Practice Areas - Bankruptcy

If you’re reading this page you’ve probably already recognized that you may need to file bankruptcy, but (like the vast majority of people) you don’t know what affect filing bankruptcy will have on you, your family, your assets, and what obligations you will have once you have filed bankruptcy.  The first step to deciphering these questions is to understand the nature of your debt.

In general, there are three classes of creditors to be considered when filing bankruptcy.  The three classes are non-dischargeable creditors; secured creditors; and unsecured creditors.  Non-dischargeable creditors are a very special class of creditors whose debts are “non-dischargeable,” meaning that the debts are unaffected by the “discharge” granted by a Bankruptcy Court.  Fortunately, non-dischargeable debts usually make up a very small number of creditors in a bankruptcy case.  Examples of non-dischargeable debts are:  student loans that are guaranteed by the U.S. Government, and taxes that are less than three (3) years-old that are due to a taxing authority whose debts are non-dischargeable. 

The second class of creditors is “secured creditors.”  Secured creditors have a lien on some portion of your property that gives them the right to retrieve the collateral in the event an individual defaults under the terms of the loan agreement (usually by non-payment of the payment due under the note).  Examples of secured creditor agreements are:  car loans, mortgages, home equity mortgage, and leases.  Generally speaking, if you want to keep the property upon which a secured creditor has a lien then you must enter into an agreement with that creditor in order to keep the property.  Sometimes creditors will agree to restructure the original terms of the loan agreement to enable you to pay a smaller principal balance or a lower interest rate, and sometimes the Bankruptcy Court will order the creditor to adjust the principal balance or interest rate without the creditor’s consent (the latter is called a cram down).  However, if you don’t want to keep the property that is subject to the lien, you can simply surrender the property to the creditor and then the secured creditor becomes an unsecured creditor for the deficiency amount.  The amount of the deficiency is calculated by taking the total outstanding debt due the creditor minus the value of the collateral surrendered to the creditor.

The third class of creditors is “unsecured creditors.”  Unsecured creditors usually make up the largest class of creditors both in terms of sheer number of claims and amount of debt.  Unsecured creditors receive the most unfavorable treatment in a bankruptcy case.  Unsecured creditors’ do not have liens on collateral, so they won’t be able to make you give up any property to pay the debt owed to them.  Common types of unsecured creditors are credit card companies; medical providers; banks that issue unsecured lines of credit; and individuals or banks who provide unsecured promissory notes.

 

Terminology Help

Chapter 7 - Liquidation form of Bankruptcy.

Chapter 13 - Payment Plan form of Bankruptcy.

Chapter 11 - Business and Corporate Reorganization

Businesses - What Happens to My Business in Bankruptcy?

Individuals - What Can I Keep In Bankruptcy?

Other Important Bankruptcy Terms You Should Know.