Bankruptcy and Debt Relief

The decision to seek protection through bankruptcy is typically not an easy decision to make. Most debtors spend months, even years, trying to resolve their financial problems before they turn to bankruptcy. Frequently, valuable resources are wasted along the way. A debtor may face repossession, IRS collections, or be served with a Notice of Foreclosure before finally turning to bankruptcy. For this reason, a debtor facing financial crisis is wise to consult with the experienced bankruptcy attorney early on, before assets are threatened or wages garnished.

Once the decision to file bankruptcy has been made, a debtor must decide which bankruptcy chapter to utilize. The following is a brief description of each chapter:

· Chapter 7 – chapter 7 is intended to be used by moderate to low income debtors or businesses. To file a chapter bankruptcy the debtor must pass the “means test” which compares the debtor’s income to that of other similarly situated debtors in the area to determine if the debtor’s income is at or below the median. In a chapter 7 bankruptcy the debtor’s non-exempt assets can be sold by the Trustee and the proceeds used to repay creditors. At the end of a chapter 7 most debts of the debtor are discharged, or eliminated.

· Chapter 11 –   chapter 11 is typically used by a business debtor; however, it can also be used by an individual debtor whose debts exceed the chapter 13 limit. Chapter 11 requires the debtor to create a reorganization plan that will keep the debtor in business and provide for repayment of debts over an extended period of time. 

· Chapter 12 – chapter 12 is reserved for family farmers and family fishermen. Like a chapter 13 bankruptcy, chapter 12 requires the debtor to submit a repayment plan that allows for the repayment of the majority of the debtor’s debts over an extended period of time.

· Chapter 13 – chapter 13 is typically used by debtors whose income exceeds the “means test” median for the area. It can also be used by debtors who qualify to file a chapter 7 but who have valuable non-exempt assets they wish to protect that would be lost in a chapter 7. Chapter 13 requires the debtor to develop a repayment plan that allows for the repayment of most debts over an extended period of time, usually three to five years.

· Small Business Reorganization Act of 2019 (SBRA - Subchapter V) -   SBRA is very NEW (February 19, 2020) and used by a small business debtor. SBRA requires the debtor to create a reorganization plan that will keep the debtor in business and provide for repayment of debts over an extended period of time.