Posted by Kevin on January 30, 2018 under Bankruptcy Blog | 
The Constitution empowered Congress to “pass uniform laws on the subject of bankruptcies,” which then took more than 100 years to do so.
- The United States started its existence without a national bankruptcy law. The Second Continental Congress established the United States with its founding constitution consisting of the “Articles of Confederation and Perpetual Union,” drafted in 1776-1777. The Articles of Confederation were not ratified by the original 13 states until 1781. The Articles did not provide for a nationwide bankruptcy system.
- The American Revolutionary War formally ended in 1783 with the signing of the Treaty of Paris. The Articles of Confederation proved inadequate, so in 1787, a constitutional convention was called to draft a new constitution. The U.S. Constitution was ratified by the states in 1789. It did allow for, yet did not create, a national bankruptcy law. It merely empowered Congress to “pass uniform laws on the subject of bankruptcies”.
- Three different times during the 1800s, a federal bankruptcy law was passed in direct reaction to a financial “panic.” But these federal laws were each repealed after the financial crises were over. The first act was passed in 1800 but repealed in 1803. The second was passed in 1841 but repealed in 1847. The third bankruptcy act was passed in 1867 but repealed in 1878.
- During the long periods when there was no nationwide law in effect, the states developed a patchwork of bankruptcy and debtor-creditor laws. But these local laws became more and more cumbersome as commerce became ever more interstate.
- Finally, Congress got it right when it passed the Bankruptcy Act of 1898. The 1898 Act lasted 80 years. This law was inspired by commercial creditors to help in the collection of debts. However, it included the following very important debtor-friendly provisions: most debts became dischargeable, and creditors no longer had to be paid a certain minimum percentage of their debts.
- This Bankruptcy Act of 1898 was amended many times, significantly in 1938 in reaction to the Great Depression. Among other things, the 1938 amendment added the “chapter XIII” wage earners’ plans, the predecessor to today’s Chapter 13s.
- The 1978 Bankruptcy Reform Act, the result of a decade of study and debate, gave us the Bankruptcy Code. It has been amended every few years since then, most significantly in 2005 with BAPCPA, the so–called Bankruptcy Abuse Prevention and Consumer Protection Act.
Posted by Kevin on October 15, 2017 under Bankruptcy Blog |
The Bankruptcy Code is divided into chapters. Chapters 1, 3, and 5 deal with basic concepts that apply to all the various types of bankruptcies. Chapter 7 deals with liquidations for individuals or businesses. Chapter 9 deals with municipalities. Chapter 11 deals with reorganizations and/or planned liquidations of mainly businesses. Chapter 12 deals with family farms (do not get many of them in northern New Jersey). Chapter 13 deals with repayment plans for individuals. For the average consumer, Chapter 7 and Chapter 13 are the two alternatives methods of filing bankruptcy. For individuals, the object of any bankruptcy is to get a discharge of your debts. In other words, wiped out.
Let’s look at Chapter 7. This is sometimes called a straight bankruptcy or a liquidation. Chapter 7 is basically an asset driven analysis. You do not make payments, but a trustee can sell your non-exempt property, and pay out your creditors. The repayment scheme is set out in the Bankruptcy Code. Upon the conclusion, many of your debts are discharged. Certain enumerated debts are not wiped out such as domestic support obligations, debts incurred by fraud, certain taxes and most student loans.
After the Bankruptcy Code went into effect, creditor groups complained for the next 25 years that it was too easy for debtors to file under Chapter 7, which in a vast majority of cases, translated into no payments to creditors. Creditors wanted more debtors to file under Chapter 13 where monthly payments must be made to a trustee and certain creditors need be paid in full. The 2005 revisions to the Bankruptcy Code considers a debtor’s income in whether he or she can file under Chapter 7. If the debtor’s income is below the median income for the State based on family size, it is presumed that the debtor can file under Chapter 7. If the income is above median, a debtor has to pass the “means test” to qualify for Chapter 7. The means test looks at the debtor’s income for the 6 months prior to filing to arrive arrive at what is called current monthly income. It then subtracts categories of expenses- some based on national or regional averages, and others based on actually cost. If the net income is above a certain amount, the debtor cannot file under Chapter 7.
