People have a number of financial problems as a result of accident, illness or injury and often times just as an over extension of the use of credit cards. It used to be a stigma about people filing for bankruptcy. Because society has allowed the introduction of easy credit, many people are unable to manage their financial affairs and as result they need protection from creditors.
Laws have been enacted to provide legal assistance for people in financial trouble.
II Chapter 13 Wage Earner’s Plan
Chapter 13 is designed to allow an individual debtor to affect a composition or extension, or both, of his unsecured debts using the debtor’s future wages as a source of funding. It allows the debtor to retain the bulk of his assets during the pendency of a Chapter 13 Plan and allows him to avoid any psychological or social stigma the debtor feels he may suffer as a result of the filing an ordinary bankruptcy petition.
A. Who Is Eligible to File a Wage Earner’s Plan?:
Chapter 13 is more restrictive than a straight bankruptcy. Only individuals can file a Chapter 13. The individual must be a person whose principal income is derived from wages, salary or commissions. Courts have expanded wage earner relief to include persons whose income is derived from regular payments other than actual wages, for example social security retirement benefits.
B. What are the Debtor’s Desires and Motivations?:
1. Does the debtor desire to pay his debts in full, or at least to pay creditors more than they would get in a straight bankruptcy?
2. Does the debtor regard bankruptcy as a social stigma to be avoided?
Under Chapter 13 a wage earner is a debtor and not a bankrupt.
C. What Does the Debtor Desire to be the Source of His Payment to His Creditors?:
In Chapter 13, creditors are paid from the future earnings of the debtor. Wages due and unpaid at the time of the filing are not subject to a Chapter 13 Plan. In straight bankruptcy a creditor’s claims are paid out of the liquidation of the bankrupt’s assets.
D. Does the Debtor Want to Retain Existing Assets?:
Chapter 13 contemplates the preservation of the debtor’s assets. Chapter 13 contains a specific provision stating the confirmation of the Chapter 13 Plan should not be denied because the debtor’s interest is preserved. Chapter 13 filing acts as an automatic stay against suits, actions to enforce judgements, attempts to enforce liens including stopping foreclosure proceedings regarding real property. In a straight bankruptcy all the bankrupts non-exempt assets will be liquidated.
E. Does the Debtor Desire to Treat All Unsecured Creditors Equally?:
All unsecured creditors must treated alike under a Chapter 13 Plan. The statute makes no provision for classification of claims nor does the statute contemplate voluntary payments to unsecured creditors through the vehicle of reaffirmation which is allowed in straight bankruptcy.
F. Will the Creditors Accept the Chapter 13 Plan?:
A Chapter 13 Plan must be accepted by unsecured creditors having a majority number of the unsecured claims proved and allowed before the conclusion of the first meeting. In addition, the Chapter 13 Plan must be accepted by those secured creditors dealt with by the plan. Furthermore, consideration must be given to the treatment of creditors having a security interest in real estate. Of course, in straight bankruptcy creditor acceptance is irrelevant.
G. Is the Chapter 13 Plan Feasible?:
To have a feasible plan a wage earner must be able to pay current living expenses, pay secured creditors who are outside the plan, make the payments required by the plan.
If the plan is not found to be feasible by the Court, it cannot be confirmed. Furthermore, once a wage earner plan involving a composition of unsecured debts is confirmed, wage earner may not take advantage of the discharge provisions of the bankruptcy act for six years, regardless of the wage earners need for relief.
III. Bankrupt and Discharge
The bankruptcy act has two primary purposes:
1. The collection and distribution of the debtor’s estate to his creditors
2. Rehabilitation of the bankrupt through the discharge of the unpaid remainder of his debts.
Discharge is defined to mean “the release from a bankrupt from all his debts which are provable in bankruptcy, except such as are accepted by the act.” In the case of the voluntary bankruptcy of an individual, the discharge is the reason for, in the correct style of the entire proceedings. Without the discharge, the individual debtor has done no more than hope for the transfer of his assets to his creditors in an orderly fashion. Under the bankruptcy act the Court shall grant the discharge unless 1. a complaint objection to discharge has been filed, 2. the bankrupt has waived discharge, 3. bankrupt has failed to attend and submit to examination at the first meeting of creditors or 4. filing fees have not been paid. Any complaint objecting to the discharge of the bankrupt must be made within the time prescribed by the rules of the bankruptcy act. This time may be extended by the Court for cause shown on application of any party in interest or on its own initiative.
The right to object to a discharge is limited to creditors (holding provable claims), the trustee, and the U.S. attorney. By no means should creditors or others expect or rely upon the Court to encourage the filing of objections to discharge.
