Bankruptcy Law Explained

Bankruptcy Administration

[You do not need to study bankruptcy laws or to review this section if you have chosen to have us prepare your bankruptcy for you.]

Index:

Bankruptcy Law Summary
Chapter 7 bankruptcy laws
Chapter 13 bankruptcy laws
Property and Exemptions
Structure of bankruptcy laws
Case administration
Types of bankruptcy
How to file bankruptcy
 

Separation of Powers

Under the United States constitution, the Federal government is composed of three branches, the executive, headed by the president; the legislative, composed of the House and the Senate and the judiciary, composed of various Federal courts. In the bankruptcy process, all three branches of government are involved to some extent. The Congress of the United States enacts bankruptcy laws, the Department of Justice, an arm of the executive, administer them and the bankruptcy courts supervise the process and interpret the law. 

In most cases, bankruptcy is more of an administrative process than a judicial process. Unlike other court cases, filing a bankruptcy does not create a lawsuit and there is no plaintiff and no defendant. The role of the court is to supervise the process and to issue orders where necessary. The executive part of the government is represented in the bankruptcy process by the Department of Justice which appoints bankruptcy trustees to provide administration. Bankruptcy trustees are given broad powers to administer bankruptcy cases and they serve the roles of custodian, attorneys for the United States and process overseers.

The Trustee 

The day to day functions of the trustee and the court depend on the type of bankruptcy that you file. For example, in Chapter 7 cases, the debtor never sees the judge or appears in a court room. His or her only contact with the government is usually one short meeting with the trustee that could last about one minute. In contrast, in a Chapter 11 case, the debtor is in continually contact with the court and with the trustee and has to file many case reports.

When a bankruptcy is filed, a legal fiction know as the bankruptcy estates is created and it is comprised of all the property that the debtor owned at the time of the filing of the case. The principal role of the trustee is to act as the custodian of the bankrupt estate. What this means in lay person terms is that when you file bankruptcy, legal control to everything you owned at that moment is transferred by law to the trustee. Except for normal daily living or the day to day operation of a business, you cannot sell or transfer ownership of any property of the bankrupt estate until the case is closed. For most cases, you will need the authorization of the trustee in order to sell your house, boat or automobile. Since selling any of these mentioned property is not a regular occurrence for most individuals, this power of the trustee will have little or no effect on your freedom during the process.

The Trustee is also charged with the duty to sell non-exempt property in cases where a discharge is sought and to void certain types of liens on property of the bankrupt estate and certain types of transfers of property. 

If you file a Chapter 7 bankruptcy, you will deal almost exclusively with the trustee. Before you panic, note that dealing with the trustee is easy and nothing to be nervous about. In most cases, you encounter the trustee only once, and that is at the meeting of creditors or the 341(a) hearing.

The Judge 

The bankruptcy judge plays very little role in the process of a Chapter 7 case and that is because, as noted above, the process is mostly administrative in nature. The judge plays a significant role only when there are disputes between the debtor and others parties such as creditors or the trustee. If yours is a Chapter 7 case, except as noted above, you will never meet the judge or hear directly from him.

Chapter 7 Administration 

Chapter 7 cases commence with the filing of the petition and the initial documents consisting of schedules and statements. Immediately upon file, there is an automatic stay that virtually prohibits all parties from initiating or continuing hostile action against you. Approximately one to two weeks after filing, the court clerk sends out notices to all creditors informing them that you have filed bankruptcy and warning them to desist from bothering you. During this time, the trustee schedules a meeting of the creditors which is held four to five weeks after the filing of the petition. At this hearing, creditors and interested parties may ask you questions relating to your bankruptcy. In reality, in most cases, your creditors do not appear at the hearing and the process is usually over in less than one minute.

Following the hearing, the trustee notifies the court as to whether or not there are any non-exempt property of the bankruptcy estates. If yours is a personal bankruptcy, there will almost never be any non-exempt property of the estates and the trustee will recommend the issuance of a prompt discharge of your debts.

You will generally receive the discharge in four to five months after the petition is filed and your case will be closed in about six months form the filing date. As you can see, Chapter 7 cases are easy to administer. It is preparing the mountains of paperwork required for initial filing that is difficult.

For information on Chapter 7 bankruptcy law, click the details link below.

Chapter 7 bankruptcy laws

Chapter 13 Administration 

Chapter 13 cases are started in exactly the same way as Chapter 7 cases and they proceed in a similar way except that there is the matter of the Plan. Because Chapter 13 cases involve a repayment plan, you need to create and file the Plan and the court needs to approve it. There is a meeting of the creditors as in Chapter 7 and there is a confirmation hearing for the Plan. In some courts, these are scheduled for the same day to conserve resources. Once the Plan is approved, you make the scheduled plan payments through the trustee. Each month and until the end of the plan period, you make one payment to the trustee and the trustee disburses it to your creditors according to the plan.

