Bankruptcy 101

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

Bankruptcy Overview
Goals 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

Common Misconceptions: 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.

What is Insolvency?
Insolvency Defined
To declare a state of complete inability to pay debt.
(classified as balance sheet or cash flow insolvency)

Balance Sheet Insolvency

Cash Flow insolvency

Who A company or person. What Liabilities are greater than the assets or properties owned.

(Equity Insolvency)

Who Person. What Unable to pay debts as they are due.

Cash Flow Insolvency

May Result In

Balance sheet Insolvency

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

Insolvency Explored
Qualifications 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?
Bankruptcy Defined
The legal status or declaration of a person or company that has been declared insolvent unable to repay debts owed

About Bankruptcy

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

* Some types of bankruptcy are not available to all individuals

Chapter 7 Chapter 9 Chapter 11 Chapter 12 Chapter 13

Bankruptcy Explored
Qualifications 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 indebtedness

Benefits of Filing:

Types of Bankruptcy Summarized

Chapter 7 Involves liquidation of assets.
Available to individuals or Companies.

Chapter Debtor must be a municipality to qualify. Special Filing Not available to most individuals or companies. 9 Debtors debt exceeds limit of Chapter 13 or lacks regular income.
Available to individuals or companies but is most commonly used by Businesses.

Chapter 11

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 individuals 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

An 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 Protects Against

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

Benefits of Automatic Stay

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.

Avoidance Actions By The Trustee or DIP

Avoidance Actions to Generate Income and Pay Creditors may be classified as:
Fraudulent Conveyances Preferences Failure to Perfect

Statute of Limitations

Transferring assets to another individual to avoid using assets to pay creditors

Any payment made to a creditor 90 days prior to filing the claim must be returned and evenly distributed

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

Avoiding transfers prior to, on or after bankruptcy case is closed or dismissed

How Protect Yourself In Bankruptcy

Ways to Guard Against Harassing Creditors
Attend creditors meetings to ask questions. Take the debtors 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 debtors discharge or dischargeability of the debt owed.

Protection Within Specific Claims

Declare intention to surrender or retain a secured creditors collateral
(Chapter 7).

Review Chapter 11 DIPs 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).

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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