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Len Watkins
Joshua Genser
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Offices
in Point Richmond and Emeryville
125 Park Place, Suite 210
Point Richmond, CA 94801
Phone: 510-237-6916
Fax: 510-236-9851
2200 Powell Street, Suite 890
The Watergate Office Towers
Emeryville, CA 94608
Phone: 510-237-6916
Fax: 510-236-9851
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Bankruptcy:
You're Not Necessarily Out of Luck
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People
who have lost control of their bills may obtain relief
by declaring Bankruptcy. Bankruptcy is a process established
by Federal law, and takes place in special Federal
Bankruptcy Courts.
There are Bankruptcy Courts located in San Francisco, Oakland, San
Jose and Santa Rosa. There are, basically, two kinds of bankruptcies
for individuals, designated by their chapter numbers in the United
States Bankruptcy Code: Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy is a completely new start: the bankrupt person,
called the "debtor," is
required to liquidate all assets except for those that are exempt,
and pay what he or she can to the creditors. Except what small amounts
might be paid to the creditors from non-exempt assets, the creditors
get nothing and the debts are wiped out. Most debtors have few assets
that are not exempt, so most creditors get little or nothing when
a debtor files a Chapter 7.
A Chapter 13 bankruptcy includes a "plan," by
which creditors are paid some percentage of what they are owed over
a period of time that runs between three and five years. The plans
can pay anywhere from 100% of the debts to zero percent, depending
upon what the debtor can afford.
Creditors are not necessarily out of luck just because the debtor
declares bankruptcy. It is often still possible to collect some or
all of what is owed. Bankruptcy wipes out debts owed by debtors,
but it does not affect any security interest the creditor has in
the debtor’s property.
Thus, for example, when you borrow money to buy a car, the bank took
a security interest in the car. If you then file bankruptcy, the
bank can’t collect the loan from you, but they can repossess the
car and sell it. If you wanted to keep the car, you would have to
pay the bank an amount equal to the current value of the car, or
keep your car payments current, despite the bankruptcy.
For creditors, this means that you may be able to get some of what
you are owed by your customers who declare bankruptcy by obtaining
security for what they owe you. "Security" and "collateral" are
the same thing. Taking a security interest in something means that,
if you don’t get paid, you can repossess the thing in which you have
a security interest.
If, for example, you sell jewelry, you may be able to perfect a security
interest in the jewels. If you are making a loan or extending credit,
obtaining security from the borrower may be added insurance that
you will be paid. Please be warned, however, that there are numerous
laws governing selling, lending and security interests, and you risk
substantial liability if you do not comply with them.
Even unsecured debts might not be dischargeable in bankruptcy. Some
debts are "non-dischargeable" or "exempt" from
discharge, meaning that the debt is owed by the debtor, in its entirety,
despite the bankruptcy. The Bankruptcy Code sets forth a list of
debts that are not dischargeable. Generally, debts incurred as a
result of fraud, theft or an intentional wrongful act are not dischargeable.
In order to establish that a debt is non-dischargeable, however,
you must file a lawsuit against the debtor in Bankruptcy Court and,
of course, prevail.
If you are a creditor of a Chapter 13 debtor, and you think the plan
is unfair to you, you can object to it. Generally, you can object
to a plan if you think that the debtor can afford to pay more, or
if you would be better off if the debtor had filed a Chapter 7 bankruptcy,
instead.
Regardless of what type of bankruptcy is filed, as soon as it is
filed all creditors must immediately stop any attempts to collect
their debts. This is because the filing of bankruptcy imposes a "stay" on
any action that might affect the debtor’s assets.
Under some circumstances, creditors may obtain relief from the stay,
but that requires an order from the Bankruptcy Court. The stay is
a big reason why many people file for bankruptcy. The stay can stop
an eviction, a foreclosure or repossession. The landlord or lender
can often get relief from the stay to proceed, but the debtor, meanwhile,
has gained some time within which to negotiate, raise money or find
an alternative place to live.
Genser & Watkins LLP can help you decide
whether, how, and when to file bankruptcy, and we can guide you through
the process start to finish. Call Genser & Watkins LLP at 510-237-6916. |
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