Our Bankruptcy and Creditors' Rights attorneys engage in all areas of business reorganization, workouts and mediation from the perspective of institutional creditors, creditor committees, trustees and debtors. We represent clients in all forms of corporation reorganization, bankruptcy proceedings and secured transactions. The Firm represents clients in bankruptcy proceedings and state court receivership actions.

The Firm's practice extends to counseling on creditors' rights, and the restructuring and renegotiations of lender and financing arrangements in order to protect and provide relief to financially troubled consumers.

   Bankruptcy relieves a debtor from paying some or all of his debts and may protect some or all of his assets from seizure by his creditors. Bankruptcy provides for the equal treatment of creditors when a bankrupt person cannot pay his debts.

   The theory of bankruptcy is that the debtor is discharged from payment of his debts in exchange for giving up his assets. However, in reality, very often the debtor gives up nothing or very little of value because the law allows him to keep a great deal of property (called "exemptions" and "exclusions") after the bankruptcy is over and the debtor granted a "discharge."

There are three kinds of consumer bankruptcy:

   A Chapter 7 Bankruptcy occurs when a consumer petitions the Bankruptcy Court to be relieved from the payment of his debts, such as credit card debt, personal loans and deficiency judgment. Upon discharge from a Chapter 7 Bankruptcy, the consumer is legally relieved from paying certain debts included in his Bankruptcy Petition. Many people who receive Chapter 7 discharges have little property and/or very little equity in their homes and cars and therefore keep them after the bankruptcy is over. (If the consumer wants to keep his home, he has to make the mortgage payments. If the consumer wants to keep his car, he has to make the car payments.)

   Chapter 7 Example: One of John's children had an extraordinary illness. He and his wife owe $125,000 in medical expenses, after insurance. They also owe $3,000 on credit cards. Their home is worth $200,000, with $175,000 balance due on the mortgage. Each has a car: one is a 1992 model worth $6,500, on which is owed $5,800, and the other car is worth $800. A Chapter 7 bankruptcy would discharge them from their obligation for the medical expenses and the credit cards. Upon discharge, they would keep, as exempt property, the house and continue to pay the mortgage. They would keep, as exempt, the 1992 car and continue to make the car payments, They would keep, as exempt, the $800 car. If they wanted to, they could "reaffirm" (agree to pay regardless of the bankruptcy) some or all of their credit card obligations, but are not required to do so.

   A Chapter 13 Bankruptcy occurs when a consumer petitions the Bankruptcy Court for a payment plan to pay all, or a portion of his debts, in installments over a 3 year period. Upon successful completion of the payment plan, the consumer is discharged from certain debts included in his Bankruptcy Petition. Chapter 13 Bankruptcy can allow the consumer to keep his non-exempt as well as his exempt assets and to catch up on past due mortgage payments to save his home from foreclosure. As a rule of thumb, the consumer's total installment payments should equal the value of his non-exempt property.

   Chapter 13 Example: Sam lost his job and took a lower paying job. Sam owns a house worth $100,000. The mortgage is up-to-date and has a balance of $80,000. Same has a paid-for car worth $1,000. He owes $30,000 on his credit cards. He presents a plan to the Bankruptcy Court to pay $5,000 in monthly installments over 3 years. Sam must also continue to make his monthly mortgage payments. Upon completion of the plan, Sam has paid $5,000 and is discharged from all obligations he has on the credit cards, is up-to-date on his mortgage, keeps his house and keeps his card.

   A Chapter 11 Bankruptcy occurs when a business petitions the Bankruptcy Court for a plan to reorganize the business, pay all, or a portion of, its debts, and remain in business.

   A creditor may file a Proof of Claim with the Bankruptcy Court for the debt the bankrupt person owes and the creditor may receive all or a portion of his debts if there are any assets or money to pay it.

   A creditor may seek to enforce rights to the bankrupt's estate (property) by what is called an Adversary Proceeding which usually occurs in connection with a creditor's claim that he should be paid instead of another creditor or that the creditor has the right to possession of property or real estate.

   The result of a bankruptcy is that the debtor is relieved from paying many debts and keeps his "exempt" assets. A debtor has many assets that he may keep free and clear of the claims of his creditors.

   The creditors receive their fair share of any non-exempt assets. Frequently there are no non-exempt assets and the creditors receive little or nothing.

Please call our offices in order to discuss whether filing for Bankruptcy is right for you.

The foregoing is a simplified explanation provided for educational purposes only. Each person's situation is different and can be much more complex. Both bankrupt and creditors need legal representation to protect their legal rights.

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