Bankruptcy Advice

When the Alternatives are not Feasible…Bankruptcy Can Be the Fresh Start You Seek!

Credit-yogi.com understands that no one wants to have to file for bankruptcy. Yet nearly 800,00 bankruptcies are filed each year in the U.S. (Almost 97% are personal bankruptcy filings.)  While bankruptcy does impact your credit for up to 10 years; it is not the stigma many suppose it to be.  The U.S. government refers to bankruptcy as a fresh start for those who find themselves, for whatever reason, in debt to the point that they cannot feasibly get themselves out again. Many times, the reasons for this are circumstances totally beyond their control, like, for example, the impact of the COVID 19 pandemic on individuals and businesses alike.

Because One Size Does NOT Fit All…

The U.S. Bankruptcy Code (the “Code”) offers 5 types of bankruptcy filings to individuals and businesses.  Each type is described in its own chapter in the Code, and they are identified by their chapter number.  According to the U.S. Department of Justice, on average, bankruptcies filed under Chapters 7, 13, and 11; account for more than 99% of the total annual filings. 

The table below compares some of the more distinguishing features and characteristics of these three types of bankruptcy filings.  It does not consider variations and any additional requirements that may apply under your state and local laws.  And, sometimes, what appears to be the obvious choice may not necessarily be your best choice.  For these reasons, this table by itself, is not sufficient for you to make decisions.  It is, however, an excellent tool to help you prepare for a more productive discussion with a bankruptcy attorney.


(Note: Chapter 12 bankruptcy is similar to a Chapter 13, but it is exclusively for use by Family Farmers and Family Fishermen. Chapter 15 is for foreign nationals declaring bankruptcy on property in the U.S.

Bankruptcy TypeChapter 7
A Liquidation Strategy
Chapter 13
A Debt Restructuring &
Consolidation Strategy
Chapter 11
A Restructuring Strategy, OR,
A Liquidation Strategy
What’s it for?
In simple and broad terms




























The goal in filing under Chapter 7 is to have your debts “discharged” (cancelled) and, within limits, to hold onto your most essential property – “exempt property” – such as your home, car, and personal property.

This is accomplished by surrendering all of your “non-exempt” property to a Court-appointed Trustee who will sell it and pay off as much of your debt as possible. What cannot be paid off will be discharged.


















The goal in filing under Chapter 13 is to have your debts restructured and consolidated so that they can be repaid over 3 to 5 years; without having to surrender your property.

This is accomplished through a Court-approved Repayment Plan.
Some of your debts may be reduced or possibly discharged as well.





















For Businesses:
The goal in filing under Chapter 11 is to continue operating while it negotiates a Plan of Reorganization which, among other things, provides for the repayment its creditors over a period of time.

For Individuals:
Chapter 11 is primarily used by a debtor who would otherwise qualify to file under Chapter 13; but whose debts exceed the limits allowed to file under Chapter 13, OR to negotiate a Plan of Reorganization longer than the 5-year maximum imposed under Chapter 13.

For All Filers, Chapter 11 can also be used as a Liquidation strategy:
Unlike Chapter 7, Chapter 11 allows a business or individual to hold onto and use their property while they prepare a plan for a more orderly liquidation. The result is that business property may be sold at a higher “going-concern” value, rather than “auctioned” as it would be under Chapter 7. Similarly, personal property may not have to be sold at a discounted price under a “forced or distress sale” auction sale.
Who’s it for?
Subject to qualification and eligibility requirements


• Individuals
• Sole Proprietors
• For reasons explained below, Chapter 7 is generally not a good choice for Partnerships and any form of Corporation.

• Individuals
• Sole Proprietors
• Partnerships and Corporations are not permitted to file under Chapter 13 in their own name (but their owners may benefit filing as individuals.

• Virtually any entity or individual can voluntarily initiate a filing under Chapter 11.

• In certain circumstances, Creditors can petition the Court to force a debtor to submit to a Chapter 11 process.
Who’s eligible?



























Income Limits:
You must qualify under either of two income tests:
• Your income must be equal to or less than the median income for the state and county in which you reside; OR,
• Your income under a “means test must be equal to or less than your “allowable expenses”.
If your income is greater than both tests you cannot file under Chapter 7 (but you may be able to file under Chapter 13).

Additional Qualification Requirements
• You must NOT have had a bankruptcy petition dismissed during the prior 180 days, AND,
• You must have received credit counseling from an approved credit counseling agency, within 180 days prior to your filing, AND,
• States impose length of residency and additional requirements.




