Bankruptcy is a Constitutional right created to help people who (for any one of a variety of reasons, including job loss, income reduction, untimely health issues) can no longer meet their financial obligations and who are at risk of loss of property. The bankruptcy laws provide for the honest, but unfortunate debtor to gain a “fresh start” either through seeking and obtaining a discharge via chapter 7 or reorganizing through chapter 11 or 13. “The principal purpose of the Bankruptcy Code is to grant a “ ‘fresh start’ ” to the “ ‘honest but unfortunate debtor.’ ” Grogan v. Garner, 498 U. S. 279, 286, 287 (1991)
Bankruptcy laws provide a mechanism to afford troubled businesses an opportunity to reorganize within the formal constraints of the bankruptcy process or if necessary, provide for orderly distribution of assets to creditors. These procedures are covered under Title 11 of the United States Code (the Bankruptcy Code).
Subject to certain restrictions enumerated in Section 109 of the bankruptcy code, “only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.” The bankruptcy code precludes a probate estate from instituting a bankruptcy proceeding.
While certain debts are not subject to discharge, many are. Debts that can’t be discharged can vary between the different chapters of the bankruptcy code: Section 523(a) of the bankruptcy code provides an exhaustive list of obligations which may not be dischargeable in bankruptcy. Litigation is often required to determine if the specific debt in question is or is not dischargeable. Examples of debts which will may not be subject to discharge include, but are not limited to:
a) Certain kinds of taxes (state, federal or local), subject to specific requirements;
b) Debts “for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained by false pretenses, false representations, or actual fraud…”
c) Subject to certain factors, debts which not properly listed or which were omitted;
d) Obligations “to a spouse, former spouse, or child of the debtor” [and not one which is a domestic support obligation as provided for at 11 U.S.C. 523(a)(5)]” that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce, decree, or other order of a court of record.”
e) Debts for” willful and malicious injury by the debtor to another entity or to the property of another entity.
f) Subject to certain factors, and exceptions such as “undue hardship, student loans;
g) Debts for death or personal injury caused by the debtor’s drunk driving or from driving while under the influence of drugs or other substances;
h) Debts incurred after a bankruptcy was filed.
This list is not exhaustive regarding which debts a bankruptcy discharge may ultimately not apply to. Therefore, its very important to consult with your attorney so that all of the crucial and relevant facts can be analyzed to determine which debts are dischargeable before filing for relief under the bankruptcy code.
Bankruptcies can remain on credit reports anywhere from 7 – 10 years.
The bankruptcy code provides many forms of protections of the rights of creditors in bankruptcy. From protection of collateral securing debt, to enforcing the right to receive payment on certain business and personal claims, remedies exist. A creditor has the right to file suit to object to the discharge of the particular debt owed by the person filing bankruptcy (the “Assisted Person”), or the discharge of that person in its entirety. It is crucial to understand there are specific time periods by which one must act or be forever barred from enforcing certain rights if notice of the bankruptcy was received either directly or indirectly. It is extremely important to recognize that immediately upon receipt of notice (whether directly or indirectly) of a bankruptcy filing, all collection or enforcement proceedings must stop and the time periods for asserting rights, determined and acted upon. Actions taken in violation of what is known as the automatic stay (which is effective immediately as a result of a bankruptcy filing) are void and may subject the creditor to severe economic penalties. Creditors however, do have remedies to obtain relief from the automatic stay, but court approval is the mechanism which must be followed. The fact that a person or business seeks bankruptcy relief does not mean that the bankruptcy code has not built in numerous protections of a creditor’s interests. This is why it is so important to consult with counsel immediately upon discovering that a bankruptcy petition has been filed to determine the rights and remedies which are available and the time periods by which action is mandated.
The answer to these questions require careful consideration. Meeting with an experienced attorney versed in the bankruptcy field will provide the answers to questions which may not be readily apparent from personal research, or from what are common misstatements from friends and family members who claim to know how the process works. Bankruptcy is very specific practice of law, requiring a lawyer with knowledge and an understanding of the laws and procedures associated with a filing. Allan D. Sarver is an experienced bankruptcy attorney who will talk with you, explain the law to you, and counsel you on your options.
Call the Law Office of Allan D. Sarver at (818) 981-0581 to schedule an appointment. For your first meeting, Allan will ask you to bring certain information with you to help make the initial consultation a valuable experience.