Introduction to Bankruptcy AN OVERVIEW OF THE TYPES OF RELIEF - PDF document

3/28/2017 Introduction to Bankruptcy AN OVERVIEW OF THE TYPES OF RELIEF AVAILABLE AND KEY ELEMENTS OF A BANKRUPTCY CASE Colleen A. Brown U.S. Bankruptcy Judge, District of Vermont Commencement of Case  Filing of a bankruptcy petition aka “petition date” or “filing date”  Filing date is crucial and determinative of many (important) deadlines in case • Triggers property of estate & automatic stay Property of the Estate – Very Broad  Upon the filing of a bankruptcy petition, ALL assets in which has the debtor has ANY INTEREST – legal or equitable and wherever located – become property of the bankruptcy estate.  Also includes any assets the debtor acquires within 180 days of filing from • (i) a property settlement with a spouse or former spouse, • (ii) insurance proceeds, or • (iii) an inheritance  Exempt assets come out of the estate • In Vermont, option of claiming either state or federal exemptions 1

3/28/2017 The Automatic Stay  Stays creditor action to collect most debts; powerful protection for debtors  Effective immediately upon filing of a bankruptcy petition  Continues until order entered granting a creditor “relief from stay” or the earliest of (i) closing of the case, (ii) dismissal of the case, or (iii) in an individual case, granting/denial of discharge  Significant penalties, including attorney’s fees, imposed for intentional violation of the stay Automatic Stay – Actions Not Covered  Commencement/continuation of a civil action or proceeding – • For the establishment of paternity; • For the establishment or modification of an order for domestic support obligations; • Concerning child custody or visitation; • For the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; • Regarding domestic violence; or • To collect a domestic support obligation from property that is not property of the estate;  Criminal prosecutions Most Common Chapters of Relief  Chapter 7 Liquidation  Chapter 13 Reorganization for Individuals with Regular Income  Chapter 12 Reorganization for Family Farmer or Fisherman with Regular Income  Chapter 11 Reorganization 2

3/28/2017 Chapter 7 ‐ Liquidation  Available to individuals, couples, and business entities • No debt limits or insolvency requirement  Ch 7 Trustee • Appointed promptly after case filed • Liquidates all non ‐ exempt assets • Has economic incentive to find assets • Presides over 341 meeting (debtor & any interested creditor can appear) Chapter 7 – Cont’d  Case generally completed within 120 days  Individual debtors get a discharge • Typically ~ 90 days after case is filed, when deadline for filing of dischargeability actions runs  Usually no court involvement unless there are discharge issues or disputes as to allowance / validity of claims Chapter 7 – Cont’d  “No asset cases” • In Vermont, over 90% of Chapter 7 cases • Creditors advised not to file proof of claim 3

3/28/2017 Chapter 13 – Individual Reorganization  Available only to individuals with regular income (including married couples) who meet debt limits  Ch 13 Trustee is Jan Sensenich • Appointed promptly after case filed • Receives plan payments from debtor and distributes them to creditors, per terms of confirmed plan • Paid by commission based on distributed funds; does not liquidate assets Chapter 13 ‐ Plan  Very formulaic, term of 36 ‐ 60 months  Requires regular (monthly or bi ‐ weekly) payments to the Trustee • Wage withholding or automatic bank debits in most cases  Allows debtors to reinstate a mortgage, at any time before foreclosure sale, and cure arrears through plan • Must keep mortgage current during plan  May include mortgage modification thru mediation Chapter 13 – Plan Cont’d  Debtor may “cram down” secured debts (other than home mortgage) to value of collateral  Debtor may strip wholly unsecured liens (even if secured by home)  Debtor may avoid lien that impair homestead exemption  Plan must pay creditors at least as much as they would receive in Chapter 7 liquidation  Plan must be proposed in good faith to be confirmed  Before plan is confirmed, debtor must testify at 341 meeting and at confirmation hearing 4

3/28/2017 Chapter 13 ‐ Conclusion  No discharge (or benefit of lien stripping/avoidance) unless & until plan payments completed  Debtors may get court order declaring they are current on mortgage payments • Ch 13 Trustee makes motion for order if mortgage payments paid through plan (“conduit mortgage payment” plan) • Order is binding; creditors cannot thereafter dispute debtor was current Chapter 7 vs. Chapter 13  Ch 13 discharge broader than Chapter 7 discharge  Ch 13 Trustee distributes funds, Ch 7 Trustee liquidates assets  Plan required in Ch 13  Ch 13 case much longer  Any sales through Ch 13 are voluntary, and by debtor Chapter 12 – Farmer/Fisherman Reorganization  Available to individuals, married couples, and business entities that have regular income from farming/fishing • Must meet certain debt limits • Specific qualification requirements  Chapter 12 Trustee is Jan Sensenich • Appointed promptly after case filed • Same role as in Chapter 13 5

3/28/2017 Chapter 12 ‐ Plan  Process similar to Ch 13 • E.g., Trustee appointed & creditors do not vote on plan – can only object  Plan length: 5 years from date 1 st payment due • Slightly longer than Ch 13 where time runs from filing date  Great flexibility, more akin to Ch 11 plans Chapter 12 – Other Characteristics  Most potent type of bankruptcy relief  More creditor involvement than in Ch 13 cases  Allows debtors to modify any secured debt, including those secured by homestead  Discharge not as broad as in Ch 13 Chapter 11 ‐ Reorganization  Available to individuals and business entities  More flexible – and expensive – than either Ch 12 or Ch 13  Least common type of case filed in Vermont 6

3/28/2017 Chapter 11 – Debtor’s Duties & Rights  No Trustee appointed; Debtor becomes a DIP (“Debtor ‐ in ‐ Possession”)  Debtor must: • Appear at 341 meetings (United States Trustee presides) • Appear at court hearing for approval of Disclosure Statement and confirmation of viable Reorganization Plan  Debtor’s exclusive right to file plan for first 120 days of case • No min/max term for plan  Plan often includes sale of assets, free and clear of liens, with liens to attach to proceeds Involuntary Cases (Rare in Vermont)  Debtors may be forced into bankruptcy by creditors who file an “involuntary petition” • Applies to individual, married couple, or business entity • Ch 7 or 11 only  Specific qualification requirements for petitioning creditors • Must show debtor “is not paying debts as they become due” • Improper filing results in substantial monetary penalties  Upon filing of involuntary petition, putative debtor can: • Consent • Request conversion to another chapter • Contest the petition & litigate it 7