So you've read my last two posts and have decided that the benefits of filing bankruptcy outweigh the drawbacks. Now you have to decide what chapter to file under. For the average consumer debtor, your choices will be between filing under Chapter 7 or Chapter 13 (Chapter 11 is usually reserved for business bankruptcies and individuals with complex debt). Chapter 7 is commonly referred to as liquidation bankruptcy and Chapter 13 is known as wage earner's plan.
A future post will focus more closely on the process of filing for bankruptcy protection--right now, we are just talking about what you can expect from a Chapter 7 filing. As noted above, Chapter 7 is known as the liquidation chapter. The basic idea of Chapter 7 is to collect the assets of a debtor, sell them, and distribute the proceeds to the debtor's creditors.
Once a debtor files a Chapter 7 petition, a Trustee will be appointed. The Chapter 7 Trustee's job in a nutshell is to look out for the best interests of unsecured creditors and to liquidate and distribute the debtor's assets. Lets say, hypothetically, that a debtor has $200,000 in assets, and $600,000 in unsecured (non-mortgage) debts--$200,000 owed to creditor A and $400,000 owed to creditor B. The Trustee will sell the debtor's assets and distribute the proceeds on a pro rata basis. In our example, this means that creditor A will get $66,666.67 and creditor B will get $133,333.33. Remember from Part I that the debts will be discharged, so this is all the creditors will ever get paid--one-third of the amount actually owed to them.
Wednesday, October 21, 2009
Wednesday, October 14, 2009
Consumer Bankruptcy Basics Part II: The Drawbacks of Personal Bankruptcy
Last week I introduced this series of posts on consumer bankruptcy with a description of the primary benefits of filing bankruptcy. This week we discuss a couple of the reasons that bankruptcy may not be the right choice for many individuals. Specifically, I am going to focus on the effects bankruptcy has on your credit and the distribution to creditors.
As we all know, the world runs on credit. A retail store is more likely to take Visa than a check these days. It is, therefore, important to most individuals that they have decent credit and have at least one major credit card. Much of what determines your creditworthiness is your FICO Score. Your FICO score is based on a scale of 300-850. I do not purport to be an expert on credit agencies or scores, and there are plenty of websites out there that can give you much more information on those subjects. Suffice it to say, however, a bankruptcy filing can decimate your credit score and will generally stay on your credit report for 10 years. A recent Baltimore Sun article notes that a bankruptcy filing can lower your Vantage Score (FICO's primary competitor score on a scale of 501 to 990) by 355-365 points. While it certainly is not impossible to get credit after you file for bankruptcy, it is definitely a lot more difficult for the average consumer. It's worth noting though, that if you are already considering bankruptcy, your credit score is likely on the decline in the first place--and, because all your debts will be discharged in bankruptcy (see last week's post), you know your score can't go much lower once you receive your discharge.
The other drawback of filing bankruptcy is the distribution of the bankruptcy estate to creditors. My post next week will focus in much greater detail on the mechanics, but essentially, once you file for bankruptcy, a "trustee" is appointed to manage the "bankruptcy estate." In Chapter 7, this means that a trustee will liquidate a debtor's assets and distribute them to creditors. In Chapter 13, this means that the debtor will have to continue making payments to creditors for 3-5 years.
As we all know, the world runs on credit. A retail store is more likely to take Visa than a check these days. It is, therefore, important to most individuals that they have decent credit and have at least one major credit card. Much of what determines your creditworthiness is your FICO Score. Your FICO score is based on a scale of 300-850. I do not purport to be an expert on credit agencies or scores, and there are plenty of websites out there that can give you much more information on those subjects. Suffice it to say, however, a bankruptcy filing can decimate your credit score and will generally stay on your credit report for 10 years. A recent Baltimore Sun article notes that a bankruptcy filing can lower your Vantage Score (FICO's primary competitor score on a scale of 501 to 990) by 355-365 points. While it certainly is not impossible to get credit after you file for bankruptcy, it is definitely a lot more difficult for the average consumer. It's worth noting though, that if you are already considering bankruptcy, your credit score is likely on the decline in the first place--and, because all your debts will be discharged in bankruptcy (see last week's post), you know your score can't go much lower once you receive your discharge.