Debt Limits (For filings April 1, 2019 – March 31, 2022):
• Your non-secured debt (e.g., credit cards) must not exceed $1,257,850, AND,
• Your secured debt (e.g., home, car, boat) must not exceed $419,275, AND,

Additional Qualification Requirements:
• Your anticipated income (from wages and other steady sources) must be reasonably expected to be sufficient to cover the monthly repayments according to what will become the Court-Approved Repayment plan AND,
• You must be current on your federal and state tax filings for the prior 4 years, AND,
• You must NOT have had a bankruptcy petition dismissed during the prior 180 days, AND,
• You must have received credit counseling from an approved credit counseling agency, within 180 days prior to your filing.



There are no debt or income limits in order to file under Chapter 11.
However, Chapter 11 is a costly and burdensome process for smaller businesses. Two special sections added to Chapter 11 streamline the process and lower the cost for Smaller Businesses:

The Small Business Case and the Subchapter V Case, have certain eligibility requirements as follows:
• The business must be engaged in commercial or business activities other than owning or operating a single piece of real property, AND
• Total debts must not exceed $2,725,625, not less than 50 percent of which arose from the commercial or business activities of the debtor.
• For Subchapter V filings prior to March 27, 2022, the debt limit is $7,500,000.)

Individual filers eligibility is similar to a Chapter 13 filing, (but there is no maximum debt limitation) and there are additional reporting, and disclosure requirements.
What does it do??






































For all filers:
• As soon as a petition for Chapter 7 bankruptcy is filed with the court, an “Automatic Stay” will be issued. All attempts by any creditor or collection agency to collect on your debt, including existing or pending wage garnishments, must stop immediately. If continued, the collector is liable for suit, by you, under federal law. However, Child Support wage garnishments are NOT protected, and collection efforts on secured (collateralized) property may be allowed to continue by the Court.

For Individuals and Sole Proprietors:
• Remaining unpaid unsecured debt may be discharged (cancelled).
• Eliminates personal liability on secured debt. However, your mortgage is still subject to foreclosure and your secured personal property (e.g., car) can still be repossessed.
• You will likely be able to keep your most essential property (e.g., primary residence, car) which are “exempt” property, and you may be able to keep some of your “non-exempt property”.
• The case Trustee will sell all property you are unable to keep.

For Partnerships and Corporations:
Basically, the only benefit for these entities in filing under Chapter 7 is to have the business property court-inventoried and Court-appointed-trustee-liquidated. This mitigates potential claims of bankruptcy fraud that might otherwise be filed by creditors of the business.
• “Automatic Stay” is issued by the Court – same as for Chapter 7.
• Co-signers of your debts are also protected under an “Automatic Stay”.
• You keep all of your property, including your home, car, personal property, even your bank accounts and investments, provided your consolidated monthly payments to the plan Trustee are sufficient to cover a Court-approved Repayment Plan’s commitments to your creditors.
• Your debts will be consolidated, some debts might be reduced, and repayment will be spread over 3 to 5 years.
• Prevents foreclosure and repossession on your primary residence, car, and all other “secured” assets, provided your Repayment Plan satisfies your restructured obligations and commitments to your secured creditors.
• Your unsecured debt will be consolidated, and repayment will be apportioned among your creditors to the extent possible under your approved Repayment Plan. If not, unsecured creditors must be paid at least as much as they would have gotten under a Chapter 7 filing.
• Any remaining amount of unpaid unsecured debt that is included in the filing will usually be discharged.








• Automatic Temporary Stay suspends foreclosures and repossessions while a Plan of Reorganization and a monthly repayment amount is being negotiated and confirmed.
• The business continues to operate and use its property and assets.
• Repayment of creditors can be spread over more than 5 years.
• In most instances, the debtor becomes a “debtor in possession”- a fiduciary having all the non-investigative authority, powers, duties, and responsibilities that a case Trustee has under Chapter 13.
• A case Trustee will NOT be appointed unless there is cause: (e.g., fraud, dishonesty, incompetence or gross mismanagement, or criminal conduct). However, a case Trustee WILL be appointed under a Subchapter V filing.
• Any amount of remaining unsecured debt that will not be satisfied under the Plan of Reorganization will be discharged.












