When a financial crisis develops, time is a great concern. You must react immediately to meet the challenge. We have extensive experience in workouts, foreclosures and bankruptcy in many industries. Our ability to effectively represent our clients and creditors’ committees in bankruptcy can mean the difference between a recovery and a write off.
Our experience allows us to evaluate business and legal risks quickly to determine the best direction for you, before favorable opportunities are lost.
Frequently Asked Questions
Should a creditor file a proof of claim upon receipt of notice of a bankruptcy filing?
It depends. In most Chapter 7 cases, there are no assets available for payment of creditor claims. To minimize the amount of paperwork, the Clerk of the Bankruptcy Court will generally instruct creditors when to file proofs of claim. If you did not receive notice of the bankruptcy from the Clerk of the Court, you may want to file a proof of claim to ensure that you receive notices from the Clerk which may affect your claim. However, there are situations where filing a proof of claim limits your options in the event you are subject to a demand to repay a payment made by or on behalf of a debtor prior to the bankruptcy filing which is alleged to be preferential. Therefore, to be safe, file a proof of claim when you receive notice of a deadline, and contact our attorneys if you think you may be subject to claims by the debtor before you file a claim.
What are the differences between Chapters 7, 11 and 13?
Chapter 7, sometimes called “straight bankruptcy,” is a liquidation proceeding in which a trustee is appointed to liquidate all of a debtor’s non-exempt assets for payment to creditors in accordance with the priorities set out in the Bankruptcy Code. Individuals and corporations are eligible for Chapter 7 bankruptcy, but corporations are not entitled to receive a discharge of indebtedness.
Chapter 13, sometimes called a “wage earner bankruptcy,” is a proceeding in which an individual proposes a plan to repay creditors over a three to five year period. This allows debtors to “catch up” on missed payments to secured creditors, provided they can also make timely current payments.
Chapter 11, sometimes called a “business reorganization,” is a proceeding where an individual or a corporation has the opportunity to restructure debts by proposing a plan to repay creditors all or a portion of their claims. Even though Chapter 11 was designed to foster reorganizations, a growing trend is for businesses to use Chapter 11 to control the process of liquidation of its assets without the need for a Chapter 7 trustee. Among other things, this Chapter allows current management and ownership to guide the liquidation of the business without significant outside interference, provided the business complies with the requirements of the Bankruptcy Code.
What is the automatic stay?
Section 362 of the Bankruptcy Code, commonly known as the “automatic stay”, prevents creditors from taking action to recover on a claim against a debtor in bankruptcy or to recover property in which a debtor has an interest. In essence, that means creditors must stop any action they are taking against debtor and resolve everything in Bankruptcy Court.
Over the years, Congress has created many exceptions to the automatic stay, but the general principle behind the automatic stay is that the Bankruptcy Court should be the exclusive forum for resolution of claims against debtors in bankruptcy.
What is the difference between a discharge in bankruptcy and dismissal of a bankruptcy?
If a debt is discharged in bankruptcy, it can no longer be collected. If a bankruptcy is dismissed, there is no longer an automatic stay in effect and creditors are free to proceed to collect their claims.