Bankruptcy1

September 13,

Bankruptcy
2010
By
Bankruptcy Chapter 7, Chapter 11 & Chapter 13 Mariangeles
Arguello
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Abstract

This research paper is basically informs the reader about many options of Bankruptcy

Chapters that people and business file in the United States to free them from the debts they can't

longer pay or have gone out control for one reason or another. One has to understand that not all

chapters apply to everyone, so the ultimate legal advice lies with the advice of a professional

Bankruptcy Lawyer. The context within the investigation, will give you a better idea of what to

expect, and what kind of questions you will have in mind when asking the future lawyer in your

case. You may in a very difficult financial situation, but Bankruptcy might be the only option to

a fresh start building up your credit and your finances responsibly and with lots of reasoning.

Therefore, hold down tight to the little money left you have in your wallet in order to hire the

right Lawyer to represent you, because it will probably cost you your last dime.

Bankruptcy
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What is Bankruptcy? The meaning of such a word is the state of being or becoming

bankrupt-Utter ruin, failure, depletion, or the like.

http://dictionary.reference.com/browse/bankruptcy

This is a subject that many of people around the United States and around the globe are

facing now days, and it is also a subject that we all try to avoid talking about, until is really

necessary to use it in our daily vocabulary. As we are facing now the worst Economic Crisis

since the Great Depression, this is a reality that is being face in the Courts on daily bases. The

ones having a job for sure are Bankruptcy lawyers that not at all times work in the best of your

interest. Millions of people have been force to file a Chapter 7, 11, and 13. I will be talking

extensively about it in the next few pages, so you may gather a better idea of what questions

should you ask any lawyer in case of considering any of the Bankruptcy Chapters mentioned in

this research.

Federal Bankruptcy law was first enacted in 1898, but has significantly changed since

that time. Bankruptcy in the United States is permitted by the United States by the United States

BAPCPA. Finally, while bankruptcy cases are filed in the United States Bankruptcy Courts and

federal law governs procedure in bankruptcy cases, state laws are often applied when

determining property rights. Example: Laws governing the validity of liens or rules protecting

certain property from creditors are called exemptions, therefore many situations should be

considered before filling a process to ensure one file a correct according to the individual needs.

Top 10 Reasons why people file for Bankruptcy:

1) Eliminate the legal obligation to pay any of your debt.

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2) Prevent your car or other property from being repossessed.

3) Stop foreclosure on your house and allow you to effectively make payments to catch up

on missed payments on your mortgage.

4) Recent loss of employment.

5) Reduced or even eliminate high medical bills.

6) Restore or prevent your utilities from being shut off.

7) Stop harassing behavior from your creditor’s

8) Provide help for a large amount of Student loan debt.

9) End wage garnishments.

10) Challenge curtain claims of fraudulent.

According to Jonathan Stempel in a New York in Article dated August 17, 2010. He stated

that “U.S. Bankruptcy filings have reached the highest level since 2005 and that unemployment

rate hovers just below double digits. Http://www.reuters.com/article/idUSTRE67G52420100817.

He went on to explain that the year ended June 30; there were 1.57 million bankruptcies up 20%

from 1.31 million a year earlier. Those Consumer bankruptcies rose 21% to 1.51 million and

business bankruptcies rose 9% to 59,608.

We all probably know that the causes of bankruptcy now days has to do principally with

job losses and health care, with the overlay of course of the foreclosure crisis created on my

personal opinion by the irresponsibility of Banks lending unqualified customers money that they
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could not repay back, and also by the greed of individuals that thought of becoming wealthy

overnight. One of the major goals of current law is to require consumers to pay as many of their

debts as they possibly can instead of having those debts fully discharge in Bankruptcy.

Three Major bankruptcy Codes in the United States:

Bankruptcy Code Chapter 7, Liquidations:

Chapter 7 Filing is the most common form of bankruptcy. Liquidations involve the

appointment of a trustee who collects the Non-exempt property of the debtor, sells it and

distributes the proceeds to the Creditors. Because each state allows for debtor to keep essential

Property, most Chapter 7 are NO ASSET cases, meaning the Debtors keep all their property.

According to the book title Business Law Six edition by Miller Hollowell. It goes on to talk

about how petition in Chapter 7 are classified as Voluntary Bankruptcy VS. Involuntary

Bankruptcy.