A complaint objecting to a discharge must conform to the requirements of the bankruptcy rules governing the adversary proceedings and the trial must be conducted in accordance therewith. Of course, the complaint must be in writing, must be specifically allege the objection, and must be timely filed. As we are about to go into other grounds for objecting discharge, it is imperative to mention that the allegations of the complaint will be strictly construed in favor of the bankrupt and against the objector.
Bankruptcy courts alone have jurisdiction to discharge bankrupts. The discharge is incidental to the distribution of the estate and cannot be granted by a court of another jurisdiction. The right of a bankrupt to be discharged and the effect are distinct. The question of discharge has been entirely a question for the Bankruptcy Court and federal appellate jurisdiction.
IV. Voluntary/Involuntary Bankruptcy Cases
A. Voluntary Case:
A voluntary case is commenced by the filing of a petition, under such chapter by an entity that may be a debtor under such a chapter. A joint case under a bankruptcy is commenced by the filing with the bankruptcy court of a single petition by an individual that may be a debtor under such chapter and such individual spouse.
B. Involuntary Case:
An involuntary case may be commenced only under Chapter 7 or 11 of the title and only against the person, except a farmer, family farmer or a corporation that is not a monied, business or commercial corporation that may be a debtor under the bankruptcy chapter under which such cases commenced.
V. Meeting of Creditors
A. Within a reasonable time, after filing a petition the United States Trustee shall convene and preside at a meeting of creditors.
B. The United States Trustee may convene a meeting or order a meeting of all the security holders.
C. The Court may not preside at, and may not attend, any meeting under this section
including any final meeting of creditors. There should be given such notice as appropriate, including notice to holder of a claim against the bankrupt or debtor. Prior to the commencement of a case under the bankruptcy code by an individual whose debts are primarily consumer debts, the clerk shall give written notice to such individual that indicates each chapter of the bankruptcy code under which such individual may proceed.
D. Examination of the Debtor:
The debtor shall appear and submit to examination under oath at the meeting of creditors under §314 (a) of the bankruptcy act. Creditors, any indentured trustee, any trustee or examiner in the case or the United States Trustee may examine the debtor.
E. Money of the Estate:
A trustee in a case under this title may make such deposit or investment of
the money of the estate for which such trustee serves as will yield the maximum reasonable net return or such money, taking into account the safety of such deposit or investment.
F. Effective Conversion:
Conversion of a case from a case on one chapter of the code to a case under another chapter of the code constitutes an order for relief under the chapter to which the case is converted, but except as provided in certain subsections does not affect the date of the filing of the petition, the commencement of the case or the order of relief.
VI. Automatic Stay
The petition filed operates as a stay applicable to all entities as follows:
1. The commencement or continuation, including the issuance of process, judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this code or to recover a claim against the debtor that arose before the commencement of the case under the bankruptcy code.
2. The enforcement against the debtor or against property of the estate, or a judgement obtained before the commencement of the case under the bankruptcy code.
3. Any act to obtain possession of property of the estate or property from the estate or exercise control over property of the estate.
4. Any act to create, perfect or enforce any lien against the property of the estate.
5. Any act to create, perfect or enforce any property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under the bankruptcy code.
6. Any act to collect or recover a claim against the debtor that arose before the commencement of the case.
7. The set-off of any debt owing to the debtor that arose before the commencement of the case against any claim against the debtor.
8. The commencement or continuation of a proceeding before the United States Tax Court concerning the debtor.
VII. Debtor’s Duties
A. File a list of creditors, unless the Court orders otherwise, schedule of assets and
liabilities, schedule of current income and current expenditures and a statement of the debtor’s financial affairs.
B. If an individual debtor schedule of assets and liabilities include consumer debts
they must include those secured by property of the estate.
C. If a trustee is serving in the case, cooperate with the trustee as necessary to enable
the trustee to perform the trustee’s duties.
D. If a trustee is serving in the case, surrender to the trustee all property of the estate
and any recorded information, including books, documents, records and papers relating to the property of the estate whether or not immunity is granted.
E. Appear at the hearing required under the bankruptcy code.
VII. The Affect of a Discharge in Bankruptcy
A. A discharge in bankruptcy does the following:
1. Voids any judgement at any time obtained, to the extent that such judgement is a determination of the personal liability of the debtor with respect to any debt discharged under the act, whether or not discharge or such debt is waived.
2. Operates as an injunction against a commencement or continuation of an action, issuance of process, or an act to collect, recover or offset any such debt as a personal liability to the debtor, whether or not the discharge of such debt is waived.
3. Operates as an injunction against the commencement or continuation of an action, employment of process, or an act to collect or recover from or offset against a property of the debtor of any kind specified under the code and is acquired after the commencement of the case on account of any claim.