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There are many circumstances which cause people to declare bankruptcy. Layoffs, medical expenses, overextension of debt, and other causes can leave debtors without the necessary resources to keep up with minimum monthly payments. Many of our clients are afraid of losing everything.  We understand the stress and difficulty that bankruptcy clients face.  Bankruptcy can be a complicated process, so it is important to have legal representation throughout the process.  While working as an Assistant Attorney General, one of our founding attorneys represented the State of Oklahoma in the WorldCom bankruptcy, one of the largest bankruptcy cases in United States history.  Declaring bankruptcy is not an easy decision, but the Oklahoma bankruptcy attorneys at Self, Morey & Associates can help you sort out your options and make a decision that fits your needs.

Chapter 7 (Liquidation)

This is the type of bankruptcy protection most often sought by individuals.  Chapter 7 is referred to as "liquidation" bankruptcy because the debtor's non-exempt assets are sold and in order to pay creditors.  However, under Oklahoma law, certain property is exempt, up to a specified dollar value.  Examples of exempt property are:  a primary residence; one automobile; personal clothing; up to two guns; tools of the trade and books.  Examples of non-exempt property are:  boats; recreational vehicles; jewelry; furs; art collections and the like..  Many individual debtors who file bankruptcy find that all of their assets are exempt, and they do not lose any property as a result.  

Partnerships, sole proprietorships and corporations, are also eligible to file under Chapter 7. However, business entities do not receive a "discharge". 11 U.S.C. §727(a)(1).  Many of the business's assets are sold, the proceeds are divided among the company's creditors and then the business ceases to exist.  For these reasons, partnerships or corporations that wish to keep doing business may not find Chapter 7 bankruptcy to be the best option.  If you run a business that is facing financial difficulty and are considering bankruptcy, talk to an attorney at Self, Morey & Associates about your options.

A Chapter 7 case begins by filing a petition with the bankruptcy court.  This triggers the automatic stay which stops collection efforts by most creditors. Filing a petition does not stay all types of actions, and stay may only be in place for a limited period of time so it is imperative to consider certain timing issues when determining whether to file a petition.  If the debtor is a business, all operations of the business cease.  The bankruptcy court appoints a trustee, who will be responsible for the sale of the company assets and disbursement to creditors.

The trustee oversees the Chapter 7 case and liquidates the debtor's non-exempt assets (if any) in order to pay off debts. The trustee will also hold a meeting of creditors 20 to 40 days after the debtor files the petition. This meeting is often referred to as the "341" meeting in reference to the Bankruptcy Code section that mandates the meeting.  The debtor must attend the meeting of creditors and answer questions, under oath, about property and financial matters.

In some cases, the debtor's assets are exempt or already subject to valid liens, so there will be no assets to liquidate. The trustee can try to recover money for the estate under the trustee's "avoiding powers." These powers include the power to set aside preferential transfers to creditors within 90 days of filing; undo security interests and pre-petition transfers that were not properly perfected; and pursue fraudulent conveyance and bulk transfer claims under state law. After gathering all the available assets, the trustee will sell them and collect the proceeds in a fund from which the debts are paid to the extent possible. Under the Bankruptcy Code, property is distributed according to six classes of claims; each class must be paid in full before creditors in the next lower class are paid anything.

Chapter 11 (Reorganization, usually for businesses)

Chapter 11 allows for the reorganization of debts.  Individuals and businesses alike may file for protection under Chapter 11 of the Bankruptcy Code, although it is more frequently used by business entities.  Chapter 11 allows a business to continue to carry on routine operations in the ordinary course of business while going through the reorganization. If a corporation files under Chapter 11, the personal assets of the stockholders, beyond the value of the stock they own, are not at risk. Because a sole proprietorship does not have a separate legal identity from its owner, both the personal and business assets of a sole proprietor are involved in a Chapter 11 case. A partnership is separate from its partners, but the partners' personal assets may be used to pay creditors in a Chapter 11 case in some instances. 

The debtor files a petition which includes information such as the debtor's name, tax identification number, residence, location of principal assets and the debtor's plan or intention to file a plan. The filing of a bankruptcy petition triggers the automatic stay. This means that collection efforts by most creditors must stop. Along with the petition, the debtor must file a schedule of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases and a statement of financial affairs. Fed. R. Bankr. P. 1007(b). In most cases, the debtor must also file a written disclosure statement, which contains information about assets, liabilities and business affairs, and plan of reorganization with the court. 11 U.S.C. §§1121, 1125.

