BANKRUPTCY What is bankruptcy? Bankruptcy is a uniform, federal court-supervised procedure to relieve individuals and businesses from debts, while protecting and preserving the rights of secured creditors and providing unsecured creditors with equal treatment of their claims. There are four types of bankruptcy that individuals may select, depending upon their particular financial circumstances. Most individuals file under Chapter 7 of the Bankruptcy Code (the Code), sometimes known as "straight" or "liquidation" bankruptcy. Chapter 11 is available to individuals, but generally is used by corporations to reorganize their business affairs. Chapter 12 is designed for use by farmers. Chapter 13, also referred to as a "wage-earner" or "debt-adjustment" plan, is available to individuals and unincorporated businesses that intend to use future income to pay some or all of one's debts according to a plan designed by the individual (within certain statutory limitations) to meet his or her needs. Rodli, Beskar, Boles, Krueger & Pletcher,  S.C. represents both individual and corporate debtors and creditors in Chapter 7 and Chapter 13 bankruptcies. Who is involved in bankruptcy procedings? In general, bankruptcy proceedings under any Chapter involve: the debtor - the person who files bankruptcy, also known as "the petitioner." the creditors - any persons, firms or entities that claim the debtor owes them money; the trustee - a court-appointed person who administers the bankruptcy proceedings and any property available for distribution to creditors (called the bankruptcy estate). the bankruptcy judge - who presides over any hearing on disputed matters in connection with the case. Who may declare bankruptcy? There are few limitations on who can file bankruptcy. The decision of whether to file, and under what Chapter, is based upon each individual's need for relief from debts and their capacity and willingness to undertake a procedure that will have long-term consequences on their financial life. What are alternatives to declaring bankruptcy? Bankruptcy is not the solution for everyone in financial distress. Rodli, Beskar, Boles, Krueger & Pletcher,  S.C. will help you consider alternatives to bankruptcy. It may be possible to reorganize or restructure your financial burden outside of bankruptcy.  Rodli, Beskar, Boles, Krueger & Pletcher,  S.C. can assist you in negotiating payment plans and settlements with your creditors in order to avoid declaring bankruptcy. What constitutes the bankruptcy estate? In general, the bankruptcy estate consists of all property owned by the debtor or in which the debtor has an interest whether individually or as co-owner with any other person. What is Chapter 7 bankruptcy? The most commonly used form of bankruptcy, Chapter 7, provides honest debtors with a fresh start by eliminating many of a debtor's most common financial obligations through the discharge (which is generally granted at the end of the case). In return for the discharge, the debtor must turn over to the trustee certain nonexempt assets. These nonexempt assets are sold with the proceeds distributed to creditors according to priorities set forth in the Code. What are the advantages and disadvantages of filing bankruptcy? Advantages: with a few notable exceptions, bankruptcy stops all ongoing legal actions against the debtor, prevents a creditor from beginning new legal actions against the debtor, and prohibits creditors with notice of the bankruptcy case from contacting the debtor, or anyone else besides the debtor's attorney, to seek collections of a debt; most liabilities relating to credit card debts, civil judgments, past-due accounts and judgments due to repossessions and foreclosures may be discharged; a debtor may be able to keep all or most of his or her property through federal and/or state exemptions; and certain liens and certain involuntary transfers (such as garnishments), may be avoided if timely action is taken. Disadvantages: debts relating to certain taxes, governmental fines, forfeitures and restitution, criminal or fraudulent conduct, child and spousal support, drunk driving, most student loans and intentional and malicious injuries, may not be dischargeable; creditors having a mortgage or security interest in a home or in motor vehicles, may be able to repossess their collateral after the bankruptcy unless the debtor reaffirms the debt or redeems the collateral (see discussion below); bankruptcy filings are matters of public record and are generally noted on a debtor's credit history for 10 years, making it more difficult to obtain credit in the future. a debtor may receive a discharge only once in 6 years. A debtor contemplating bankruptcy must carefully consider his or her financial stability and ability to avoid the problems resulting in the bankruptcy during that period. What debts are not discharged in a Chapter 7 bankruptcy? When considering whether to file bankruptcy, it is important to understand that not all debts are subject to discharge under Chapter 7. Among the more common debts that are unaffected by bankruptcy are certain income and business taxes, alimony, child support, certain property divisions incident to divorce, governmentally imposed fines, forfeitures or restitution, most student loans and liabilities resulting from drunken driving. In addition, certain abuses of cash advances and credit cards on the eve of bankruptcy are nondischargeable, as are debts arising from fraud, misrepresentation, theft and intentional or malicious injuries to a person or property. What property may I keep in a Chapter 7 bankruptcy: Wisconsin law provides certain protections, called exemptions, that limit the types of property that a creditor holding a judgment may seize and sell to satisfy the creditor's claim. The federal bankruptcy laws also contain certain property exemptions that protect similar assets, but in different amounts. Because the dollar value of these exemptions are subject to legislative change, specific amounts are not listed here. However, the types of property for which exemptions are permitted include a limited amount of equity in, among other things, one's personal residence, vehicles, household goods and personal effects, tools of the trade, life insurance and even deposit