What it does NOT do

























• It does not prevent foreclosure on secured property (collateral for a loan such as your house, car, etc.) so you must be current on secured loan payments to keep this property.
• Certain debts are not “dischargeable”, and you will still be liable for them. (e.g., taxes, child support, alimony, student loans)
• If you own a business, it will be closed, and its property/assets will be consolidated with your personal property.
• If a Partnership or Corporation files under Chapter 7, the business will be liquidated, no debts will be discharged, and its owners might become liable for the unpaid debts of the business.









Unlike a Chapter 7 filing, Chapter 13 does not automatically discharge all of your debts. It is a debt restructuring and consolidation plan as opposed to a debt cancellation plan (although some of your debts may be reduced or cancelled).

The Trustee will NOT sell your property.

Your Court-approved Repayment Plan will specify a monthly repayment amount known as the Applicable Commitment Amount.

The Applicable Commitment Amount is designed to assure that ALL of your monthly “disposable income” (as determined by the Court) is used to pay off your debts over 3 to 5 years. It is paid monthly to the Trustee, who, in turn, distributes it to your creditors.

If the Court determines your Applicable Payment Amount will not be sufficient to repay your Priority and secured creditors, your case will be dismissed or converted to a Chapter 7 filing
Chapter 11 is not intended to be a debt cancellation plan.

If the Applicable Commitment Amount is insufficient to fulfill its required obligations to Priority and secured creditors, the case will be dismissed or converted to a Chapter 7 plan.
Property is NOT liquidated under a “Reorganization Chapter 11 case unless it is permitted or required under the Plan of Reorganization.














What do I get to keep?
Subject to limitations. NOT applicable to Partnerships & Corporations.






































Income:
Regardless of where you reside:
• ERISA-Qualified, employer-sponsored retirement accounts and pension plans have an unlimited exemption and will not be forfeited or reduced. In addition…

• An aggregate amount of up to $1,362,800 in your Traditional and Roth IRAs, SEP and SIMPLE IRA plans, is exempt.

• All wages, federal and state benefits (e.g., Social Security, Unemployment, Veterans), earned and received after filing.

• Alimony and spousal maintenance up to an amount reasonably necessary for your support

“Exempt” Property:
The Code defines types of property that are “exempt” from being sold by the Bankruptcy Trustee to pay off your debts. However, the amount of value you may keep in exempt property is limited to specific dollar amounts according to a schedule that is updated every 3 years.

More importantly…

Each state has its own schedule of exempt property. ONLY your state’s schedule of exempt property may be claimed unless your state permits you to choose between the state and federal exemptions.
As of 2021, only 19 states and the District of Columbia permit debtors to claim either the federal or state’s exemptions. In all other states and jurisdictions, you can only use the state’s schedule of exempt property.
The advantage of filing under Chapter 13 is that you get to keep whatever property you choose to keep and can afford to keep under the terms of your Repayment Plan, provided the Court reasonably believes you will have sufficient disposable income to complete your Repayment Plan in full over the 3-to-5-year Applicable Commitment Period.

Unlike Chapter 7, the Chapter 13 Trustee does NOT take possession of and liquidate your property. You can even keep your investments and bank accounts If you can afford to keep them.





























Business and Individual filers get to keep all property and assets provided the obligations to the Priority, secured and unsecured creditors as specified in the Plan of Reorganization can be satisfied.
If not, Court will dismiss the case and you will have to file for a liquidation under Chapter 7 or convert your Chapter 11 filing to a Plan of Liquidation filing.


































What do I forfeit?
































All of your non-exempt property, as well as exempt property in which your equity/value exceeds the exemption limit, can be sold by the trustee, with the proceeds used to pay off your creditors. Any remainder, less fees, will be paid to you.

Partnerships and Corporations that file under Chapter 7 will be closed and all of their property will be liquidated to pay off creditors. If the liquidation proceeds exceed the amounts owed to creditors, the remainder will be paid to the business owners.

If the liquidation proceeds are insufficient to pay off all of the amounts owed creditors, the unpaid debt will NOT be discharged, and the owners may become liable for the unpaid business debts.












The value of any unsecured property in excess of what would be its Chapter 7 exemption amount must be paid to the unsecured creditors.

The amount of disposable income is equal to all of your income, less an allowance for reasonable and necessary living expenses.

If under state law, you have expenses associated with non-exempt property that are not deemed reasonable and necessary living expenses, the total cost of maintaining such property – mortgage, taxes, rent, fees, maintenance expenses -will NOT be included in the living expenses deducted from your gross income to arrive at your Disposable Income.

