Bankruptcy - The laws that dictate bankruptcy filings are primarily federal, which means there is very little variance from state to state. States do, however, have jurisdiction over debtor-creditor matters such as which property may be exempt from creditor claims. There are two main forms of relief under bankruptcy law: liquidation and rehabilitation/reorganization.
Chapter 7 Liquidation - As the most common form of bankruptcy, liquidation is governed by Ch. 7 of the Bankruptcy Code. While referred to as liquidation, a majority of assets can be exempted in this type of bankruptcy. A bankruptcy trustee will collect the debtor’s nonexempt assets (typically very few assets are not exempt) and convert these assets into cash. This money will then be used to pay back creditors based off their priority detailed in the Code. Not all creditors will be able to obtain a full refund for the debts owed through this form of bankruptcy. From there, any remaining debts of the individual may be discharged by the bankruptcy court.
Chapter 11 & Chapter 13 Rehabilitation - Known as rehabilitation or reorganization, this type of bankruptcy allows creditors a better opportunity to recover the debts they are owed. This is typically the option that most courts prefer. Chapter 11 is often used for individual debtors who have complex debts or for corporations. On the other hand, Chapter 13 is reserved for individuals with smaller amounts of debt. If the debtor agrees to pay off debts based on the timeline/plan laid out and approved by the court, they can often keep assets that may have been liquidated in other forms.
Call Scaringi Law at (717) 775-7195, to schedule your case evaluation.
Means Test - This financial test is used to determine if a debtor is financially eligible to file for a liquidation bankruptcy under Chapter 7. If a debtor can repay $1,000 or more each month out of their adjusted monthly income towards unsecured creditors, they are most likely not eligible for Chapter 7 and would be directed to Chapter 13.
Voluntary Bankruptcy - When bankruptcy is filed by the debtor, it is labeled a voluntary bankruptcy. This is typically how most bankruptcy cases are filed.
Involuntary Bankruptcy - If a creditor seeks relief against a debtor under Bankruptcy Code, it is considered an involuntary bankruptcy. This type of bankruptcy is only approved when there is a certain amount of creditors and debt. The debtor also has the option to file a response for the court to review before making a decision. Frivolous involuntary bankruptcy filings may result in creditors owing fees, damages, and more to the debtor.
Collections / Repossession - These are options that can be used by creditors to recoup expenses from debtors who have defaulted. Collections any include any method of seeking to get the debtor to cover the remaining debt, such as the use of a collection agency. They may also seek to obtain wage garnishments, liens, or levies. Repossession means that a creditor will collect the property that has been put up to secure a debt, such as a vehicle.
Commercial bankruptcy - This type of bankruptcy is used by businesses who need to have their debts covered through liquidation of assets or through a partial discharge and restructured payment plan.
Reorganization and restructuring - These are methods that a business can use to continue to pay offer creditors—even if just a partial amount of what it owes—through restructuring those debts. Unlike liquidation, there is no need to sell off assets and stop operation.
Creditors' rights - Just as debtors have rights in the bankruptcy process, so do creditors. They have the right to take collection actions, seek repossessions, and even pursue foreclosures in order to collect any unpaid debts. Creditors also have the right to force a debtor into involuntary bankruptcy.
Discharge - When any remaining debts are wiped out or forgiven without any payment at the end of the bankruptcy process, it is considered a discharge. Only certain debts may be eligible to be discharged.
Foreclosures - When a mortgagor fails to pay regular mortgage costs on time, the lender may force the sale of the home or other type of property. This money will then be used to pay off the debt. Foreclosures may involve the court or could be performed under a clause in the mortgage.
Garnishment - If a third party is holding some of the debtor’s property or owes the debtor money (such as a bank or employee), a garnishment may be used to cover the debtor’s debt before it ever gets to them.
Workouts - This is a non-bankruptcy agreement made between a debtor and a creditor. In this agreement, the creditors will accept less money than owed or agree to a longer payment plan in order to ensure they receive some of their debts back. It is voluntary and can be much less complicated.
If you would like to learn more about the bankruptcy process, call (717) 775-7195 now, or click to contact Scaringi Law via our easy form. Learn more about our expert services in personal and business bankruptcy law.