Bankruptcy C-D

What is the Case Closing?

A bankruptcy does not end with the discharge.  Typically one of the last orders in a bankruptcy case is the order discharging debts, which is what most consumer bankruptcy cases are all about.  However, the end of the case only comes after all eligible assets have been liquidated and distributed to creditors according to their priority and share.  Once the trustee files a final report, the case is usually closed.

What is Chapter 11?

Chapter 11 of the bankruptcy code is usually used for businesses.  It is a method for business to reorganize or restructure debt.  Less known is the use of Chapter 11 for consumers.  It is normally extraordinary circumstances that calls for a consumer to file a Chapter 11 case, as those individuals within the debt limits of a Chapter 13 bankruptcy are often better served attempting that.

What is Chapter 12?

Chapter 12 is a debt reorganization bankruptcy designed around the unique way that Farmers earn income. It is similar to Chapter 11 and Chapter 13 in that it involves a repayment of some debts, but structured differently to account for how farmers get paid usually only at Harvest time.

What is Chapter 13?

Chapter 13 bankruptcy is the consumer oriented debt reorganization bankruptcy.  Chapter 13 is characterized by its adherence to the Chapter 13 Plan, that once filed and approved by the court, directs the payments and sets the rules for how debts are restructured.  Chapter 13 bankruptcies are administered by a Standing Trustee, who takes regular payments from Chapter 13 debtors and pays it out to all eligible creditors in accordance with the Court Confirm Chapter 13 Plan.

Chapter 13’s last at least 3 years and to a maximum length of five years.  One exception to the 3 year length is in the case of a hardship discharge.  Chapter 13 bankruptcies, unlike Chpater 7’s are entirely voluntary, meaning that a Chapter 13 debtor has a right to dismiss their case on no

What is a Chapter 13 Plan? (Plan)

The Chapter 13 Plan, as mentioned above is the blue print to direct the flow of money in a Chapter 13 bankruptcy.  While often governed by local rule and practice, generally chapter 13 plans involve the payment of secured and priority debts first, then provide a percentage of unsecured debt that will be paid to general unsecured creditors.  Chapter 13 plans, to be implemented must be approved by the court.  Creditors and the Trustee have ample opportunity to object to the “confirmation” of the Chapter 13 Plan, and any objections are normally heard and considered at a “confirmation hearing.”

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is used by both consumers and businesses as a method of liquidating their estates.  For individuals filing for Chapter 7, this involves a discharge of debt and a liquidation of non-exempt assets.  Chapter 7 bankruptcies make up the majority of bankruptcies filed in the United States.  Each bankruptcy is assigned to and administered by a Panel Trustee, who reviews the debtor’s filings, verifies asset information and conducts any liquidation of assets, then distributes the proceeds to creditors based on priority and share.   Most consumer chapter 7 bankruptcies are “no-asset” cases.

What is a Co-Debtor?

Co-Debtor can be defined two ways.  In the general, a co-debtor is someone who is jointly responsible for a debt.  The most common usage is a “co-signer.”  This is someone who agrees to be jointly responsible for a debt, usually because one or more of the signers has poor credit or no credit history.  In the bankruptcy realm, a co-debtor is the person who files bankruptcy jointly with a spouse, regardless of whether or not they are jointly responsible for any debts.  In bankruptcy, a co-debtor may be both jointly responsible and a joint filer.

After bankruptcy, a non-filing co-debtor becomes solely responsible fore the debt.

What is Collateral?

Collateral is property pledged as a surety for an extension of credit.  Normally a debtor would retain possession of collateral, but it would be subject to seizure upon default of the loan agreement.  Sometimes a lender will hold the property or title to the property in their possession.

When you purchase an automobile on credit, the car is the collateral, but you, the debtor, maintain possession of the automobile.  The lender however, maintains control over the “title” to the automobile by registering their “lien”.  This helps protect their interest by stopping a possessor of the automobile from selling the collateral without repaying the loan first.

What is a Confirmation Hearing?

A confirmation hearing is a hearing in which the judge gets to decide whether or not a proposed Plan will become the Law of the Case.  Trustees and Creditors are allowed to be heard on the matter.  Depending on the jurisdiction, these can be a mere formality or a full blown evidentiary hearing.  Usually, without objection, the Bankruptcy Judge will confirm the plan.

What is Credit Counseling?

Credit counseling has a few meanings.  There are Consumer Credit Counseling Agencies that provide services also known as Debt Management.  These are services wherein a debtor pays a set amount to their creditors over time, usually paying back 110-125% of their beginning balances.  The payments are usually about the same or more than the normal minimum payments.  These can be effective, if the debtor can afford the payments.

