CHAPTER…HUH?All you need to know about bankruptcy

R. Manny Montero, Esq.Michael A. Ostroff, Esq.301-588-8100

1

Chapters of Bankruptcy• Chapter 7: Liquidation – individual debtors/businesses

• Chapter 9 – Municipalities

• Chapter 11: Reorganization/repayment – continuing businesses and complex individual debtors

• Chapter 12 – Farmers and fisherman

• Chapter 13: Reorganization/repayment - individual debtors

2

Consumer BankruptciesChapter 7 is commonly used when:

Chapter 13 is commonly used when:

You have little property except for the basic necessities like furniture and clothing.

You have significant equity in a home or other property and you want to keep it.

You have little or no money left after paying basic expenses each month—or you're not

even meeting basic expenses.

You have regular income and can pay your living expenses, but you can't keep up the

scheduled payments on your debts.

You are willing to part with money or property in exchange for a quick and

comprehensive resolution of your unsecured debt issues

3

Consumer BankruptciesWho can file under Chapter 7? Who can file under Chapter 13?

Debtors who have qualified under the 'means test‘, meaning your gross monthly

income is below the median income for your family size

Any individual debtor whose total unsecured debts are below $360,475 and whose

secured debts are less than $1,081,400

May not have received a Chapter 7 discharge within the last 8 years

Any individual debtor and/or spouse that have regular income and can manage a

repayment schedule

May not have disposable incomeAn individual that is time-barred from filing a

Chapter 7 due to a previous filing

4

Consumer BankruptciesAdvantages of Chapter 7 Advantages of Chapter 13

Most unsecured debts can be discharged (completely eliminated)

You can keep most of your property and spread out required payments over 3-5

years

The process moves quickly—you may receive your discharge in just a few months

Co-signers may be protected

Creditors can't contact you while the automatic stay is in effect—or after debts

are discharged.

You may be able to avoid a second mortgage on your home or reduce a mortgage on an investment property

By cleaning up unsecured debt issues, you may become eligible for loss mitigation

options on secured debt (i.e., loan modification of primary residence)

Unlike nonbankruptcy debt repayment

plans, Chapter 13 plans may not require 100% repayment and/or creditor

acceptance

5

Pre-petition debts – from the day you filed backward

Personal Liability vs. In rem (or property) liability

No calls, collections or lawsuits

Not dischargeable-Student loans, child support,

some taxes, fraud, etc.

6

Equity – exemptions, liquidation and payment loans

Reaffirmation Agreements – Continuing liability

Chapter 7 Redemption – a new loan to “buy the value” of your underwater car

Chapter 13 Cramdown – paying the “value”, spreading out payments, and lowering your interest rate

7

Avoiding foreclosure by curing arrearsLien avoidance – discharge of the debt and voiding

the lien upon completionupon completion

Cramdown – payment of the “value” and lowering the interest rate (investment properties only)

Surrendering property (also available in Chapter 7)

8

Paying the “liquidation value”

of non-exempt equity

Valuation issues –Houses, businesses &

income levels

Note: You do not actually liquidate (or sell) assets in a Chapter 13 . . . unless you chose to

9

Paying what you can “reasonably afford”

Cutting unreasonable, extravagant and unnecessary expenses

Common Problems:Charity, higher education, support to

the family and losses on businesses/investment property

10

Chapter 13- 3 year plan vs. 5 year plan

Family Size Maryland District of Columbia

1 person $59,269 $52,148

2 people $76,281 $80,785

3 people $86,807 $80,785

4 people $104,114* $119,656*

* Add $7,500 for each additional person

11

Income – when and how do you get paid?

Bank Accounts:•Credit Unions and cross-collateralization•Freezing of account

Use of Credit Cards

Preference payments – paying family and friends before others

Lawsuits, garnishments, and foreclosures

12

Don’t be ashamed . . .• Rooted in Biblical mandates:

“At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbour shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the LORD's release.”

~ Deuteronomy 15:1-2

• Provided for in the U.S. Consitutional• “The Congress shall have the Power . . . To establish uniform Laws

on the subject of Bankruptcies throughout the United States”

~ Article I, Section 8

• And socially acceptable . . .

13

To name but a few . . .

Thomas Jefferson*

Abraham Lincoln

Ulysses S. Grant

William McKinley

Henry Ford

Walt Disney

Milton Hershey

Burt Reynolds

H.J. Heinz

P.T. Barnum

Kim Bassinger

Larry King

Donald Trump

M.C. Hammer

Willie Nelson

Charles Goodyear

Elton John

Oscar Wilde

Johnny Unitas

Debbie Reynolds

Stan Lee

Jerry Lee Lewis

Mark Twain

14