Reorganization or Liquidation Bankruptcy?

Chapter 7 Bankruptcy – Liquidation Bankruptcy

Chapter 7 of the United States Bankruptcy Code is designed to allow for efficient and orderly liquidation of the assets of an individual consumer or a business that will no longer conduct operations after filing its bankruptcy case.  For consumers, the concept of liquidation might be somewhat misleading.  That is because, in many cases, there is nothing to liquidate.  A chapter 7 trustee will be appointed to review the debtor’s petition, schedules and related bankruptcy documents and that trustee will preside over a meeting at which the debtor will answer questions regarding those documents and other financial matters.  However, for most consumer debtors, bankruptcy exemptions empower them to keep most or all of their assets out of the reach of the chapter 7 trustee and their creditors.

Chapter 13 Bankruptcy – Reorganization Bankruptcy for Individual Debtors with a Regular Source of Income.

Chapter 13 of the United States Bankruptcy Code provides a vehicle for consumer debtors to repay their creditors some or all of what they owe them over a period of three to five years.  In a case under chapter 13, consumer bankruptcy debtors file many of the same documents that a chapter 7 debtor must file.  However, chapter 13 debtors have additional responsibilities including filing a chapter 13 plan which proposes which creditors will be repaid and the terms of that repayment.  Every jurisdiction provides a form for chapter 13 plans and nearly each is unique to that particular judicial district.  The Bankruptcy Code requires what a plan must do and mandates certain treatment for particular kinds of creditors.

Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?

The question of whether to file a chapter 7 bankruptcy case or a case under chapter 13 depends on several issues, unique to every case.  To begin with, some debtors may not have a choice–the bankruptcy means test may require them to file a case under chapter 13 to avoid the presumption of abuse.  Depending on certain debt thresholds, other individuals may actually be required to file a under chapter 11 of the Bankruptcy Code (a provision typically reserved for business reorganizations).

Debtors faced with a choice between chapter 7 and chapter 13 need to consider several factors.   One of the most common reasons for filing a case under chapter 13 is that the debtor is behind on a mortgage or car payment and wishes to repay its back payments over time.  For some debtors, chapter 13 represents a way to honestly repay as much of their debts as they can over time and come away from their bankruptcy case with a fresh start.  Before making any bankruptcy filing decision, make sure you discuss your options during a free initial consultation with a Pittsburgh Bankruptcy Lawyer.

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The Pittsburgh Post Gazette did a piece today on the protects that Pennsylvania consumers have against bill collectors.  The article does an excellent job of identifying what creditors can do and when they can do it.  For instance, creditors may only telephone you between the hours of 8:00 a.m. and 9:00 p.m.  Additionally, there are limits on how and when creditors can contact third parties like your employer or your friends and family.  If you find that a creditor is stepping outside the bounds of its rights, you should promptly contact a Pittsburgh debt attorney.

An important matter that the Post Gazette did not address is the power that Pennsylvania residents have to protect assets from their creditors.  Outside of bankruptcy, Pennsylvania’s exemptions are limited.  As the article mentioned, Pennsylvania does protect employee wages–most creditors cannot force your employer to pay them instead of you.  Inside of a bankruptcy case, Pennsylvanians can select between the Federal exemptions or Pennsylvania exemptions.  Pennsylvania is also unusual in permitting bankruptcy debtors the flexibility to select their own exemption scheme.  The Commonwealth permitted exemptions are spread over multiple statutes.  Some, like the tenancy by the entireties exemption, are not even codified but exist as judge-made, common law exemptions.  Tenancy by the entireties permits a married debtor to exempt his or her interest in property that he or she hold together with her non-debtor spouse.  This can be a particularly powerful exemption (think million dollar home and $100,000 in debt).  Application of exemptions is a craft and one that needs to be performed properly in order to get maximum value from a bankruptcy case.  It is false economy to save money on a bankruptcy lawyer but lose untold thousands because of improperly applied exemptions.  The simplest advice is this:  contact a Pittsburgh bankruptcy lawyer.

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Can I save my house from foreclosure?  Can I keep my car in bankruptcy?  Probably.  Your Pittsburgh Bankruptcy Attorney will know how to apply your exemptions properly.

If you want to keep an asset on which you owe money, like a car loan or a mortgage, you generally need to keep paying the underlying debt.  Bankruptcy can make that easier by clearing off other debt that does not involve the property (think credit card debt and medical bills).  If you are not behind on your mortgage or car loan, it might make sense for you to file a bankruptcy under Chapter 7.  Under Chapter 7, you will be able to liquidate your debts without the requirement of making payments to unsecured creditors.

If you are behind on your payments and can’t catch up, even after you take out the unsecured debt, it could make sense for you to file a Chapter 13 bankruptcy.  You will have 3 to 5 years to pay the overdue payments on your mortgage.  In Chapter 13, you could end up paying your creditors a fraction of what you owe them while you catch up on the mortgage or car payment.  In either event, a bankruptcy filing imposes the automatic stay–stopping efforts by creditors to foreclose upon or repossess your property.

In any bankruptcy case, it’s important to properly apply your exemptions.  Exemptions are statutory and common law protections in place to permit you to shield property from the reach of your creditors in a bankruptcy case.  Exemptions vary by state.  In Pittsburgh, if you’ve lived in the Commonwealth of Pennsylvania for the majority of the 180-day period preceding the bankruptcy case, you can select between the Pennsylvania exemptions and the Federal Exemptions.  Your choice will have very important consequences.  Contact a Pittsburgh Bankruptcy Lawyer to determine how to apply your exemptions and save your house and save your car.

Call anytime for a free consultation:  412-925-8194.

Pittsburgh Bankruptcy Lawyers often hear the question, “should I file bankruptcy?”  Predictably, the answer is, it depends.  
Are your bills more than you can afford to pay?  
Are you behind on payments to credit cards, gas, electric or rent?  
Are you behind on your mortgage payments?  
Do collection agencies continuously telephone you?  
If the answer to these questions is yes, then a bankruptcy case might make sense for you.

The United States Bankruptcy Courts publish their official forms and instructions.  Does that mean you can file your own bankruptcy case?  Do people who represent themselves have fools for clients?  Please! An accountant could get lost in the complex world of bankruptcy.  Bankruptcy lawyers help their clients get millions of dollars worth of debt discharged.  It is false economy to try to save money on bankruptcy representation at the risk of not getting any discharge at all.  The process can be draconian; miss a deadline and you might find your case dismissed.  There is a 180-day window for the pre-bankruptcy counseling and a short 60-day window, in the middle of a Chapter 7 case, for the post-petition financial education course.

A bankruptcy attorney can tell you the important things before you file a bankruptcy case.  You should know what debt will be discharged, what payments you will continue to make, what payments to stop making in the months before you file your case.  Your lawyer will look at your particular situation and advise you what to expect your credit score to look like before, during and after your case.  If you’re even thinking of filing, talk to a Pittsburgh Bankruptcy Lawyer!