Bankruptcy is a legal proceeding designed to help individuals and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Generally speaking, there are two types of bankruptcy—liquidation (
chapter 7) and reorganization (chapter 11, 12 and 13). Both types of bankruptcy, liquidation and reorganization, have numerous rules and exceptions.
Bankruptcy does not wipe out most mortgages liens. However, judgment liens and some liens on personal property called “non-purchase money security interest” may be voided if they encumber exempt property. A debtor wanting to keep his or her house generally must continue to make the mortgage payments. Likewise, a debtor wanting to keep a car on which there is a lien must continue to make the payments.
A debtor facing foreclosure on his or her home may use
chapter 13, a reorganization proceeding, to repay past due payments and other costs, while making regular mortgage payments, in order to keep the home.
Chapter 13 may also be used to get back a car that has been repossessed by a creditor. In a
chapter 7 bankruptcy, often referred to as liquidation, certain property that has been repossessed by a lienholder can be redeemed by an appropriate proceeding which would require paying the lienholder the market value of the property.
If a creditor or the trustee (the court-appointed official who administers the debtor’s bankruptcy estate) objects to releasing the debtor from liability, the debtor may be denied a discharge of the debts and continue to owe the debts as if the bankruptcy had never been filed. Some of the reasons for being denied a discharge are fraudulent transfer of an asset to keep it away from creditors or the bankruptcy trustee, concealing assets or disobeying or making a false statement to the court. These acts may also constitute federal crimes for which the debtor can be fined or imprisoned.
Certain types of debts, such as child support, alimony, some federal income taxes and all employer withholding taxes are not discharged in bankruptcy. In general, student loans cannot be discharged unless the first loan payment was due more than seven years before the bankruptcy filing. Wrongful conduct on the part of the debtor may also make some debts nondischargeable in a liquidation bankruptcy. Such conduct may include incurring credit card charges when the debtor had no intention or ability to repay, or obtaining loans using false financial information. Furr and Cohen, P.A. has successfully represented debtors and creditors in thousands of bankruptcy cases. Our experience includes professional and high net worth individuals as well as businesses in a wide range of industries including real estate developers, restaurants chains and gasoline service station operators.
Chapter 7 is often called a liquidation bankruptcy. It is commonly used by individuals who want to walk away from their debts or businesses that want to terminate their operations and sell off their assets. When a debtor files
chapter 7, the bankruptcy court appoints a person to administer the estate. That person is called the trustee. In return for having debts discharged, the debtor must turn over to the bankruptcy trustee all property except for certain assets deemed exempt under Florida law. The trustee sells the property and distributes the proceeds to creditors according to priorities established by law.
Chapter 11 is a reorganization proceeding. It is typically used by businesses, but also may be used by individuals who do not qualify for
chapter 13 because of their substantial debts and because they have assets that would be surrendered in a
chapter 7 proceeding. The purpose of a
chapter 11 proceeding is to provide the debtor with temporary relief from pre-petition debts while the debtor formulates a plan to restructure those debts in accordance with certain requirements of the Bankruptcy Code. In a
chapter 11 proceeding, the debtor remains in operation (in the case of a business) and remains in possession and in control of all owned property.
Chapter 13 is often used by individuals who want to catch up past due mortgage or car loan payments and keep their assets. Generally, in a
chapter 13 reorganization, the debtor retains his or her property and prepares a plan proposing payments to creditors over an extended period of time, typically three to five years. During that time, creditors are prohibited from starting or continuing collection efforts.