Assuming that you qualify for Chapter 7, the next issue is what property is exempt. In New Jersey, we can use either the exemptions set forth in the Bankruptcy Code or the exemptions listed in New Jersey statutes. The New Jersey statutes are mostly about 100 years old and have not been adjusted for inflation, so we almost always use the federal exemptions.
You file a Chapter 7 by filing with the Bankruptcy Clerk a Petition, Schedules of assets, liabilities, income and expenses, and various ancillary documents (over 40 pages). A trustee is appointed to oversee the case. If the exemptions cover the value of all of your assets, the case is called a no-asset case. That means no assets go to the Trustee-you get to keep them subject to any security interests (mortgages and the like).
About 4 weeks after filing, the debtor (and legal counsel) appear before the trustee. The debtor is required to answer questions from the trustee and any creditors. Creditors rarely appear at this hearing. If the trustee believes that your filing is in order and no further action is necessary, a discharge order will be issued within about 6 weeks. The whole process takes about 4 months. You cannot file another Chapter 7 and obtain a discharge for 8 years from filing date of the first Chapter 7.
Clearly, Chapter 7 is a bit more complex, but as the title states, these are Chapter 7 basics.
Posted by Kevin on August 20, 2017 under Bankruptcy Blog |
You can usually get out of an ongoing Chapter 13 “adjustments of debts” bankruptcy case by simply asking to do so.
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Unlike Chapter 7, if you file a Chapter 13 case you can end it—“dismiss” the case—at any time, and in just about any circumstance. But why the difference?
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Explicit Right to Dismiss
Why can a Chapter 13 case be dismissed by the debtor? Because unlike with Chapter 7, Section 1307(b) of the Bankruptcy Code says so. And quite strongly.
“On request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter [13].”
Notice that the debtor can ask for a dismissal “at any time.” This implies that the request could come any time during the life of a Chapter 13 case, including when it might be particularly inconvenient for a creditor. Or whenever. Also notice that the court does not seem to have any discretion about whether or not to dismiss–it “shall” dismiss the case. Not “may” or “might” dismiss it, but “shall” do so.
An Absolute Right to Dismiss?
Actually there has been debate among bankruptcy judges about whether a court can ever prevent a Chapter 13 case from being dismissed on request of a debtor. And a number of judges have decided that in situations of serious abuse or fraud by the debtor, there are other provisions in the law that trump this section and prevent a Chapter 13 case from being dismissed. But still, in the vast majority of situations, a request by a debtor to dismiss a Chapter 13 case results in its near-immediate dismissal.
Why So Different Than Chapter 7?
But why does the Bankruptcy Code—the federal statute governing bankruptcy—provide for a right to dismiss a Chapter 13 case when it does not provide for Chapter 7 dismissal the same way?
Because (beyond the reasons given in the last blog related to Chapter 7) when Congress established the bankruptcy options, it wanted to encourage debtors to file Chapter 13 cases. This was in part so that they paid back at least some of their debts. Congress probably also recognized that filing a Chapter 13 case is generally riskier than filing Chapter 7. That’s mostly because it involves making payments diligently over the course of years, while not getting the reward of the discharge (legal write-off) of the debts unless successfully getting all the way to the end of it. To encourage taking on the risk of starting a Chapter 13 case, Congress made it easy to get out of it if things did not go as planned.
Posted by Kevin on August 8, 2011 under Bankruptcy Blog |
Many middle class families find themselves in economic distress when the kids go to college. Well, unfortunately, the bankruptcy code does not help those families. It basically says that if you have to choose between paying your creditors and Junior’s tuition, Junior is SOL.
Read more of this article »
