Law Office of Ernesto J. de la Fé, P.A.
Getting to Know what Bankruptcy is About
May, 1995
Many of my clients frequently ask me bankruptcy-related questions. Although I don’t handle that type of case, bankruptcy is an area of law that affects all of us at one time or another. Whether a person declaring bankruptcy owes us money, or we are the one having to resort to bankruptcy for protection, we should all have an understanding of the law. Attorney Margarita Bouza, Esq., who is a practitioner in the field, has provided me with the following summary of the law to share with you:
Basically, there are four types of bankruptcy proceedings under which Federal law gives people an opportunity to discharge or postpone the payment of debts subject to payment schedules.
1. Chapter 7 - Liquidation:
Chapter 7 is designed for debtors in financial difficulty who are unable to pay their existing debts. In this case a trustee takes posession of the debtor’s properties. The debtor may claim some of these as exempt under the law. The trustee then liquidates the property and uses the proceeds to pay the creditors, subject to priorities established under the law.
The purpose of filing a Chapter 7 case is to obtain a discharge of all of the debtor’s existing debts. If, however, the debtor is found to have engaged in certain improper conduct, discharge may be denied by the court, thus defeating the purpose of the bankruptcy petition.
Some debts, such as certain taxes, student loans, alimony, child support, fraudulently incurred debts, debts for wilful and malicious injury, and debts arising out of a DUI conviction are not dischargeable under the law.
Under certain circumstances the debtor may keep property that he has purchased subject to a valid security interest.
2. Chapter 11 - Reorganization:
Chapter 11 is designed primarily for the reorganization of a business but is also available to consumer debors. Its provisions are quite complicated, and any decision to file a Chapter 11 petition should be reviewed with a knowledgeable attorney.
3. Chapter 13 - Repayment of All or Part of the Debts of an Individual with Regular Income:
Chapter 13 is designed for individuals with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time. The law limits the size of debts that are eligible for Chapter 13.
The debtor must file a plan with the Court to repay his creditors all or part of the money that is owed to them, using the debtor's future earnings. Usually the period allowed to repay the debts is 3 years, but no more than 5. The plan must be approved by the court before it can take effect.
The debtor can keep all of the property, both exempt and non-exempt, as long as he continues to make payments under the plan.
After completion of the payments the debts are discharged except for alimony and support payments, certain kinds of taxes owed for less than three years, and long term secured obligations.
4. Chapter 12 - Family Farmer
I don’t think I have any clients or friends who are family farmers, so let’s skip this one.
If you have any questions regarding bankruptcy please call me, I’ll be happy to put you in touch with Ms. Bouza.
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