A note of caution: If you hire an attorney for your bankruptcy, expect that they will charge you both an upfront fee to start the case and a fee to be paid through the Plan. For example, if your attorney tells you that he charges $700 for a Chapter 13 case, he is most likely referring only to his or her upfront fee. They will usually charge you another $1,200 to $2000 to be paid through the Plan, so in this example, your real cost is $1,900 to $2,700.

For information on Chapter 13 bankruptcy law, click the details link below.

Chapter 13 bankruptcy laws

For information on the structure of Federal bankruptcy law, click the details link below.

Structure of bankruptcy laws

New Bankruptcy Legislation

Federal bankruptcy law under the proposed bankruptcy reform act or bankruptcy bill as it is commonly referred to, contains some of the same legal underpinnings as the current law except in a number of areas. If the proposed legislation becomes law, it would require a person to meet certain criteria in order to qualify to file Chapter 7 as well as impose additional restrictions. If you are thinking of filing, now is the best time to do so.

Online Bankruptcy Filing

Online bankruptcy refers mostly to preparing the documents on the Internet without paper forms and without visiting an attorney. This is a relatively new approach and is superior to the traditional way in many respects. If your case is a personal bankruptcy, then the process is mostly about filling out the paperwork and the Internet provides the best means to do so. Having your bankruptcy prepared for you is obviously the best approach but there are other less desirable methods such as software. Please refer to the section on how to file bankruptcy for more information.

How to file bankruptcy

Business and Corporate Bankruptcies

Businesses can file either a Chapter 7 or a Chapter 11 bankruptcy but not a Chapter 13 bankruptcy. In most bankruptcy courts, it is mandatory that corporations be represented by an attorney. Chapter 11 bankruptcies are generally filed by corporate businesses because they are too complex for most people even when they are represented by attorneys. To start with, the court filing fee is over $800 and it is mandatory that corporations be represented by attorneys in bankruptcy. The forms for a Chapter 11 are pretty much the same as for a Chapter 7 but the real problems is with what you have to do after you file. It is like a freight train and almost no one does this without an attorney. Do yourself a favor and hire an attorney and not just any attorney. In most large cities, only a few attorneys can handle a Chapter 11 and those that do usually charge over $10,000 to start.

Bankruptcy Procedure

The bankruptcy code as well as local bankruptcy rules provide for the orderly administration of bankruptcy filings and the application of bankruptcy exemptions. The bankruptcy forms used are the same nationwide and are prescribed by the federal bankruptcy court. The effect is that the procedure for personal bankruptcies, corporate bankruptcies as well as business bankruptcies can be administered in the same way. This means that whatever approach you take, be it bankruptcy attorneys or our services the same procedure.

Filing bankruptcy on student loans and taxes are treated a little differently than other debts. These are priority debts and under chapter 7, involve additional considerations. When you hire us to prepare your bankruptcy, we allow you access to additional information on the special procedure for discharging student loans.

Legal insurance or prepaid legal as it is often called is yet another alternative. It is not comparable to having your bankruptcy prepared for you but it employs a legal system comparable to insurance in the sense that legal assistance is pre-paid. Whether you are filing online bankruptcy in California, Florida, Ohio or New York and whether or not it is under the new bankruptcy laws that will soon be legislated, the bankruptcy documents you should receive will be applicable in all 50 states. Now, certain states use their own bankruptcy exemptions and that includes Texas, Pennsylvania, Oregon, the Carolinas, New Mexico, Minnesota, Louisiana, Florida, Georgia, Maryland (except DC), California, Alabama, Alaska, Arizona and Arkansas. Some states us both federal exemptions and state bankruptcy exemptions.

After Bankruptcy

The process of administering a typically case takes about six months. After that, in Chapter 7, the debts are discharged. In Chapter 13, the debtor abides by the Chapter 13 plan for the specified duration which is usually 3 years. Unless you are behind on your mortgage, it is usually best to file a Chapter 7 bankruptcy. For one thing, with a Chapter 7 bankruptcy you can begin re-establishing credit right after the discharge whereas in a Chapter 13 case, you would have to wait three years for the bankruptcy to be over.

Bankruptcy Alternatives, Consolidation & Counseling

There are alternatives to filing bankruptcy the most common of which are debt consolidation wherein the debtor takes a loan on bankruptcy loan to pay of the other debts, and debt counseling or management as it is often referred. In debt counseling, the debtor makes one payment to the consolidation company which in turn disburses this money to the creditors according to a pre-negotiated arrangement. These alternatives usually do not succeed in avoiding bankruptcy. They merely prolong the agony and delay the inevitable bankruptcy.