Tag: bankruptcy

Can a creditor ask a debtor to reaffirm the debt?

creditor debtor bankruptcy-law

Can a creditor ask a debtor to reaffirm the debt?

Yes, this means that the creditor is asking that the debtor pay the debt anyway, even though it is eligible to be discharged in bankruptcy. A debtor may be willing to do this if there is a co-signer or guarantor of the debt (such as a family member, friend or employer) that the debtor does not wish to leave saddled with the debt. Also, a debtor may want to reaffirm a debt in order to avoid having a secured creditor take the collateral securing the debt. A creditor may also ask a debtor to reaffirm the debt before he (the creditor) will agree to do business with the debtor again. This only applies in Chapter 7 consumer bankruptcy. This will not usually happen in a business Chapter 7.

The decision to reaffirm a debt is voluntary; no law requires the debtor to do it. The debtor can also choose to pay a debt that has been discharged in bankruptcy without reaffirming the debt, which means that the lender has no legal rights to collect the debt. Reaffirmation agreements can’t impose an undue burden on you or your dependents and must be in your best interest.

A debt is reaffirmed in an agreement filed with the court within 60 days after the first meeting of the creditors in the bankruptcy case, also called the 341 meeting. Once you sign a reaffirmation agreement you have 60 days or until the judge issues the discharge order in your bankruptcy case to cancel the agreement.

It is important to remember that a reaffirmed debt is not wiped out (discharged) in bankruptcy. Once your bankruptcy order is filed and the debt is reaffirmed, you must pay the debt. If you don’t, the creditor can sue you for the balance owed or repossess the property in a secured debt.

(Reviewed 11.4.08)

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What is Chapter 12 bankruptcy?

chapter twelfth bankruptcy-law

What is Chapter 12 bankruptcy?

Chapter 12 is designed for “family farmers” or “family fishermen” with “regular annual income.” It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. The purpose of the “regular annual income” requirement is to ensure that the debtor’s annual income is sufficiently stable and regular to permit the debtor to make payments under a chapter 12 plan. But chapter 12 makes allowance for situations in which family farmers or fishermen have income that is seasonal in nature.

Relief under chapter 12 is voluntary, and only the debtor may file a petition under the chapter.

In tailoring bankruptcy law to meet the economic realities of family farming and the family fisherman, chapter 12 eliminates many of the barriers such debtors would face if seeking to reorganize under either chapter 11 or 13 of the Bankruptcy Code. For example, chapter 12 is more streamlined, less complicated, and less expensive than chapter 11, which is better suited to large corporate reorganizations. In addition, few family farmers or fishermen find chapter 13 to be advantageous because it is designed for wage earners who have smaller debts than those facing family farmers.

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Is bankruptcy bad?

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Is bankruptcy bad?

In calendar year 1999, approximately 1.3 million individuals sought the relief from debts and claims of creditors by filing for bankruptcy, down slightly from the 1.4 million in calendar 1998. With that huge number of people seeking relief from their debts and the claims of their creditors, much of the stigma of “going bankrupt” has gone away.

In addition to providing relief from debts and obligations for individuals, hundreds of such long established blue chip companies as Dow Corning, Montgomery Ward, Penn Central and Texaco have used the provisions of the bankruptcy laws.

(Reviewed 11.9.08)

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Are statutory penalties or punitive damages for fraud discharged in bankruptcy?

statutory fraud bankruptcy-law

Are statutory penalties or punitive damages for fraud discharged in bankruptcy?

No. It is not only the actual value of the “money, property, services, or . . . credit” the debtor obtained through fraud that is non-dischargeable in bankruptcy, but also treble “punitive” damages and attorneys fees and costs related to the fraud. This was made clear in a March 25, 1998 decision of the Supreme Court of the United States in Cohen v. de la Cruz.

