Filing bankruptcy is not a decision to be taken lightly.
Before making a determination, it’s important to review all of the pros and cons with an experienced bankruptcy lawyer.
What is Bankruptcy?
Bankruptcy is a federal court authorized proceeding that allows financially troubled consumers and businesses to eliminate or re-pay a portion or all of their debts, and ensures that assets are fairly distributed among creditors.
Many debtors who consider filing bankruptcy have suffered severe financial setbacks caused by life-changing events such as job loss, death, business problems, illness or divorce. Filing bankruptcy can help you reduce financial pressures, attain credit card debt relief and get back on your feet again. In most cases you can start rebuilding your credit immediately after filing your petition. However, it’s important to seek the guidance of an experienced bankruptcy lawyer to help you determine the best course of action.
Most bankruptcies involve either the liquidation of debtor’s assets and distribution to creditors, or reorganization in which a plan is established to re-pay creditors over time.
In order to begin a bankruptcy proceeding, the debtor files a petition with the bankruptcy court. This triggers an automatic stay which stops collections, foreclosures , evictions and levies by taxing authorities. They must also provide a schedule of all income, assets and liabilities along with creditor’s contact information and amounts owed.
Chapter 7, Liquidation Bankruptcy
Chapter 7 is the most common form of bankruptcy filing utilized by both individual consumer and business debtors. When a petition is filed with the bankruptcy court, it triggers an “automatic stay” which prevents creditors from engaging in any debt collection activities. A bankruptcy trustee is appointed whose job is to assemble the debtor’s non-exempt assets, liquidate those assets and distribute the proceeds to creditors.
The remainder of a consumer’s debts are discharged with the exception of non-dischargeable such as child support, taxes or alimony. For a business debtor under Chapter 7, the business is closed once assets are liquidated.
Chapter 11 & 13, Reorganization Bankruptcy
There are two common chapters that govern reorganization under the bankruptcy code. Reorganization is applicable when there is regular income that can be used towards debt repayment. Chapter 13 is generally used by individual debtors with lower income and debt. Chapter 11 is primarily used by business or individual consumer debtors with higher income and debt.
The debtor must submit a plan for repayment to the bankruptcy trustee in a chapter 13 case. Upon satisfactory completion of the plan, the balance of dischargeable debts will be canceled in a chapter 13 case. In a chapter 11 case there is no trustee, creditors have the right to vote on your plan and you are granted a discharge of debt upon approval, enabling the reorganized debtor business to continue operating. However, if payments and other conditions are not met, the court can dismiss the case or force liquidation.
In most cases, bankruptcies are filed on a voluntary basis by debtors. There are some circumstances where creditors may file an involuntary bankruptcy proceeding against a debtor to ensure that all assets are fairly distributed.
The bankruptcy code was established to benefit both debtors and creditors. Before filing bankruptcy or undertaking any bankruptcy action whether for yourself or your business, it’s important to seek the counsel of an experienced bankruptcy lawyer. Brooklyn’s Rosenberg, Musso and Weiner will ensure that your best interests are protected under the law. Contact us to schedule a free bankruptcy consultation today or call 718-855-6840.