Welcome to LASPD News. On this blog, we are going to share details about our program and the cases we have worked on. We are going to discuss the latest topics regarding senior issues and important changes that might affect you or your friends and family members.

Bankruptcy 101

Understanding the Basics of Bankruptcy

If you are bogged down with significant debt to the point where you are missing payments, being subjected to harassment by collection agencies, and your income will likely never reach a level to effectively service what is owed, it may be worthwhile to consider filing for bankruptcy. Bankruptcy offers a proverbial lifeboat to people drowning in debt. When the bankruptcy process is complete, a debtor (i.e., the name given to the individual who filed for bankruptcy) will have a significant burden lifted off their shoulders so they can start anew. If you are weighing whether to file for bankruptcy, it is extremely important to gain a general understanding of the relevant rules and regulations that will impact your proceedings.

There is More Than One Type of Bankruptcy

Many people are surprised to discover that there are multiple types of bankruptcy under the United States Bankruptcy Code. Some types of bankruptcy are best suited for individual debtors while other types are best suited for corporate entities. Nevertheless, each type of bankruptcy features its own unique set of rules, regulations, and procedures. Let’s take a look at each:

Chapter 7 Bankruptcy

Most individual debtors will likely file for Chapter 7 bankruptcy. When someone files for Chapter 7 bankruptcy, the debtor can eliminate specific types of debts – most notably credit card balances, medical expenses, and personal loans. In exchange for having this debt wiped out, the debtor will be required to sell specific pieces of property (commonly referred to as “nonexempt” property) and the proceeds from the sale will go to pay down the debts held by your creditors. However, it is important to highlight the fact that you do not have to sell everything you own when filing for Chapter 7 bankruptcy. As mentioned, bankruptcy laws only require a debtor to sell off nonexempt property. This means you can still keep any exempt property, which includes your home, furnishings within the home, clothing and so forth. The types of property deemed exempt or nonexempt depends primarily on the state in which you reside.

Another important note is that Chapter 7 bankruptcy does not wipe away all debts. If you have certain “non-dischargeable” debts, then you will need to pay them back, even after filing for bankruptcy. The most common types of non-dischargeable debts include the following: (1) Student loan debt, (2) Child support and/or spousal support, (3) Damages owed from a personal injury or wrongful death lawsuit, (4) Back taxes owed to the IRS.

Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy will likely be most attractive to a debtor with a steady stream of income. Why? Because someone who files for Chapter 13 bankruptcy is generally not required to sell their valuable assets, like their home and/or automobile. Instead of being forced to sell off assets, a debtor who files for Chapter 13 bankruptcy will negotiate a repayment plan with their creditors over a specific period (between three and five years). This repayment plan will be based primarily on the debtor's projected income during the repayment period. A major benefit to this option is that while a debtor is paying down their debt through the bankruptcy repayment plan, they are effectively protected from a creditor, or creditors, attempting to initiate wage garnishments, file lawsuits, and so forth.

Chapter 11 Bankruptcy

If you own a business that is struggling to stay afloat, it may make sense to file for Chapter 11 bankruptcy. When someone files for Chapter 11 bankruptcy, the debtor is able to restructure its debts through a reorganization plan. Bear in mind that the plan will need to be approved by the bankruptcy court before it can go into full effect. Generally, when a business initiates a reorganization plan, it allows the business to reduce its debt obligations and even modify payment terms.

If you own a small business and are considering bankruptcy, there is now a “Subdivision V” within Chapter 11 that makes the process much simpler for smaller business entities, including partnerships, sole proprietors, etc. Under Subdivision V, a small business owner can complete a streamlined reorganization plan that does not require the formation of a creditors' committee or disclosure statements. In addition, pursuant to Subdivision V, a bankruptcy judge can sign off on the reorganization plan without a consensus among the creditors of the small business. However, it is important to note that Subdivision V is only accessible to small businesses with debt liabilities of less than $2.7 million (please be advised that, in response to the COVID-19 pandemic, the eligible debt limit for small business owners was temporarily increased to $7.5 million with an expiration date of March 26, 2021).

Chapter 12 Bankruptcy

If you own a family farm or fishing business that has fallen on hard times financially, but you still have a steady flow of income, you may want to consider filing for Chapter 12 bankruptcy. Why? Because Chapter 12 bankruptcy is specifically designed for family farming and fishing operations. The structure of Chapter 12 bankruptcy mirrors Chapter 13 bankruptcy in that a debtor is given the opportunity to negotiate a repayment plan with their creditors over a period (typically between three and five years).

Overview of Bankruptcy Courts and How They Operate

The bankruptcy process is so complex and intricate that it has its own dedicated system of judges and courts. For example, each judicial district in the United States (there are 90 total) has a specific bankruptcy court. Bankruptcy courts are managed by experienced bankruptcy judges. They possess the authority to level binding decisions in the cases that come before them. As a debtor, you probably won’t have much direct contact or interaction with the judge assigned to your bankruptcy case. This is because a majority of the leg work done during a bankruptcy proceeding occurs outside of a courtroom. Most of a debtor’s interactions will involve their creditors, a bankruptcy trustee, and the debtor’s attorney.

Take Action Today The decision on whether to file for bankruptcy is extremely important and must be given due consideration with an appropriate assessment of your legal and financial options. The ramifications associated with filing for bankruptcy can reverberate through various aspects of your life, so it is important to make the “right” decision based on your specific circumstances.  For a free evaluation click here.

Senior Issues, Etc. - Legal Advocates for Seniors

Two years ago, LASPD's Legal Director Don Leibsker was a guest of @Libertyville Patch. He talked about Legal Advocates for Seniors and People with Disabilities (LASPD) which helps seniors and the disabled with debt problems. You want to know more about LASPD? Check out the video! You have a question or need our help? Don’t hesitate to contact us!