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

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

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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

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3/28/2017 1

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
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3/28/2017 2 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”
  • r 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
  • r Fisherman with Regular Income
  • Chapter 11

Reorganization

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3/28/2017 3 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
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3/28/2017 4 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
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3/28/2017 5 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
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3/28/2017 6 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 1st 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
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3/28/2017 7 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