Voluntary means: a petition that is brought by the debtor who files official forms

designated for that purpose in the bankruptcy court. Involuntary means: that it occurs when the

debtor’s creditors force the debtor into bankruptcy proceedings such a case can’t be commenced

against a farmer or chartable institution. By filing this petition one will avoid creditor’s

harassments, those unfortunately calls to your house and work at all times, which under the law

threatening Violence, using obscene language and calling persistently with the intent to irritate or

annoy which can be unpleasant and nerve racking may be illegal. To give you some examples

during a chapter 7 the Filing debtor may stay with some property for example some: If she/he

has 3 cars under a value of a $1000 each or less, she/he may keep it. Debtor’s need to provide

the past 7 months Banks Statements in order to see their revenues in monthly bases, basically the
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income they get from work. They may also need to provide all credit cards statements among

other things. If a debtor owns the IRS, some of the IRS debt may be included as part of the debt,

usually they charge off the last two years, but it really up to the courts. It is recommended that

the day you sign or file a petition to have 500 dollars or less in the bank account. Other papers

may be requiring to be provided and a lawyer will tell you more in details, this was just basic

information.

Let’s now talk about another very important Bankruptcy Code called Chapter 11.

Reorganization which can be filed by: Every business whether is organized as a Corporation or

Sole proprietorship and to individuals, although it is most prominently used by Corporate

entities. It allows reorganizations/adjustments; creditors and debtor’s formulate a plan under

which the debtor is allowed to keep some or all of his or her property and to use future earnings

to pay off creditors.

The debtor is then allowed to continue in business. Everything is different about Chapter

11; they differ from the very beginning: instead of simply filing your papers as your lawyer, he

or she must apply with the Court and have it approve the representation during the Chapter 11.

Accountants and tax preparers need Court approval too. These types of cases spend more time

than other bankruptcies Codes. Not only is a motion to approve Attorney need it, but all so

attendance at the Initial Debtor Interview with the US Trustee’s office. Filing a Disclosure

Statement and Chapter 11 Plan typically run about 100 pages. Solicitation of votes from creditors

and submitting ballots, attendance at the Confirmation Hearing, more negotiations with creditors

is needed as well etc.

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Because of this and more Chapter 11 Cases are charged and handled on an hourly basis

by lawyers. Chapter 11 is more confusing to clients. The attorney needs to work with you on

monthly business reports and quarterly trustee payments. Note: Many attorneys won’t touch a

Chapter 11 case with 20 foot pole, regardless the money involved. That is why many of Chapter

cases attorneys are referred from other consumer bankruptcy attorneys.

Please note: Debts not discharged include debts for alimony and child support, certain

taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a

governmental unit. Debts for will full and malicious injury by the debtor to another entity or to

the property of another entity, debts for death or personal injury caused by the debtor’s operation

of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts

for criminal restitution orders. The debtor will continue to be liable for these types of debts to

the extent that they are not paid in the Chapter 11 case.

Here are some of the largest bankruptcies in U.S. History occurred in the resent years

Company Bankruptcy Date Total Assets Pre Description

Bankruptcy

Lehman Brother

Holdings, Inc 9/15/2008 $691,063,000,000 Investment Bank

Washington Mutual 9/26/2008 $327,913,000,000 Savings & Loan

Holding Co.

General Motors 6/1/2009 $82,290,000,000 Manufactures and

Sells Cars

Enron Corp 12/02/2001` $65,503,000,000 Energy Trading,

Natural Gas

Delta Air Lines 9/14/2005 $21,801,000,000 Airline

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The Bankruptcy Code Ch. 13

This one allows individuals to undergo financial reorganization or adjustments supervised

by Federal bankruptcy court. Individuals not Partnerships or Corporations with regular income

who owe fixed, unsecured debts of less than $336,900 or fixed, secured debts of less than $

1,010,650 may take advantage of Chapter 13. Generally, people file Chapter 13 if they have

valuable property not covered by an exemption, like a home or car, but want to keep this

property. If a debtor is behind on secured loan payments a chapter 13 bankruptcy can allow the

debtor to make up these payments over time while keeping the home or car. Moreover, the

debtor proposes a plan to pay his creditors over a 3-5 year period. This written plan details all of

the transactions and their durations that will occur, and repayment according to the plan must

begin within thirty to forty-five days after the case has started. During this period, his creditors

cannot attempt to collect on the individual’s previously incurred debt except through the

bankruptcy court.