The case involved a landlord who had overcharged his tenants. The trial court found that the landlord had committed “actual fraud” within the meaning of the Bankruptcy Act and that his conduct amounted to an “unconscionable commercial practice” under New Jersey’s Consumer Fraud Act. As a result, the court awarded the tenants treble damages plus reasonable attorney’s fees and costs. The debtor recognized the approximately $30,000 in improperly charged rent would not be dischargeable, but argued that he should not be stuck having to pay the $100,000 in punitive damages and attorneys’ fees the court awarded. The court decided those extra damages had been awarded as a result of his fraudulent acquisition of “money, property, services, or . . . credit.” All the debtor’s obligations arising out of fraudulent conduct, including both punitive and compensatory damages, are not subject to discharge in bankruptcy.

(Reviewed 11.9.08)

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What is Chapter 13 bankruptcy?

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What is Chapter 13 bankruptcy?

Chapter 13, which has also been known as a wage earner’s plan, is an interest-free repayment plan where a debtor repays at least some of his or her unsecured debts with regular payments over five years. Under the new bankrtupcy law, effective for filings on and after October 17, 2005, more bankrtupcy filers will have to choose Chapter 13’s repayment plan because of the application of a complicated, two-part means test.

Generally the creditors expect to get more than they would have received from the debtor’s estate if the debtor had sought a complete liquidation under Chapter 7 Bankruptcy.

One of the important benefits of Chapter 13 is that the debtor generally can more easily continue to live in his or her home. If the debtor fails to comply with the Chapter 13 plan, the Court will usually dismiss the bankruptcy case

Another advantage of Chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the Chapter 13 plan. Doing this may lower the payments.

The disadvantage of Chapter 13 to the debtor is that the debts can linger for years, burdening future income.
(Reviewed 11.9.08)

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What is Chapter 11 bankruptcy?

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What is Chapter 11 bankruptcy?

Chapter 11 is typically used for business bankruptcies and restructuring. It is not commonly used by individual consumers since it is far more complex and expensive to pursue. It allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court and its appointees.

(Reviewed 11.9.08)

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What is Chapter 7 bankruptcy?

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What is Chapter 7 bankruptcy?

Chapter 7 is the bankruptcy provision most frequently used by individuals. It involves the complete liquidation of a debtor’s property to pay creditors and wipes out the remaining debts, giving the debtor what’s known as a “fresh start”. However, the debtor can retain certain property that is specifically “exempt” depending her State’s law, such as tools of one’s trade, limited equity in a car and house, and some personal effects.

If you use Chapter 7 you may lose your home (depending on your state) but it does enable you to get out from under the burden of debt more quickly.

The post-October 17, 2005, Bankruptcy Code made major changes in this chapter, making the process longer and more expensive and undeniably harder for consumers to shed debts than under the old law. Under one of the key changes, a means test determines whether a debtor can use a Chapter 7 filing or be forced to file a Chapter 13 and repay some of their debts over five years.
(Reviewed 11.5.08)

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Are there different types of bankruptcy?

different bankruptcy bankruptcy-law

Are there different types of bankruptcy?

Yes, and they are known by the title of the Chapter of the Federal Bankruptcy Act in which they appear. Each “Chapter” contains a different set of laws and rules.

While there are several different types of bankruptcy procedures, each known by the title of the chapters of the Bankruptcy Code where they appear, the two most commonly used by individual consumers are:
(1) Chapter 7 bankruptcy is the most frequently used by individuals. Under this arrangement, a court-appointed trustee collects your assets, sells them for cash, and makes distributions to creditors. You can keep assets that are exempt either under Federal law or the law of your home state. You cannot repeat this filing for six years.
(2) Chapter 13 bankruptcy is designed for an individual debtor who has a regular income and stable job. Under this procedure, you pay debts off over a three-to-five year period and keep your property. At a confirmation hearing, the court either approves or disapproves the plan. A Chapter 13 can be filed at any time.
Individuals may also use Chapter 11 reogranizations, but this form is generally targeted to businesses. Farmers can use Chapter 12 (see following question).
(Reviewed 11.5.08)

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