1Scheduling Overview Tuesday:à Basics about personal bankruptcy Thursday:à Household decisions in filing bankruptcyà What is informal bankruptcy?à How bankruptcy affects supply of creditPersonal BankruptcyPresented by:Felix DeSiena Ashley A PettigrewHua ZanA thought on bankruptcy…“It gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).Basicsof personal bankruptcyBackground Article I, Section 8, of the United States Constitution authorizes Congress to enact uniform “Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the "Bankruptcy Code," and has amended the code several times with bills such as the Bankruptcy Reform Act of 1994 & the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This is the uniform federal law that governs all bankruptcy cases.Background Many states have taken advantage of a provision in the Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal exemptions, while other jurisdictions may allow individual debtors to choose between a federal package of exemptions or the exemptions available under state lawThis goal is accomplished through a bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from taking any action against the debtor to collect those debtsDebtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.2Districts There is a bankruptcy court for each judicial district in the country. Each state contains at least one district (depending on the size of population and geography). There are 90 bankruptcy districts across the country.Authority The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. Each state’s judicial districts contain bankruptcy courts and state judges with similar authority over state bankruptcies. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtorshould receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trusteewho is appointed to oversee the case. Types of BankruptcyChapter 7{Liquidation of estate and distribution to creditorsChapter 9{Adjustments of Debts of a Municipality (similar to chapter 11)Chapter 11{Reorganization of commercial entity to continue ongoing business and maximize payout to creditorsChapter 12{Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual IncomeChapter 13{Adjustment of Debts of an Individual With Regular IncomeChapter 15{Ancillary and Other Cross-Border Cases (for international bankruptcy)Chapter 7 bankruptcy“Stays against action” Filing a petition under chapter 7 automatically “stays”most collection actions against the debtor or the debtor's property. The stay arises by operation of law and requires no judicial action.  But filing the petition does not stay certain types of actions, and the stay may be effective only for a short time in some situations. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments.3Chapter 7 BankruptcyNon-Dischargeable debts The most common types of non- dischargeable debts are:{ Debts not included by the debtor on the lists and schedules the debtor must file with the court (unsecured creditors){ Certain types of tax claims{ Debts for spousal or child support or alimonyChapter 7 BankruptcyNon-Dischargeable debts The most common types of non- dischargeable debts are:{ Debts to governmental units for fines and penalties{ Debts for most government funded or guaranteed educational loans or benefit overpayments{ Debts for personal injury caused by the debtor's operation of a motor vehicle while intoxicated{ Debts for certain condominium or cooperative housing fees. { Debts for willful and malicious injuries to person or property Chapter 7 bankruptcyBasic procedures Entitled Liquidation, is an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor's estate, reduces them to cash, and makes distributions to creditors. Because there is often little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor's assets. Cases without asset or liquidation are called "no-asset cases.“ The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made significant amendments to the Bankruptcy Code, requiring the application of a "means test" to determine whether individual consumer debtors qualify for relief under chapter 7. If a debtor's income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.Chapter 7 bankruptcy“341 meetings” Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the trustee. This meeting is informally called a "341 meeting" because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property. During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor's financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting and answer questions. Within 10 days of the creditors' meeting, the U.S. trustee will report to the court whether the case should be presumed to be an abuse under the means test. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors.Chapter 7 bankruptcyDenials The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the