The concept of bankruptcy is a creation of the Congress of the United States of America. The purpose of bankruptcy, prepared by a competent bankruptcy attorney, is to afford individuals and businesses an opportunity for an orderly process in which their debts are either discharged in their entirety or reorganized pursuant to bankruptcy laws. The bankruptcy process is conducted in a Federal court system of United States Bankruptcy Courts that are divided into several hundred districts of the United States.
As a bankruptcy attorney, Joseph P. Foley practices in the Boston and the MetroWest areas of the Commonwealth of Massachusetts. The bankruptcy process is essentially comprised of two major components; a liquidating bankruptcy in which, theoretically, a debtor’s non-exempt assets are sold by the Bankruptcy Court and the proceeds distributed to the creditors on a percentage basis. This concept is most commonly understood as Chapter 7 bankruptcy proceedings. As a practical matter, very few individuals possess non-exempt assets that are actually taken from them by the Bankruptcy Court. However, the discharge is granted to them at the completion of an approximate four month process in the United States Bankruptcy Court. The other variation of a bankruptcy proceeding is a reorganizational bankruptcy which is generally accomplished through a Chapter 13 bankruptcy proceeding.
A consumer Chapter 7 bankruptcy proceeding is, by far, the most frequently filed bankruptcy proceeding. Clearly, over 90% of all bankruptcies filed in the Boston and the MetroWest areas are Chapter 7 bankruptcy proceedings. These proceedings are initiated by individuals, or married couples, in an attempt to achieve a fresh start. The major contributing factors to a Chapter 7 bankruptcy are loss of employment, illness, divorce, and unexpected family emergencies. The process of filing a Chapter 7 bankruptcy proceeding is initiated by the completion of a petition in bankruptcy. The petition in bankruptcy consists of four major sections. The first section is a schedule of all of the debtor’s assets, including all real estate and all personal property held. The second section of a bankruptcy petition schedules out the household income of a Chapter 7 debtor and the household expenses regarding the same. The third portion of a Chapter 7 bankruptcy proceeding is the completion of a questionnaire entitled “Statement of Financial Affairs” which covers the financial activity of the debtor over the past several years. And finally there is the analysis of the debtor’s gross wages using a formula put forth and periodically adjusted by the United States Department of Justice. The completed bankruptcy petition is then filed with the United States Bankruptcy Court in the appropriate district determined by the residence of the debtor.
Approximately 30 to 40 days after the filing of a Chapter 7 bankruptcy petition, an examination of the debtor is conducted by a Trustee, assigned by the United States Bankruptcy Court, to examine the debtor. Generally, these examination meetings last only a few minutes since all of the pertinent questions that a bankruptcy trustee may have are contained in the bankruptcy petition. After the Bankruptcy Court has conducted its examination of the debtor, a period of 60 days is allowed for the creditors to file any complaint that they may have alleging fraud or malfeasance by the debtor. The honest debtor in a Chapter 7 bankruptcy proceeding will invariably be given a discharge. The discharge in bankruptcy is potent and complete.
Essentially all civil debt such as credit cards, bank loans, department store credit cards, hospital bills, medical bills, dental bills, utility accounts, and personal loans are discharged by a Chapter 7 bankruptcy proceeding. Court judgments obtained by creditors prior to the filing of a Chapter 7 bankruptcy are also discharged. Although discharging tax liability in a Chapter 7 bankruptcy proceeding can be complicated, a general rule of thumb would be that any income taxes and assessed and outstanding against the debtor for a period of more than three years will be discharged by a Chapter 7 bankruptcy proceeding. In recent years, the phenomenon “upside down real estate” has resulted in many individuals or married couples choosing to file a Chapter 7 bankruptcy case to extricate themselves from the financial obligations pertaining to real estate that is worth substantially less than the outstanding obligation to the mortgage holder. In this case, a real estate mortgage and note can be discharged in a Chapter 7 bankruptcy proceeding.
On October 17th of 2005, the United States Bankruptcy Code was changed in a most dramatic way. It was truly the first major change in bankruptcy law since 1978.
Although widely publicized as a process that it made it much more difficult for individuals to file bankruptcy proceedings, the fact of the matter is that a majority of individuals remain eligible for Chapter 7 bankruptcy proceedings.
The major implications of the new bankruptcy code consist of a requirement that all individuals or married couples filing bankruptcy first obtain credit counseling prior to the filing. There are many credit counseling agencies available to the potential debtor in the MetroWest and Boston areas and credit counseling can be accomplished quite simply either online or by telephone. The other major component of the new bankruptcy code is the strict analysis of the debtor’s gross income. A software program created by the United States Department of Justice analyzes a debtor’s income using pre-determined expenses calculated by the geographical area in which the bankruptcy case was filed. Further, an income threshold is established for Chapter 7 bankruptcy purposes.
The Bankruptcy Court makes a distinction between individual debtors, a household of two, a household of three and upward.
A Chapter 13 bankruptcy case is substantially different than that of Chapter 7. In a Chapter 13 bankruptcy proceeding, an individual or married couple represent to the Bankruptcy Court that, although they are severely in debt, they feel that given enough time, they can reorganize their debt with a payment plan.
Filing for a Chapter 13 bankruptcy is often employed to save the residence of the debtor. A Chapter 13 bankruptcy filing will first and foremost stop any foreclosure proceedings from going forward. A Chapter 13 bankruptcy proceeding will allow the debtor to repay the money that they are behind on their mortgage, or mortgages, over a period of up to five years. Depending upon the income available and expenses to be paid, a debtor submits a Plan of Reorganization in which the debtor proposes to pay either all, or a portion, of the debtor’s debt over time. The amount to be paid is determined by how much the debtor can actually afford to pay, not what is actually due to the creditors.
As is the case in a Chapter 7 bankruptcy proceeding, a Chapter 13 bankruptcy proceeding is initiated by the filing of a Chapter 13 bankruptcy petition. The petition itself is very similar to that of the Chapter 7 bankruptcy proceeding except, in the Chapter 13 bankruptcy proceeding, the debtor submits a Chapter 13 Plan to the Court. A superior bankruptcy attorney is able to apply the applicable portions of the United States Bankruptcy Code to the individual debtor’s situation in order to formulate a Chapter 13 Plan that complies with all applicable bankruptcy law.
A Chapter 13 bankruptcy proceeding is a most valuable and potent tool in protecting the residential home of debtors nationwide. Approximately 30 or 40 days after the Chapter 13 bankruptcy petition is filed with the United States Bankruptcy Court, the Chapter 13 Trustee, an individual attorney, will conduct a confirmation hearing at the United States Bankruptcy Court. The confirmation hearing is an examination of the debtor to insure that the petition has been properly filed and the Chapter 13 Plan of Reorganization submitted by the bankruptcy attorney and the debtor complies with all applicable bankruptcy law.
At the conclusion of the confirmation hearing, a monthly amount is determined by the bankruptcy attorney, the debtor and the Chapter 13 Trustee. This amount will be forwarded to the Chapter 13 Trustee’s office on a monthly basis until the conclusion of the Chapter 13 Plan. The debtor need only send in a single payment to the Chapter 13 Trustee and the Trustee then distributes the funds to the creditors participating in the Chapter 13 bankruptcy proceeding. At the conclusion of the required payments, the United States Bankruptcy Court will issue a discharge to the debtor. It should be noted that whatever debt remains unpaid at the conclusion of the Chapter 13 bankruptcy proceeding is discharged in the same manner as a Chapter 7 bankruptcy discharge.