In other words, the individual gets to keep his property, and his creditors end up with less

money than they are owed. Sole proprietors and individuals on welfare, social security, fixed

pensions, or investments incomes are included. The debtor in Chapter 13 bankruptcy continues

in business or in possession of most of his/her assets.

Note: Most debts are discharge within 3 years.

Some of the advantages of Ch 13 over 7 include the ability to stop foreclosure although a

foreclosure would be reinstated upon completion of the bankruptcy and disadvantage is that

during the pendency of this Chapter case the debtor is not permitted to obtain additional credit

without the permission of the bankruptcy court. One considering bankruptcy in the State of
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Florida must prepared their wallet and makes themselves patience with the process of it, before

they can fell free of all or most debts.

Basic Court fee charges:

Chapter 7 $ 399.00

Chapter 13 $ 374.00

Chapter 11 $ 1039.00

Attorney’s fee may vary from one to another:

Chapter 7 $ 1,000 - $ 1,399

Chapter 13 $ 1,500 as high as $3500

Chapter 11 $ 2,500 then is usually charged by hour

Here are some of the famous historical bankruptcies:

• Abraham Lincoln: He was so behind in debt that selling his assets still didn’t pay off half

of his debts. He was an amazing leader during a tumultuous time in the United States

history, but as a business owner, he wasn’t able to keep his business on the right he

footing.

• Henry Ford: Started the Detroit automobile company in 1899 with the help of 3

Politicians. Over the next two years the engineer only made 20 cars, blamed on his

perfectionism, which led to bankruptcy in 1901.

• Walt Disney: Imagine life without Mickey Mouse. It just doesn’t seem right, does it? In

1922, Walt Disney and his partner started a film company in Kansas City after, buying a
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used Camera, Disney shot and produced short advertising films and cartoons. The deal

did not work out as planned and Disney had no choice but to go bankrupt in 1923.

• Milton Hershey: If chocolate does heaven on earth Milton Hershey is God-just not all

know powerful one. He knew how to make candy just not the best in running business.

He started His own Business in Philadelphia in 1876 and 6 years later his business went

bankrupt.

• H.J Heinz last year Heinz, his brother and cousin made over $ 10 billion in revenue but in

1827 the business went bankrupt and Heinz reorganized with his family in Pittsburgh,

PA.

Five Major Corporate Bankruptcy’s of 2009

• Six Flags, an amusement park chain with 20 theme parks operating throughout the US,

has recently gone on a bit of a financial rollercoaster ride. With a staggering $1.8 worth

of debt, Six Flags has finally decided to go into Chapter 11 bankruptcy protection.

• Chrysler: The third-largest automaker in the US, file Chapter 11 bankruptcy on April 30,

2009. This move marks the first instance of bankruptcy for a major American

manufacturer since Studebaker in 1933. During the Carter administration the

manufacturer also came dangerously close.

• Eddie Bauer: This outdoor apparel retailer, which began as a sport shop in Seattle in

1920, has recently filed for bankruptcy for the second time in six years.

• Circuit City: The nationwide electronics retailer announced in January 2009 that they

would be closing the 567 stores operating in the United States and liquidating all
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merchandise amongst four different retailers. After failed attempts to reach any

agreement with their creditors, they were unable to secure a going concern transaction.

• Fortunoff: On February 5, 2009, Fortunoff, a New York-Based retailer of jewelry, home

and furniture stores, filed for Chapter 11 Bankruptcy protection. Much to consumers’

dismay, the company stopped honoring all gift card purchases within two weeks of its

bankruptcy announcement and all 34 of Fortunooff’s retail, full-line, a specialty stores

were liquidated by June 2009. The downfall was attributed to increasing partnership cost

with Lord & Taylor, lack of borrowable funds due to the recession, and a subpar holiday

purchases during 2008.

Celebrity Bankruptcies

• Famous Singer MC Hammer: I can guarantee that everybody that grew in the 1990’s

can name MC Hammer song and know not only the lyrics, but some dance moves to go

with them. Mc Hammer had an entourage that rivaled the Queen of England’s and it

showed on his bankroll.

• Larry King: estimated wealth today is at $ 50 million, nearly 30 years after filing

bankruptcy. In 1978 King was in a dire financial situation. He had been accused of

stealing money from his business partner and charge with grand larceny. The charges

were dropped, but the scandal had not helped with his career.

