Bankruptcy 101

By the Law Offices of Tyler, Bartl, Ramsdell & Counts, P.L.C.Copyright 2012

Bankruptcy OverviewGoals of Bankruptcy 101• Explain facts and concepts related to Bankruptcy in

everyday language.• Inform of legal proceedings in bankruptcy.• Differentiate between forms of Bankruptcy.

Bankruptcy Discussion Points• Define Insolvency.• Clarify the term Bankruptcy.• Explain different levels of bankruptcy.• Importance of the Automatic Stay.• Avoidance Actions By The Trustee.• How Protect Yourself In Bankruptcy.

Misconceptions about Bankruptcy

• Bankruptcy is a negative thing.• Debtors and creditors do not want

to help.• Bankruptcy is the solution to debt

problems.• Filing bankruptcy resolves all debt.• Bankruptcy and insolvency are the

same.

Common Misconceptions:

What is Insolvency?

•To declare a state of complete inability to pay debt. (classified as balance sheet or cash flow insolvency)

Insolvency Defined

•Who – A company or person.

•What – Liabilities are greater than the assets or properties owned.

Balance Sheet Insolvency

•Who – Person.

•What – Unable to pay debts as they are due.

Cash Flow insolvency

(Equity Insolvency)

If a business ceases conducting business because it is unable to pay bills.

Cash Flow Insolvency May Result In Balance sheet Insolvency

Insolvency ExploredQualifications for Legal Insolvency:

• Be unable to pay debs with current balance• Be Unable to pay debt due to a lack of cash flow• Be able to show assets are less than the amount of liabilities

Reasons for Filing:• Unable to pay back lenders on time• Decrease in cash flow• Income is insufficient to cover expenses

Benefits of Filing:• Government and debtors work towards a resolution• Financial and organization structures are remodeled (not

available in all countries)

• Business may continue operating under a “declared protective arrangement”

What is Bankruptcy?•The

legal status or declaration of a person or company that has been declared insolvent – unable to repay debts owed

Bankruptcy Defined

•Who – A person or company

•What – A legal status referring to the entire process of the inability to pay off debts (Often imposed by the court not declared by individuals)

•Different types of bankruptcy filings are available

About Bankruptc

y

* Some types of bankruptcy are not available to all individuals

Chapter 7 Chapter 9 Chapter

11Chapter

12Chapter

13

Bankruptcy ExploredQualifications for Bankruptcy:• Must be legally established to receive protection and

cooperation from others.• Must legally prove a financial situations exists.

Reasons for Filing:• Avoid the piece meal liquidation.• Fairly and equitably distribute assets among creditors.• Companies – Reorganize business debts, leases, etc.

and continue business.• Individual – Provide a fresh start from preexisting

indebtednessBenefits of Filing:

Types of Bankruptcy Summarized

Chapter 7

•Involves liquidation of assets.

•Available to individuals or Companies.

Chapter 9

•Debtor must be a municipality to qualify.

•Special Filing – Not available to most individuals or companies.

Chapter 11

•Debtor’s debt exceeds limit of Chapter 13 or lacks regular income.

•Available to individuals or companies but is most commonly used by Businesses.

Chapter 12

•Debtor must be a family farmer.

•Special Filing – Not available to most individuals or companies.

Chapter

13

•Involves a payment plan from disposable incomes.

•Available to individuals.

Chapter 7 - Basics

Filing Fee: $306

Requires: Liquidation of the owner or individual’s assets.

Proceedings: A trustee is appointed to oversee and administer the estate and collect, recover, and distribute assets according to rules of bankruptcy code.

Offers Companies: Priority to IRS to lessen personal tax liabilities.Offers Individuals: Allows Individual debtor to give up nonexempt assets in exchange for discharge of all dischargeable debts.

Chapter 13 - Basics

Filing Fee: $281

Requires: Individuals retain all property in exchange for making payments from disposable income to a trustee for 3-5 years.

Proceedings: Payments are made to a Chapter 13 Trustee who distributes payments to debtors according to the Chapter 13 plan approved by the Bankruptcy Court.

Offers Individuals: Allows Individual debtor broader discharge options for taxes at the completion of payments.

Chapter 11 - Basics

Filing Fee: $1,046

Requires: Debtor remains in possession of its own property and runs its business in the ordinary course following the rules of the Bankruptcy Code and Bankruptcy Court. * Also known as a Debtor-in-possession (“DIP”).

Proceedings: The DIP can liquidate assets and pursue voidable transfers if desired and a payment plan is established in which:

- Creditors claims are categorized into classes.- Creditors need not receive 100 cents on the dollar.

Offers Individuals: Debtor receives a discharge from prepetition obligations upon completion of the plan. Offers Companies: Ability to reject leases for unprofitable locations and maintain leases for its profitable locations.* Offers specialized rules for “small business debtors” and “single asset real estate.”

Importance of the Automatic Stay

• Is awarded under filing any chapter of bankruptcy.• Prohibits creditors from harassing a debtor during the period

of the bankruptcy case.

An Automatic Stay

• Lawsuits,• Foreclosures, and• Any collection actions against the debtor.

An Automatic Stay Protects Against

• Violating creditors will be held in contempt of the Bankruptcy Court and are subject to damages.

• Awards a “do not harass” card until legalities are squared away such as:• Repossessing a vehicle or possessions and/or• Garnishing bank accounts.

Benefits of Automatic Stay

Avoidance Actions By The Trustee or DIP

Avoidance Actions to Generate Income and Pay Creditors may be classified as:

Fraudulent Conveyance

s

Transferring assets to another

individual to avoid using

assets to pay creditors

Preferences

Any payment made to a

creditor 90 days prior to

filing the claim must be

returned and evenly

distributed

Failure to Perfect

Items used as collateral to

secure creditors claims may be voided

unless “perfected”

Perfected means a filed finance

statement notifying others they have

claimed a particular asset

Statute of Limitations

Avoiding transfers prior to, on or after

bankruptcy case is closed or dismissed

How Protect Yourself In Bankruptcy

• Attend creditor’s meetings to ask questions.• Take the debtor’s deposition under F.R. Bankr. P. 2004.• File a timely proof of claim.• Enter an appearance in the case by filing a Notice Of Appearance.

• Seek relief using the Automatic Stay.• Investigate Payment of Administrative Claim.• Seek dismissal of a case.• Object to the debtor’s discharge or dischargeability of the debt owed.

Ways to Guard Against Harassing Creditors

• Declare intention to surrender or retain a secured creditor’s collateral (Chapter 7).

• Review Chapter 11 DIP’s monthly reports filed with the Bankruptcy Court.

• Seek appointment of a Trustee (Chapter 11).• Ensure debtor has properly valued collateral (Chapter 11 and 13).• Ensure claim is properly treated (Chapter 11 and 13).

Protection Within Specific Claims

Free Consultation• General information on bankruptcy provides you with

knowledge, but knowledge does not provide you with a personalized solution to debt problems.

• We have been serving creditors and trustees alike in the Northern Virginia community since 1986.

• Our experienced law firm provides assistance with all types of bankruptcy fillings.

• If you have questions about bankruptcy call for a free consultation (703) 549-5000 or visit us online at www.TBRCLaw.com

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