General Bankruptcy Questions

• If you’re involved in a legal issue, filing for bankruptcy might impact that case. The automatic stay will stop most ongoing litigation, including lawsuits and garnishments, but it depends on the nature of the case. If the lawsuit involves a debt or claims that can be discharged in bankruptcy, the filing could effectively end the case.

• Forum shopping in bankruptcy typically involves choosing a jurisdiction that is favorable for your case, often based on the local bankruptcy court’s practices or the laws of that district. It’s a practice that some debtors may try, but it’s scrutinized and should be approached with caution, as it could be seen as an improper tactic.

• Under Section 363 of the Bankruptcy Code, assets can be sold free and clear of liens and encumbrances, which means even if the assets are underwater, they can still be sold without the buyer assuming any of the liens attached to the property. However, debts related to these liens would remain as part of the bankruptcy estate.

• Chapter 7 is typically the chapter that clears most debts through a discharge. However, there are exceptions, such as child support, alimony, most student loans, and certain tax debts, which are not dischargeable in bankruptcy.

• If a debtor fails to comply with the provisions of a confirmed plan, the court may dismiss the case or convert it to another chapter, such as Chapter 7. The failure to comply could also lead to enforcement actions by creditors.

• The date of filing is crucial because it establishes a line of demarcation for the bankruptcy case. It determines the starting point for the automatic stay, and any debts or claims must be assessed based on this date. All assets and liabilities are reviewed as of the filing date.

• If the court does not confirm the plan, the debtor may need to revise the plan and resubmit it. The court may also dismiss the case or convert it to another chapter, depending on the circumstances.

• A ‘Cramdown’ occurs when the court confirms a reorganization plan despite some creditors rejecting it. The court will approve the plan if it is fair and equitable, and if creditors are treated as fairly as possible. In contrast, regular confirmation occurs when all classes of creditors accept the plan.

• Creditors who hold allowed claims in the case are eligible to vote on the acceptance or rejection of a Chapter 11 plan. The creditors are divided into classes based on the nature of their claims, and each class votes separately on whether to accept or reject the plan.

• Claims in bankruptcy are divided into classes based on priority. Secured claims are higher priority, followed by unsecured claims, which are often paid at a lower rate. The classification of claims impacts the debtor’s repayment plan and the order in which creditors are paid.

• It’s never too late to file for bankruptcy, but there are important factors to consider, such as how close you are to foreclosure or a wage garnishment. Filing early can help stop creditor actions and reorganize your debts.

• Tax debt can be discharged in bankruptcy, but it depends on several factors, including the age of the tax debt and whether it meets specific conditions. Income taxes may be discharged if they are at least three years old and meet other criteria.

If you expect to receive a tax refund, it could become part of the bankruptcy estate, and the trustee may claim it to pay creditors. However, if the refund is for a tax year after the bankruptcy filing, it may not be part of the estate.

• It’s generally better to wait until after bankruptcy to buy a new car, as you might not be able to get favorable financing terms during or immediately after a bankruptcy. However, if you need a car for work or essential purposes, it’s something you can discuss with your bankruptcy attorney

• If you have recently taken on a lot of debt and then file for bankruptcy, the court may look at the timing of the debt. If you took on the debt with the intention of discharging it in bankruptcy, it could be considered fraudulent.

• If you’ve filed for bankruptcy before, you must wait a certain number of years to file again, depending on the type of bankruptcy you filed. For example, you must wait eight years before filing Chapter 7 again, or two years for Chapter 13.

• Co-owned properties in bankruptcy are generally handled based on the ownership interest and the nature of the property. If the property is exempt, it can be kept; otherwise, it may need to be liquidated to pay creditors.

• Once you file for bankruptcy, the automatic stay halts creditor actions, including phone calls and collection efforts. However, some creditors may still attempt to collect post-petition debts, which should be reported to your attorney.

• In most cases, you cannot incur new debt without court approval while in bankruptcy. However, certain necessary expenses may be allowed, such as purchasing food or paying utility bills.

• If you receive a garnishment notice, you should immediately contact your bankruptcy attorney. The automatic stay from filing bankruptcy can stop the garnishment, but it’s important to act quickly.

• If you receive a foreclosure notice, filing for bankruptcy can stop the foreclosure process through the automatic stay. In Chapter 13, you may be able to repay missed mortgage payments over time.

• A personal guarantee means you are personally liable for a debt if the primary party defaults. You should think carefully before signing one, as it puts your personal assets at risk.

• Generally, you do not inherit your family’s debt unless you are a co-signer or jointly responsible for it. However, the estate of the deceased may be responsible for their debts.

• Once you file for bankruptcy, it is difficult to withdraw the case. If you change your mind, you can file a motion to dismiss the case, but it must be approved by the court.

• If you have a lawsuit pending and file for bankruptcy, the automatic stay can halt the proceedings. Depending on the type of lawsuit, it may be discharged or settled as part of the bankruptcy process.

• In Chapter 11, the debtor remains in possession of the business and its assets. The debtor-in-possession continues to operate the business but must act in the best interests of creditors and follow certain fiduciary responsibilities.