Eugene Cunningham, Esq
Attorney
http://www.tikinc.com/ny
Will respond to email.
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gcunningham@tikinc.com/ny
Bankruptcy law provides a way for an individual or business to obtain freedom or “relief” from debts which can no longer be paid and which interfere with the debtor’s ability to survive.
The law is federal in nature, although the bankrupt’s state has a significant voice in many matters. Each state has rules regarding what personal property is protected from creditors, such as work tools, a car, or even a house, in bankruptcy.
When income can no longer cover debts and ongoing bills, a person or business is said to be “insolvent.” Bankruptcy law tends to follow common sense even though it can get very technical and confusing at first. Using common sense will help one understand what relief is available or, for that matter, what action will be fraud! There are rules defining fraud which must be carefully observed.
If your neighbor has a serious illness and you lend him money, he is indebted to you. You are his creditor. Of course, it is wise to document the loan, but such loans can be proved in court without paper. In any event, if your neighbor survives and can only work a little bit, he will not be able to pay you back all your money right away. He will pay you over time, as best he can, or, perhaps, sell something or give you property to pay down the debt.
Business give you credit upon a different basis. They are interested in meeting their own obligations, our system is a huge domino game. A bank or business will build into its business model the cost of extending credit. This is done in terms of percentages, not people. The person is irrelevant, what matters is the debtor stays within certain guidelines. If the debtor steps across the guideline, then the creditor machinery goes into action.
Bankruptcy law provides provides a refuge for the debtor who has passed into insolvency and cannot survive AND pay down debts. Using common sense, you can see how this makes sense. If a company has an active business with a fair cash flow, then it is good public policy to prevent a bank from killing the business in its entirety just to collect, say, upon a piece of equipment it has as security. By taking the equipment, the bank could be putting fifty people out of work which will result in a chain reaction of other repossessions, law sits and the like. When a judge see a company is operating and just needs breathing room, he or she can approve bankruptcy protection in Chapter 11. If a person has a regular income and needs some protection, he or she can find it in Chapter 13 Again, it is common sense, if it looks like you can work your way out over time and with some help in the reduction of the debt, the judge can offer shelter.
When things turn real bad,Chapter 7 is the way to go. This is fairly common way to go. This path is called “liquidation” and means that once the litigation is over - it is over for everyone except those the debtor did not list in the action. If there are any assets at all, they may be sold and percentages given to creditors, but after that no one can come after the debtor. Chapter 7 for the average person is a very simple proceeding requiring just some precise bookkeeping, not a legal scholar. Lawyers, though, are up on local rules and exemptions. You have to be careful, though, about using low-end lawyers. You sometimes see ads for “Bankruptcy $250.” Frankly, I do not see how a lawyer can represent anyone for that money. Be careful of any professional doing a volume business.
You can do the work yourself! You can pick up forms at the stationery store for about $20. You will need to spend another $20 or so on a good guide book. Good site: Nolo Press If you keep messy records, go online or hire someone. See other articles on the nature of bankruptcy.
There are two paths into bankruptcy, one is to file yourself; the other happens when a creditor forces the issue and files. The second option happens in large business deals, where a big lender wants to get its money out fast and does not care about the business, per se. Usually, especially in personal bankruptcy, creditors know that once a debtor is bankrupt, the money is gone, so creditors try to work things out or just write the customer off.
One last item. When a person files for bankruptcy, they will have to gather their “estate” which means collect every single amount owed (and to whom) and every bit of income or asset. All this material is put into well-constructed forms for the court. The court will appoint a lawyer whose career involves bankruptcy, called a trustee, and request the trustee closely examine the numbers to see it bankruptcy makes sense. The trustee is expert at sniffing out lies, inconsistencies, and fraud, so be careful. Since the law is helping you out, do not try to use it for improper personal gain - use your common sense!
If you forget to name a creditor, then you will still owe that creditor after the bankruptcy! Sometimes, you may purposely not name a creditor in order to keep the relationship, for example, to keep your car.
Finally, as a rule, mortgagees will get to sell off your land to meet part of the mortgage. This is not always so, though. There are ways to keep property.