcy and if this is appropriate for you your business.