Areas of Practice
The law firm of Farinash & Stofan have been helping clients needing legal services in the greater Chattanooga, Tennessee area and across the State of Tennessee since 1983.
We are here for our business clients in a range of non-criminal litigation, including issues involving contracts, disputes, liabilities, partnerships, and shareholders. Business litigators may specialize in areas such as intellectual property or corporate structure.
Liquidation Under the Bankruptcy Code
Chapter 7, entitled Liquidation, is a procedure by which a trustee takes over the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most Chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-asset cases.” A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most Chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed. If such a debtor’s income is in excess of certain thresholds, the debtor may not be eligible for Chapter 7 relief.
Reorganization Under the Bankruptcy Code
Chapter 11, entitled Reorganization, ordinarily is used by businesses that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization. The Chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan. The court ultimately approves (confirms) or disapproves the plan of reorganization. Under the confirmed plan, the debtor can reduce its debts by repaying a portion of its obligations and discharging others. The debtor can also terminate burdensome contracts and leases, recover assets, and rescale its operations in order to return to profitability. Under Chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized business.
Family Farmer Bankruptcy or Family Fisherman Bankruptcy
Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, provides debt relief to family farmers and fishermen with regular income. The process under Chapter 12 is very similar to that of Chapter 13, under which the debtor proposes a plan to repay debts over a period of time – no more than three years unless the court approves a longer period, not exceeding five years. There is also a trustee in every Chapter 12 case whose duties are very similar to those of a Chapter 13 trustee. The Chapter 12 trustee’s disbursement of payments to creditors under a confirmed plan parallels the procedure under Chapter 13. Chapter 12 allows a family farmer or fisherman to continue to operate the business while the plan is being carried out.
Wage Earner Plan
Chapter 13, often referred to as a “wage earner plan”, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to Chapter 7 because it enables the debtor to keep a valuable asset, such as a house or a car that they are behind on, and because it allows the debtor to propose a “plan” to repay creditors over time – usually three to five years. For debtors facing an unwanted repossession or foreclosure, Chapter 13 is an option to keep your house or your car. Chapter 13 is also used by consumer debtors who do not qualify for Chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor’s repayment plan, depending on whether it meets the Bankruptcy Code’s requirements for confirmation. Chapter 13 is very different from Chapter 7 since the Chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike Chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under Chapter 13 than the discharge under Chapter 7.
Frequently Asked Questions
WHAT IS A DISCHARGE IN BANKRUPTCY?
A bankruptcy discharge releases the debtor from personal liability for certain debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is not personally liable for discharged debts, a secured creditor may enforce the lien to recover the property secured by the lien such as a car repossession or a mortgage foreclosure in the event those debts are not paid.
ARE ALL OF THE DEBTOR’S DEBTS DISCHARGED OR ONLY SOME?
Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13. Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies. The most common types of nondischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, 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 owed to certain tax advantaged retirement plans, and debts for 11 certain condominium or cooperative housing fees.
WHEN DOES THE DISCHARGE OCCUR?
The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly 60 days following the first date set for the 341 meeting. Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court. In individual chapter 13 cases the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs after that time has passed.