accounts. Generally, qualified retirement benefits are excluded from the bankruptcy estate altogether. When a debtor's property (called collateral) is secured by lien (such as a home mortgage, vehicle purchase loan, some furniture purchases, and so on), the debtor must decide to retain it or surrender it to the secured creditor. If the decision is to surrender the collateral, the unpaid portion of the loan (or any deficiency after sale of the collateral) generally is subject to discharge along with the unsecured debts. If a debtor wishes to retain the collateral, the debtor must choose either to reaffirm the debt (sign a written document agreeing to continue making regular or agree-upon payments on the debt and grant the creditor all pre-bankruptcy rights upon a subsequent default) or redeem the collateral (pay the creditor the present fair market value of the collateral in one lump sum). Only items used for personal, household and family use (including vehicles, but not real estate) are subject to redemption. What is a Chapter 13 bankruptcy? Chapter 13 is a proceeding under which a debtor proposes to his or her creditors and the court, a plan that enables the debtor to repay as much debt as is feasible given the debtor's financial circumstances. To be confirmed by the court, a plan must provide that the debtor's future income be subject of court administration. After determining a reasonable budget, the debtor's remaining income is paid (generally monthly) by the debtor's employer to the trustee who, after taking a commission, pays the creditors in accordance with the provisions set forth in the plan. A plan generally lasts three years, but may last up to five years if the court approves the longer period. At the conclusion of the plan, the debtor is entitled to receive a discharge of any remaining debt. Who may file Chapter 13 bankruptcy? Unlike the other bankruptcy chapters, Chapter 13 is limited to individuals and unincorporated businesses that have a regular source of income whose secured debts are less than $750,000 with unsecured debts of less than $250,000. What are some of the advantages and disadvantages of Chapter 13 bankruptcy? Advantages: bars post-filing creditor actions against co-debtors if the creditor will be paid in full under the Plan; debtor retains all desired property, provided creditors obtain at least as much under the Plan as they would under Chapter 7; debtor may "strip-down" secured nonhomestead debts to the value of the collateral; debtor may cure loan defaults by making installment payments, and reinstate accelerated mortgage and other notes; the Chapter 13 discharge is broader than under Chapter 7, so that more types of debts are dischargeable; and debtor may be able to force ("cram-down") affordable payments on secured and tax creditors that cannot be done under Chapter 7. Disadvantages: debtor's future income is subject to administration by the trustee for up to three and possibly as long as five years; under the Plan, the debtor must establish and live under a firm budget during the repayment period; the trustee is entitled to a commission on payments paid to creditors which reduces the value of what is paid to creditors; and the bankruptcy appears on credit reports. What procedures are involved in filing bankruptcy? First, we gather your financial information for use in preparing your petition for bankruptcy. Next we file the petition with the bankruptcy court. The court mails notice of your bankruptcy filing to all of the creditors listed in your petition. The notice provides: 1) that you have filed bankruptcy; 2) that all collection activity against you must cease; and 3) the date and time of the Meeting of Creditors hearing that you are required to attend. The Meeting of the Creditors is scheduled for 4-6 weeks after the date your bankruptcy petition is filed. At the Meeting of Creditors, you will be sworn under oath by the Trustee and asked to confirm the validity of the information in your bankruptcy petition. The Trustee will ask you additional questions if there are concerns unique to your case. Creditors rarely appear, but if a creditor does, the creditor may ask you questions regarding their respective claim. Finally, you receive your Discharge of Debtor notice approximately 90 days after filing a Chapter 7 case or at the conclusion of payments in a Chapter 13. Your case is typically then closed with the bankruptcy court. Do I need a lawyer to file bankruptcy? As with most other legal matters, any person may represent himself or herself before the bankruptcy court. Bankruptcy, however, is a highly refined procedure that is full of detail and interpretations based upon prior case law. Each case is different, as are the individual consequences to the debtor. Proper planning in anticipation of bankruptcy may save a debtor not only money or property, but countless hours of revising improperly completed documents. After a thorough analysis, bankruptcy may be unnecessary. A lawyer skilled in bankruptcy law can assist and advise a debtor so that the process is as effective for the debtor as the specific circumstances allow. What rights do I have as a creditor in bankruptcy? The Trustee's role in bankruptcy is to represent the interests of creditors. However, creditors must also act to preserve their rights.  Rodli, Beskar, Boles, Krueger & Pletcher,  S.C. will assist you in securing your creditor-rights in bankruptcy. When assets remain for distribution to unsecured creditors, creditors must file a Proof of Claim to notify the Court of their intention to share proportionately in the remaining proceeds. For some forms of debt to be nondischargeable, the creditor must file an Adversary Complaint against the debtor in the bankruptcy court.  Rodli, Beskar, Boles, Krueger & Pletcher,  S.C. can represent you in such a lawsuit and pursue a judgment declaring the debt to be nondischargeable. In similar proceedings, Rodli, Beskar, Boles, Krueger & Pletcher,  S.C. represents creditors in lawsuits to deny or revoke a debtor's discharge. This information is intended to be viewed as general information. Your individual situation or needs require consultation with the advice of an attorney. Please call or e-mail Ken Pletcher regarding your particular case, questions or concerns.