In the Bankruptcy context, Credit Counseling is the title giving to the pre-bankruptcy course requirement imposed by the 2005 Bankruptcy Reform.  Interestingly, many of the course providers are the same companies that manage the Consumer Credit Counseling Services.

What is a Creditor?

A creditor is one who is owed money.  Many debtors in bankruptcy are often creditors in their own right.

Creditors can be broken down into different groups.  There are the Original Creditors.  This title is fairly self explanatory.

Then there are Debt Collectors or Collection Agencies.  These agencies do not “own” the debt, but collect a portion of the payment as a fee for their work in collecting.  The original creditor gets the remainder.

Then there are Debt Buyers.  These are subsequent purchasers of “bad” or “written off” debts.  They pay pennies on the dollar for the right to collect a debt.

Collectively, all creditors who are not the original creditor are known as “third party creditors.”

What does Cross-Collateralization mean?

Cross-collateralization is the ability to attach equity from an unrelated loan.  If you owe one creditor on 2 separate accounts, if either of them are secured by collateral and the collateral is worth more than the balance, then the remaining “equity” in the collateral can secure any unsecured portion of the 2nd loan balance.

This is a complex concept, better served by an example:

You have a secured car loan with a Credit Union.  The car is worth $2,500 and you currently owe $2,000 on the loan.  This means there is $500 in equity.  You also have a general unsecured credit card with a balance of $1,000.  Should you default on the credit card, the Credit Union, could force you to pay off both loans before releasing the title.  In a bankruptcy context, this can cause issues in reaffirmations or in chapter 13 plans and should be considered as a factor in every case where it might appear.

Typically, only Credit Unions do this with any regularity.

What is Current Monthly Income (CMI)?

Current monthly income is an average of the income an individual or household received in the prior 6 months.  If you are wondering how the past average relates to the current, you are smarter than a Congressman.  Current Monthly Income, commonly abbreviated as CMI, is a statutory fallacy created by Congress in 2005.

What is Debt Consolidation?

Debt consolidation is typically accomplished by taking a new loan that pays all or settlement balances on your old lines of credit.  This new loan is secured against collateral, usually as a second mortgage.  These services have been met with disfavor since the decline of the housing market in 2007.  Even in their hay day, however, they were not a good plan for many overdrawn families.  A debt load that was previously unsecured and who could not touch the exempt portion of home equity, were suddenly secured by that same equity.

What is Debt Counseling?

Debt Counseling is a service offered by some attorneys and “financial advisors” to help people map out a plan to get themselves out of debt.  This usually involves budgeting and thorough account reviews to help create a payment plan wherein the debtor can most quickly pay down his unsecured debts and achieve debt freedom without bankruptcy.

What is Debt Settlement?

Debt settlement is a service wherein someone who cannot continue to make even minimum payments on all accounts saves money in a separate account instead of paying it to a creditor.  This results in a default of the creditor agreement and potentially allows the debtor or his representative to negotiate a reduced balance payment plan or lump sum payment.

What is a Debtor?

A debtor is one who owes money to another person or entity.  In the bankruptcy context, the Debtor is the person or people who filed bankruptcy.

What is Discharge?

A discharge is an order from the court relieving the debtor from the legal obligation to repay debts that are subject to discharge or have been determined to be dischargeable.

What is Dischargeability?

Not all debts are subject to discharge.  Dischargeability is the term of art used to describe whether or not a debt will be wiped out at the end of a bankruptcy.  Some debts are presumed to be non-dischargeable, but a Complaint to Determine Dischargeability can be filed to resolve that issue.  Other debts may be presumed to be dischargeable, but the Creditor may file a similar complaint to block discharge under certain circumstances.

What is Dismissal?

A dismissal is the closure of a case without the sought after resolution.  Dismissals may be made with or without prejudice.  A dismissal without prejudice allows the party seeking relief to again petition the court under the same matter at a later date.  A dismissal with prejudice forecloses relief.

In the bankruptcy context dismissal means that a case was closed without a discharge being entered or a plan being completed.

What is a Domestic Support Obligation?

A domestic support obligation is an obligation to pay related to a separation or termination of a marriage.

In the bankruptcy context a Domestic Support Obligation usually refers to child support, alimony, or an obligation to pay marital debts imposed by a Separation Agreement or Final Order of Divorce.  These are treated as non-dischargeable obligations in a bankruptcy case.