What exactly is bankruptcy?

Bankruptcy is a federal law designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcy's roots can even be traced to the Bible.

Aren't there different kinds of bankruptcy?

Yes. Bankruptcies can generally be described as "liquidation" or "reorganization." There are several types of bankruptcy proceedings. A Cohen Law Firm attorney will evaluate your particular case and recommend the best option for you.

Chapter 7 is the most common form of bankruptcy. It is a "fresh start" proceeding in which a consumer or business asks the bankruptcy court to wipe out (discharge) the debts owed. Certain debts cannot be discharged. In exchange for the discharge of debts, the business' assets or the consumer's nonexempt property is sold (or "liquidated"), and the proceeds are used to pay off creditors. Chapter 7 is available to individuals, married couples, corporations and partnerships. Individual debtors typically receive their discharge within 3-4 months of filing the case.

Chapter 11 is a reorganization proceeding, typically for corporations or partnerships. Individuals, especially those whose debts exceed the limits of Chapter 13, may file Chapter 11. In Chapter 11, the debtor usually remains in possession of his assets and continues to operate any business. The debtor proposes a plan of reorganization which, upon acceptance by a majority of the creditors, is confirmed by the court and binds both the debtor and the creditors to its terms of repayment. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization.

Chapter 12 is a simplified reorganization for family farmers, modeled after Chapter 13, where the debtor retains his property and pays creditors out of future income.

Chapter 13 is a repayment plan for individuals with regular income, unsecured debt less than $307,675 and secured debt less than $922,975. The debtor keeps his or her property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over the life of the plan (3-5 years). Some debts must be repaid in full; others you pay only a percentage; others aren't paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end. The level of repayment depends on the debtor's income and the composition of the debt. Certain debts that cannot be discharged in Chapter 7 can be discharged in Chapter 13. Chapter 13 also provides a mechanism for individuals to prevent foreclosures and repossessions, while catching up on their secured debt payments.

Will filing for bankruptcy stop harassing phone calls from bill collectors?

Yes. When we help you file for any type of bankruptcy, we ensure that an "automatic stay" goes into effect and is enforced. The automatic stay prohibits virtually all creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections. Most importantly, once you have retained an attorney (regardless of filing), the creditor will be referred to your attorney, and then, by law, the creditors will cease their harassing calls.

What is the general process in consumer bankruptcy cases?

In a Chapter 7 case, we will file a number of documents with the bankruptcy court listing your income and expenses, assets, debts, property transactions and payment advices. A court-appointed person, the trustee, is assigned to oversee your case. The trustee also requires that a number of documents be provided to them. About a month after filing, we will accompany you to a "meeting of creditors" where the trustee reviews your information and asks questions pertaining to your financial situation and history. If you have any nonexempt property, you must give it (or its value in cash) to the trustee. The meeting is generally brief, although there is no strict time limit. A couple of months later, you should receive a notice from the court that "all debts that qualified for discharge were discharged."

Chapter 13 is a little different. We will prepare and file the same documents plus a proposed repayment plan, in which we describe how you intend to repay some portion of your debt over the next three or, in some cases, five years. A trustee is assigned to oversee the case and we will attend the meeting of creditors together. After meeting the creditors, we attend a hearing on your behalf (when we represent you, you will not be required to appear) before a bankruptcy judge who either confirms or denies your plan. If your plan is confirmed, and you make all the payments called for under your plan, you will receive a discharge of any balance owed at the end of your case.