Bankruptcy: An Overview

I. The Filing of a Petition II. Chapter 7 – Liquidation III. Chapter 11 – commonly referred to as Business Reorganization IV. Chapter 13 – referred to as a wage earner’s plan V. Debtor’s Responsibilities VI. Frequently Asked Questions

I. The Filing of a Petition – case is commenced by filing a Voluntary Petition

A. Filing of case constitutes the Order for Relief.
1. This has the effect of granting debtor protection. a. Stays actions against debtor and debtor’s property.
B. Chapters available.
1. 7 2. 9 3. 11 4. 12 5. 13

[back to top]

II. Chapter 7 – Liquidation

A. The players
1. Debtor 2. The United States Trustee’s Office (Panel Trustee) 3. Creditors
B. Who may file a Chapter 7 – 11 U.S.C. § 109
1. Corporation 2. An Individual 3. Partnership
C. Time concerns
1. Schedules and Statement of Affairs – should be filed with the debtor’s Petition; usually within 15 days of filing. 2. 341 Meeting – (commonly known as the meeting of creditors) held usually within 30 – 45 days after debtor has filed. At the meeting the debtor is required to answer questions under oath. 3. Proof of Claim – must be filed within 90 days of the 341 Meeting (if case is an asset case). If the case is initially identified as a no asset proceeding, there is no need to file a proof of claim. If assets are uncovered, the Chapter 7 Trustee will request a bar date for the filing of a claim. In a Chapter 11, if a creditors claim is listed on the Debtor’s schedules, then a proof of claim is not required. However, in case of a conversion to Chapter 7, you should file a claim. In a Chapter 13, creditors must file a proof of claim in order to receive a dividend. 4. Bar date for filing Complaints objecting to discharge or to determine dischargeability of debts – 60 days from the date first set for the 341 Meeting. 5. Discharge – may be entered after 60 days if the Trustee has filed a no-asset report (not available to a corporation). 6. Distribution – if the case is an asset case and you have filed a Proof of Claim, dividends may be issued. It could take up to five years for distribution.
D. Creditors Responsibility in Chapter 7
1. Attend the 341 Meeting of Creditors – the purpose of the meeting is to allow creditors the opportunity to ask questions of the debtor as to the facts and circumstances which led to the filing of the Chapter 7 Petition. The 341 Meeting is conducted by a Panel Trustee who will examine the debtor as to its schedules and statement of affairs. The Trustee is often an ally and will look to find assets for the estate and subsequent distribution to creditors. 2. File a Proof of Claim – the only way in which you will receive a dividend in an asset case is by filing a Proof of Claim. Forms can be attained through legal stationary stores and are usually on the back of the Order of Notice of Relief you receive as a creditor. As indicated above, beware of the bar date for filing a Proof of Claim.

[back to top]

III. Chapter 11 – commonly referred to as Business Reorganization

A. The Players
1. Debtors 2. Debtor’s Counsel 3. Secured Creditors 4. Unsecured Creditors 5. Counsel to Unsecured Creditors 6. United States Trustee’s Office
B. Depending on the complexity of the case, each party may play a significant role in the debtor’s reorganization.
It is important to realize that it is often imperative that the unsecured creditor body have an effective voice and be represented by counsel. The unsecured creditors’ committee will usually be established out of the twenty largest unsecured creditors. The United States Trustee’s Office will hold an informal creditors meeting within weeks of the debtor’s filing and will determine the need for a committee. Once a committee is created, then at the urging of the members of the committee or of the United States Trustee’s Office, counsel to the committee will be selected. Counsel to the committee must be approved by the United States Bankruptcy Court and counsel’s fees will be paid out of the assets of the estate.
C. Who may file a Chapter 11
1. Corporation 2. An Individual 3. Partnership
D. Time Concerns
1. List of twenty largest creditors must be filed with petition. 2. Schedules and Statement of Affairs are to be filed within 15 days of filing of Petition. 3. Informal meeting of creditors – usually within 30 – 45 days of filing of Petition. 4. Formal meeting of creditors “341 Meeting” – usually within 60 days of filing. 5. Proof of Claim – no bar date is established unless requested; usually bar date is set prior to debtor filing Plan of Reorganization. 6. Plan of Reorganization. Debtor has exclusive right to file a Plan within 120 days of its Petition. If no extension of the time is granted, any interested party may propose a Plan of Reorganization after 120 days. – The Plan must be accompanied by a Disclosure Statement ( a financial analysis of the debtor). – Acceptance of a Plan requires at least two-thirds in dollar amount and more than fifty (50%) percent of allowed claims held by creditors. – The committee and the debtor often will work together in the formation of a Plan which will be acceptable to all interested parties. It is in the debtor’s best interest to work with counsel for the committee and the committee to obtain their support of the debtor’s Plan. 7. Distribution of Dividends The Plan of Reorganization once confirmed will outline specifically when dividends are to be distributed. The time frame may be as soon as 120 days after filing to two years before the first dividend is filed. An additional 3- 5 years may be necessary for the debtor to complete distribution of dividends under the Plan.
E. Creditors’ Responsibility in a Chapter 11
1. If one of the top 20 creditors attend the informal meeting of creditors, be involved in the selection of a committee and counsel to insure your interests are protected. 2. Attend the 341 Meeting. 3. Share information concerning the debtor with the committee and its counsel. 4. Review the debtor’s Schedules and Statement of Affairs to insure that your claim is listed correctly. If you claim is not listed or not listed correctly, make sure you file a Proof of Claim. ** Note: You will only receive a dividend if you have an allowed claim. 5. Creditors’ Committee. Although the Bankruptcy Code grants no specific duties to a committee, Section 1103 provides that a committee may:
a. consult with the trustee or debtor in possession concerning the administration of the case; b. investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuance of such business, and any other matter relevant to the case or to the formulation of a plan; c. participate in the formulation of a plan, advise those represented by such committee of such committee’s determinations as to any plan formulated, and collect and file with the court acceptances or rejections of a plan; d. request the appointment of a trustee or examiner under Section 1104 of this title; and e. perform such other services as are in the interest of those represented.
6. Reimbursements of expenses – the United States Bankruptcy Court for the District of Massachusetts, Western Division, allows reimbursement of expenses which are actual and necessary and where the member of the committee has made a substantial contribution to the estate which fosters and enhances the reorganization process.