• Donald Trupm: Besides his hair, Donald Trump is famous for his successful real estate

adventures and extravagant lifestyle. And then there are his bankruptcies, his casinos etc.
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His casino Empire first filed bankruptcy in 1992 Then again in 2004 and then again in

February 2009.

• Mike Tyson: As one of the youngest heavyweight champions ever, Mike Tyson earned

millions for just one fight, receiving over $300 million in his career. He was a big guy,

making big money, and spent it on a big life style. One of those big purchases was a pair

of pet tigers, which was just a small dent in his big debt.

• Don Johnson: Pay attention to this one, it has a better plot line than most of the shows

this celebrity has been a part. Don Johnson, known mostly for his Miami Vice days is the

owner of a poorly name Company called timber Doodle Glad Equity Venture LLC, and

he also owns a ranch called Woody Creek in Denver, Colorado. So he filed Bankcrupsy

in March 2004.

• Wayne Newton: Also know as Mr. Las Vegas because of his 30,000 solo shows in the

city, had to file for bankruptcy in 1992. He spent years suing NBC in a nasty libel case

about apparent ties with the mafia and eventually accrued over $ 25 million in debt,

including $ 341,000 for back taxes.

• Cyndi Lauper: In the 1980’s you cold n’t go an hour without hearing one of Cyndi

Lauper’s pop hits, but it wasn’t always that way. Before her hit album she is so Unusual,

her previous band called Blue Angel released an album that did not make money. The

band fired their manager, broke up and then sues by their ex-manager for breach of

contract. In 1980 Lauper had to file for bankruptcy and work in retail just to scrape bye.

Then later she was the girl having fun at the top of the charts and a huge pile of money.
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So if many of these successful individuals with lots of money had faced financial troubles

and have been force in one way or another to file any of this chapters to free them from lots of

headaches, imagine us that are trying just to get by in this recession, so we need to carefully

manage our income in order to avoid seeing us in this situation.

This are some First steps to establishing your credit after facing bankruptcy that one may want to

follow:

• Get a job, the purpose is to create a steady work record, obtain credit cards records from

all 3 credit bureaus.

• Ensure all the info is correct and send in a 100 word statement that gives good

explanation for your situation, if at all you had a problem.

• Get rid of all excess credit cards and keep one or two.

• By doing so you are putting on record that you have it in mind, to use credit more

cautiously from now on, apply for a secured credit card if needed.

• Open up a savings account and make regular deposits on it. It is essential that you pay

your Bills on time in order to ward of building up of debt and bad credit. Make sure your

checks don’t bounce; it will show that you are maintaining your finances responsibly.

• When getting a loan make sure to pay on time or before time.

• Make sure to check if this organization reports all transactions to credit bureaus since not

all organizations do so.

For College students:

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Unfortunately, student loan is usually not discharge in the case of Bankruptcy. The only

time a student loan might be discharge is if it will cost the debtor undue Hardships and by this it

means:

According to the new changes your student loan will only be discharge if you convince the

Court the paying back the loan will bring undue hardships to you and other ones that depend on

you. There are 3 criterions that federal student aid uses to make sure your eligible to be

Discharge and are as follow:

1. Will repaying your student loans prevent you from maintaining a minimal standard of

living?

2. Would it be difficult for you to maintain your minimal standard of living over the

prepayment period?

3. Did you make an effort to repay the loan before filing bankruptcy? Have you been

paying your loan for at least 5 years?

Therefore with all this information gathered in this research paper, we all should try to avoid

falling into this mess, but in case we have the need to consider any of chapters. This is handful

information to consider and several options offered now days to start from the beginning free of

debt.
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References

Administrative Office of the U.S. Courts . (2010). Liquidation Under the Bankruptcy
Code. Retrieved 09 10, 2010, from United States Court:
http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.asp
x

Administrative Office of the U.S. Courts . (2010). Individual Debt Adjustment.

Retrieved 09 10, 2010, from United State Court:
http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.as
px

Dictionary.com, LLC. . (2010). Bankruptcy. Retrieved 09 10, 2010, from Dictionary:

http://dictionary.reference.com/browse/bankruptcy
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Hollowell, R. L. (2011-2008). Business Law. Manson, Oh: South-Western Cengage

Learning.