This means that if you have too much non-exempt property that has on-going costs, it may cause your Applicable Commitment Amount to be insufficient; in which case your Chapter 13 filing will be dismissed, and you will have to file under Chapter 7. If this becomes the case, depending on your state’s law, you may be able to preserve your Chapter 13 filing by voluntarily surrendering some or all of your non-exempt property to the Trustee who will in turn, sell the property and pay all of the proceeds to your unsecured creditors.
Similar to Chapter 13.
However, secured creditors may request the Court to lift the Automatic Stay on property in which the debtor has no equity and it is not essential to the success of the Plan of Reorganization. If approved, the Creditor may repossess the secured property.

Otherwise…

Business and Individual filers get to keep all property and assets provided the obligations to the Priority, secured and unsecured creditors as specified in the Plan of Reorganization can be satisfied.
If not, Court will dismiss the case and you will have to file for a liquidation under Chapter 7 or convert your Chapter 11 filing to a Plan of Liquidation filing.











How Long will it take?




Typically, 4 to 6 months from filing to the Court’s issuance of Discharge from debt



A Chapter 13 can take up to 5 years to complete, plus the amount of time to prepare and present the case to the Court.


Based on who is the entity or person filing, the number of creditors, and the amount of debt, a Chapter 11 case can take from as little as 4 months to as many years as the Court approves is appropriate under the Plan of Reorganization.
What will it cost?





Typically, $1,000 to $2,000 for attorney’s fees and court costs, depending on the number of creditors and the extent of your property.



There are many factors that can affect the cost of a Chapter 13 bankruptcy. On average, though, Chapter 13 filings average $3,000 to $5,000



There are so many factors that affect the cost of a Chapter 11 bankruptcy, it is nearly impossible to give an accurate, credible answer here. However, on average, more simple cases average $15,000 while more complex cases average costs well in excess of $100,000.
For official U.S. Dept. of Justice Explanations:U.S. Courts – Chapter 7U.S. Courts – Chapter 13U.S. Courts – Chapter 11

Getting Help from Government Agencies

Though there are government agencies that can give you information about bankruptcy, most will not even discuss your individual case or situation or give you bankruptcy advice. If you need information feel free to take advantage of Credit-Yogi.com’s free, sponsored phone consultations with a certified bankruptcy lawyer.

Debt Management Services and Bankruptcy

You may have already been dealing with a debt management company in an attempt to avoid bankruptcy, and you feel comfortable with them and their level of expertise. If that is the case, they can certainly give you some good information and advise you on some of the facts regarding bankruptcy that you need to know, but the most likely advice they would give you would be to consult a bankruptcy attorney.

Should I Hire a Bankruptcy Attorney?

Bankruptcy is not normally something that the average person can handle on their own, and the normal course of action is to hire a competent bankruptcy attorney. A successful outcome depends on expertise, experience, diligent and accurate preparation of the filing, and compelling presentation to the Court.

But don’t just take our word for it. Read why the U.S. Department of Justice strongly recommends hiring an attorney even for Chapter 7, the least complex of bankruptcy filings. If you are not sure whether you want to hire an attorney to handle your bankruptcy or not, consider that the initial consultation of most bankruptcy attorneys is free. Credit-yogi.com facilitates 100’s of free consultations daily.

How Do I Find a Good Bankruptcy Attorney?

Well, if you’re willing and able to invest time to do the research…
You should always look for if you need a bankruptcy attorney is a certification from the American Bankruptcy Institute. You can also contact the American Bar Association, or ABA in your state or city to verify that there have been no complaints or sanctions against potential attorneys. You should also ask for references, interview attorneys personally, and do your own research to determine the best attorney to handle your bankruptcy. There are many small bankruptcy law firms that offer their services for smaller fees. Many times, these attorneys are just as good as those from large firms. You just have to check them out thoroughly before you hire them. Attempt to find an attorney that you are comfortable dealing with personally, as well as one that you can depend on to know the law and be committed to your best interests.

Alternatively…

Your best next move is to let Credit-Yogi schedule up to 4 Free question and answer sessions with a local bankruptcy attorney who has expertise in your state and local bankruptcy laws. Our service representatives are available 24/7 to take your call and schedule your free phone consultations.
Call now: 1-866-964-9644
You owe it to yourself. You owe it to everyone who depends on you.

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