[back to top]

IV. Chapter 13 – referred to as a wage earner’s plan

A. The Players
1. The Debtor 2. Creditors – secured and unsecured 3. Chapter 13 Trustee
B. Who may file
1. Available to an individual with a regular source of income on the date of filing the petition. Husband and wife may file jointly. 2. Must have unsecured debts of less than $307,675.00. (Number adjusted for inflation every 3 years, last adjusted 4/1/04). 3. Must have secured debts of less than $922,975.00. (Number adjusted for inflation every 3 years, last adjusted 4/1/04). 4. Open to individuals who are sole proprietors.
C. Time Concerns
1. Debtor is required to file his/her Chapter 13 Plan within 15 days of filing the petition. A copy of the plan is to be sent to all creditors. 2. First meeting of creditors will be held 20-40 days after filing of Petition. In Massachusetts, the Chapter 13 Trustee may determine viability of Chapter 13 Plan at 341 meeting. 3. Deadline for filing Objection to Confirmation of the Chapter 13 Plan shall be filed no later than 5 days after the first date set for the 34 Meeting, or fifteen days (15) after the filing of a modified plan. 4. Deadline to file Proof of Claim – 90 days from 341 meeting. Must file proof of claim in order to receive a dividend. Proof of claims should be filed with the Clerk’s Office and copy to Debtor’s counsel and to the Chapter 13 Trustee. 5. Plan duration generally three to five years. By statute the Debtor is limited to a three year plan unless he can show cause for an extension to five years.
D. Creditors Responsibility
1. Attend 341 Meeting. 2. Review debtor’s Chapter 13 Statement of Affairs and Plan. 3. File a Proof of Claim.

[back to top]

V. Debtor’s Responsibilities

A. Set forth in Code – 11 U.S.C. § 521:
1. File alphabetical list of creditors. 2. Schedule of Assets and Liabilities, income and expenditure and statement of financial affairs. 3. In consumer case, a statement of intention as to retention or surrender of collateral secured by property of the estate. 4. Debtor must also:
a. Cooperate with Trustee. b. Turn over all books and records relating to estate.
B. Debtor must also attend hearings and meetings.
1. Meetings of creditors. 2. Discharge hearing, (not held in all jurisdictions).
C. Consequences of failure to comply
1. Contempt or criminal sanctions. 2. Denial of discharge. 3. Dismissal of case.

[back to top]

VI. Frequently Asked Questions

How long will the process take? Usually, from the date of your filing your petition to the time your case is closed, will take about 6 months in most No asset Chapter 7 cases. A chapter 13 is dependent on the length of the Plan (usually 3-5 years), while a Chapter 11 will depend on the complexity of the proceeding. Will I have to go to court? Usually, in a Chapter 7, the debtor does not have to appear in court. You will have to attend a meeting of your creditors (referred to as a 341 meeting) where under oath you will have to answer questions posed by the Trustee. This meeting usually takes about 5-7 minutes and over 95% of the time no creditors appear. Will the creditors stop calling me? Yes, once you have filed a bankruptcy petition, all creditors are required to cease all collection activities. If they continue to harass you then they could be liable for damages pursuant to 11 U.S.C. §362. PLEASE NOTE: This website discusses general information about the Bankruptcy process and is not intended as legal advice. It is provided for informational purposes only. All questions about bankruptcy filing should be directed to counsel.

[back to top]