Once the voluntary petition is filed, the debtor becomes a debtor in possession. 11 U.S.C. §1101. A debtor in possession is a debtor that maintains possession and control of its assets while going through Chapter 11 reorganization without a trustee being appointed. A debtor in possession runs the business and performs many of the same functions that a trustee would do in cases filed under other chapters. 11 U.S.C. §1107(a). For example, the debtor in possession has the duty to account for property, examine and object to claims and file informational reports. The debtor in possession also has "avoiding powers" with which pre-filing date transfers of money or property can be set aside. By setting aside the transaction, the money or property will be returned and used to pay all creditors.

In a Chapter 11 case, the United States Trustee has a significant role in overseeing the administration of the proceedings. The US Trustee oversees the debtor in possession's running of the business and submission of reports and fees, and conducts a meeting of creditors pursuant to 11 U.S.C. §341.

After filing the petition, the debtor has an exclusive 120-day period in which it can file a plan of reorganization. 11 U.S.C. §1121(b). After 120 days, a creditor or trustee may file a competing plan. The plan may be a liquidating plan. Any party in interest (creditor or trustee) may object to the confirmation of a plan. Before the court will confirm a plan, the court must find that the plan satisfies the requirements for confirmation.  The court must find that the plan is feasible, was proposed in good faith and the plan and proponent of the plan comply with the Bankruptcy Code's requirements.  Confirmation of a plan will generally discharge the debtor from any debt that arose before the filing of the petition, other than debts that are nondischargeable under section 523 of the Bankruptcy Code.  After confirmation, the debtor must make payments under the pan and is bound by the plan's terms. If the plan is a liquidation plan, only an individual debtor is entitled to discharge.

Small business bankruptcy cases are treated differently than regular business bankruptcy cases under Chapter 11. A small business case involves a small business debtor, which is determined by a two-part test. First, the debtor must be engaged in commercial or business activities with total non-contingent liquidated secured and unsecured debts of $2 million or less. Second, the US Trustee must not have appointed a creditors' committee in the case or the court has decided that the creditors' committee is not active and representative enough to oversee the debtor. Small business cases generally move faster than other Chapter 11 cases because of differences in filing deadlines and other factors.  The US Trustee provides more supervision over the small business debtor. In a small business case, the debtor must file periodic reports about operations and finances. 

Chapter 13 Bankruptcy (Reorganization, usually for individuals)

In a Chapter 13 bankruptcy, there is a reorganization of the debtor's debts.  This chapter generally applies to individual consumers with smaller debts. Corporations and partnerships cannot file under Chapter 13, but self-employed individuals and individuals who own unincorporated businesses are eligible for Chapter 13. The debtor must have less than $307,675 in unsecured debt and $922,975 in secured debt.  If you own an unincorporated business that is having financial difficulty, Chapter 13 bankruptcy may be an option. Call an experienced bankruptcy lawyer at Self, Morey & Associates who can explain the bankruptcy process to you.

The filing of the petition automatically stops creditors from trying to collect on most debts.  A trustee is then appointed to manage the case. The trustee will hold a meeting of creditors within 20 to 50 days after the debtor files the petition. The debtor must attend this meeting and answer questions, under oath, regarding financial issues and the proposed plan terms.

Within fifteen days after the debtor's filing of the petition, the debtor must file a plan that sets forth the details of how the business intends to pay off creditors in the next three to five years.  The plan must provide for fixed payments to the trustee on a regular basis. The plan is submitted to the court for approval. If approved, the trustee will distribute funds to the creditors according to the plan's terms. Within 30 days of filing, the debtor must start making payments under the plan to the trustee, even if the court has not yet approved the plan.

Claims are designated in a certain order of priority.  Priority claims include most taxes and the costs of the bankruptcy proceedings, and must be paid in full.  The next class of claims is secured claims, which are those claims for which the creditor has the right of recovering property (collateral) if the debtor does not pay. The final class of claims is unsecured claims, for which the creditor generally has no special rights to collect against any property the debtor owns. Unsecured claims do not need to be paid in full as long as the plan provides that the debtor will pay all "disposable income" over an "applicable commitment period" and as long as unsecured creditors would receive at least as much under the plan as they would if the debtor's assets were being liquidated under Chapter 7.

The judge holds a confirmation hearing within 45 days of the meeting of creditors, at which time he or she will decide whether the plan is feasible and meets the standards for confirmation under the Bankruptcy Code. Creditors may object to the plan, however, if the court approves the plan, they can take no action outside the plan’s scope to collect their debts.  Businesses that file for Chapter 13 can continue their normal operations during the reorganization. It should be remembered, however, that the business is now being operated for the benefit of creditors as well as for the business owners. The business is obligated to make full and fair disclosures, conserve assets and enhance profitability. The US Trustee requires that debtor businesses file monthly operating reports. Though not required, it may be a good idea for the business to also prepare monthly cash-flow statements. An attorney may also advise the business to close and reopen its books on the date of filing so that pre-petition debts are not paid from post-petition property of the estate.



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