The other drawback of filing bankruptcy is the distribution of the bankruptcy estate to creditors. My post next week will focus in much greater detail on the mechanics, but essentially, once you file for bankruptcy, a "trustee" is appointed to manage the "bankruptcy estate." In Chapter 7, this means that a trustee will liquidate a debtor's assets and distribute them to creditors. In Chapter 13, this means that the debtor will have to continue making payments to creditors for 3-5 years.
Wednesday, October 7, 2009
Judge Boroff Issues Opinion
This is an interesting new Judge Boroff case from the District of Massachusetts. If an attorney represents a Chapter 7 Debtor, he cannot also undertake the representation of a third party (such as the Debtor's spouse) in an avoidance action (attempting to undo a transfer or sale of property) brought by the Trustee. The rationale is that counsel to a Chapter 7 debtor assumes duties to cooperate with the Trustee and that it would be a breach of those duties to accept any representation adverse to the Bankruptcy Estate.
Consumer Bankruptcy Basics Part I: The Benefits of Personal Bankruptcy
In contemplating potential topics for a blog post this week, I was reminded of the debt-ridden Michael Scott, in NBC's The Office, attempting to free himself of his debt obligations by announcing to his colleagues in a loud voice, "I DECLARE BANKRUPTCYYYYYYYY!" Moments later, a coworker gently informed him, "I just wanted you to know that you can't just say the word 'bankruptcy' and expect anything to happen." Scott's response: "I didn't say it, I declared it."
This exchange, though comedic hyperbole, portrays a pervasive misunderstanding of the bankruptcy process and the bankruptcy options available to individual consumers. So, in an effort to provide individuals with a better understanding of their options and to dispel some common myths and misconceptions, I begin a multi-part series of weekly posts to explain the consumer bankruptcy process. This week, we begin with the benefits of filing for bankruptcy.
A brief disclaimer: To be clear, this series of posts is not intended to be legal advice or a primer on how to file bankruptcy and navigate the process, but rather a plain-English description of the process and the options available. Always consult a competent attorney before making decisions about taking legal action.
With that out of the way, we start with the benefits of bankruptcy. The two primary benefits of personal bankruptcy are the Automatic Stay and the Discharge.
This exchange, though comedic hyperbole, portrays a pervasive misunderstanding of the bankruptcy process and the bankruptcy options available to individual consumers. So, in an effort to provide individuals with a better understanding of their options and to dispel some common myths and misconceptions, I begin a multi-part series of weekly posts to explain the consumer bankruptcy process. This week, we begin with the benefits of filing for bankruptcy.
A brief disclaimer: To be clear, this series of posts is not intended to be legal advice or a primer on how to file bankruptcy and navigate the process, but rather a plain-English description of the process and the options available. Always consult a competent attorney before making decisions about taking legal action.
With that out of the way, we start with the benefits of bankruptcy. The two primary benefits of personal bankruptcy are the Automatic Stay and the Discharge.
Monday, October 5, 2009
Hockey, Chapter 11, and the BlackBerry
For an interesting example of how the business of professional sports and insolvency law intersect, consider the latest developments in the Phoenix Coyotes case. For those that do not know, in 1996, the National Hockey League approved the relocation of the Winnipeg Jets franchise to
The move, however, did not turn out so well from a financial standpoint. After the relocation, the team never made a profit, and from 2004 to 2008, lost anywhere from $50 million to $117 million per year. Jerry Moyes, the majority owner of the team, had been funding the losses for some time until about August 2008, after which the NHL funded the continued losses for the 2008-2009 season. In early 2009, Moyes started looking for a buyer for the team, and had discussions with a number of potential buyers, including the NHL and an entity controlled by Jim Balsillie. Balsillie is one of the billionaire co-founders of Research in Motion, the Canadian maker of the ubiquitous BlackBerry devices. At some point, the NHL discussions went cold, leaving Balsillie as the only viable suitor.
Welcome to the Bankruptcy Blog!
Hendel & Collins, P.C., announces the launch of its new blog. Our intention is to provide updates, several times each week, concerning developments in bankruptcy, insolvency, and commercial matters. Check back often to stay updated on current events and law in the insolvency field.
Subscribe to:
Posts (Atom)