The best planning and hard work cannot always prevent debts that are impossible to repay. Sometimes, the best solution is bankruptcy: it is an extremely powerful tool and can help to resolve problems that seem impossible. It is important to get advice from an attorney with experience in bankruptcy law. A bankruptcy attorney can help a debtor to move on and get the most of this process, and help a creditor to recover as much of their debt as possible.
Bankruptcy law is mostly federal, and is therefore fairly uniform. Bankruptcy proceedings do differ from state to state: the amount and type of property exempt from creditor claims, for example, depends on your jurisdiction.
Bankruptcy is a federal creation designed to allow persons and businesses who meet certain criteria to discharge (or remove) their obligation to pay debts they have incurred.
Farm businesses generally can file under Chapter 7, Chapter 12, and Chapter 13 of the bankruptcy code. Each has different standards, rules and obligations.
First, some definitions. A person who owes money is a debtor. A person to who money is owed is a creditor. A Secured creditor is someone that a debtor owes money to and has offered something as collateral (some of your stuff like the car, the tractor or the house) to get the secured creditor to give them money. You are only a secured creditor if you have filed correct filing statements with the Iowa Secretary of State. For example, if you sell a tractor over time to your neighbor, and you file proper forms, you are a secured creditor. If you just lent money to someone without filing the paperwork, you are an unsecured creditor. The trustee is someone appointed by the court to supervise the action and find assets to sell and pay the creditors. The Bankruptcy estate is all of the debtor's possessions at the time of filing.
Bankruptcy is an option for businesses as well as individuals.
- Commercial bankruptcies provide options to businesses including liquidation of assets and reorganization, which allows businesses to continue operations while making payments to creditors.
- Consumer bankruptcies allow individuals to escape some debts, while impacting their credit rating. There are two options, as in commercial bankruptcies: the debtor can liquidate assets, or create a payment plan which allows the debtor to keep more assets.
An experienced attorney can help you to decide which option is best for your situation.
There are two paths through the bankruptcy process. One involves liquidation, covered by Chapter 7 of the federal Bankruptcy Code. The other involves rehabilitation or reorganization, which is covered by Chapters 11 and 13.
- Chapter 7 bankruptcies require debtors to meet a financial means test. A third party called a trustee collects all of the debtor's property (except for exempted property that is protected from creditor claims) and sells it. The proceeds from this sale are then distributed among the creditors. Not all creditors are guaranteed full or any payment. When the liquidation is complete, the bankruptcy court can discharge all remaining debts. A corporation going through Chapter 7 bankruptcy will cease to exist.
- Chapter 11 or 13 bankruptcies provide a better chance of recovery for creditors. Chapter 11 usually applies to large companies or individuals with large or complex debts. Chapter 13 is generally used for individuals with relatively smaller debts. Reorganization allows debtors to develop a payment plan, which must be approved by the court. The court can still order a liquidation if the debtor fails to meet the payment schedule. These bankruptcies require the debtor to undergo a budget and credit counseling training.
- Chapter 12 bankruptcies resemble Chapter 13 bankruptcies, but are tailored for farming operations.
- Chapter 9 bankruptcies resemble Chapter 13 bankruptcies, but are tailored for municipal governments.
Bankruptcies can be either voluntary or involuntary. Once a debtor applies for bankruptcy relief, all creditors must immediately cease attempts to collect the debt. However, creditors can file for relief and request a Chapter 7 or Chapter 11 bankruptcy. To move forward, these involuntary bankruptcies must meet certain requirements. The debtor must have a minimum number of creditors and debt. The debtor can respond to an involuntary petition, which requires the court to determine whether the creditors are entitled to press forward with the involuntary bankruptcy. If the court rules in the debtor's favor, creditors can be ordered to pay the debtor's attorney fees and damages.
If you are involved in an involuntary bankruptcy as a creditor or debtor, or if you are considering a voluntary bankruptcy, an attorney who specializes in bankruptcy law can be an invaluable asset. An experienced lawyer can help to maximize your return and help you to move forward and plan your financial future.