ATTORNEY PROFILE
R. Kenneth Bauer
Email: rkenbauer@comcast.net
Practice Areas: Bankruptcy Law
California Bar Admission: 1985
Law School: Santa Clara University, J.D., 1985
College: San Jose State University, B.A.,1976
Memberships: Contra Costa County Bar Association and State Bar of California
BANKRUPTCY INFORMATION
What is bankruptcy?
Bankruptcy is the legal method by which a debtor is allowed to eliminate, or to "discharge," most debts. While certain debts are not subject to discharge, most are.
According to the United States Supreme Court, the primary purpose of bankruptcy is to
relieve an honest debtor from overbearing debt, and to provide a “fresh start.”
What happens in bankruptcy?
Several things happen when a bankruptcy petition is filed. Immediately, an estate is
created by the court, a trustee is appointed by the court (except in a Chapter 11, in which
the debtor is a Debtor in Possession), and creditors are automatically prohibited from
taking any collection activities, including telephone calls, collection letters, foreclosures,
wage garnishments and lawsuits. When the case is concluded, the court will enter a “final discharge," which permanently releases the debtor from personal liability for all “dischargeable” pre-bankruptcy debts.
Who is the debtor? Who is a creditor? Who is the trustee?
In general, the debtor is the person or company who owes money to someone else, and
has sought the protection of the bankruptcy system. A creditor is any person or company
who is owed money. The trustee is the person appointed by the bankruptcy court to
monitor the bankruptcy case and to administer the assets of the estate.
Who can be a debtor?
Individuals, married couples, partnerships and corporations can become debtors and seek
the protection of the bankruptcy system. A debtor’s income and assets must be
insufficient to meet his or her obligations.
What is an asset?
An asset is property of any sort, and any interest in any property, whether tangible or
intangible. For instance, land is real property. Everything else is personal property,
including, for example, cash, bank accounts, stocks and bonds, insurance policies, motor
vehicles, furniture, electrical goods, jewelry, accounts receivable, leases, contract rights
and intellectual property.
What types of debts are dischargeable?
Basically, there are two different types of debt: secured and unsecured. Secured debts are
those in which the creditor retains a written security interest in property sold to the debtor
until the obligation is paid in full. Real property and motor vehicle purchases are almost
always secured, and purchases of furniture, appliances, jewelry and electrical equipment
are frequently secured. Unsecured debts are those that are not secured, and usually
include credit cards, personal loans and gambling debts. Secured debts are usually
dischargeable, but the creditor retains its interest in the secured property, so the debtor
must decide whether to return the property and discharge the debt or to keep the property
and continue to make payments. Unsecured debts are usually dischargeable, with a
number of exceptions. For instance, alimony and child support obligations are not
dischargeable, damages arising from the intoxicated operation of a motor vehicle are not
dischargeable, and tax and student loan obligations are usually not dischargeable. Also,
any creditor who believes that a debt was the result of a dishonest act by the debtor has
the right to file a complaint in the bankruptcy court seeking to prevent the discharge of
that debt.
What is a Chapter 7 bankruptcy?
A Chapter 7 bankruptcy is commonly referred to as a “liquidation.” In a liquidation, the
trustee takes possession of all nonexempt assets from the debtor, sells them, pays the
trustee fees, and then distributes the remaining proceeds to the creditors on a
proportionate basis, according to a list of priorities set forth in the Bankruptcy Code. If
there are no nonexempt assets, it is called a “no asset case,” and the trustee and creditors
receive nothing.
What is a Chapter 13 bankruptcy?
A Chapter 13 bankruptcy is commonly referred to as a wage earner’s plan. In a Chapter
13, the debtor prepares a plan for the partial or complete repayment of his or her debts
over a period of three to five years. The payments are made to the trustee each month,
who pays the trustee fees, and then distributes the remaining proceeds to the creditors on
a proportionate basis, according to the list of priorities set forth in the Bankruptcy Code.
When the plan is completed, the final discharge is entered by the court. Only individuals
and married couples may file a Chapter 13, Chapter 13 debtors must have regular
income, and there are limits to the amount of secured and unsecured debt a Chapter 13
debtor may have. A debtor might choose to file a Chapter 13 instead of a Chapter 7
because the home equity exceeds the allowable exemption, or there is a significant
nondischargeable debt such as delinquent taxes, or because the debtor would have too
much disposable income after the discharge of unsecured debts.
What is a Chapter 11 bankruptcy?
A Chapter 11 bankruptcy is commonly referred to as a “business reorganization.” In a
reorganization, the debtor also prepares a plan for the partial or complete repayment of
debts and the reorganization of finances, and remains in possession and control of all of
the assets of the estate. A Chapter 11 is intended for businesses, but is also available to
individuals. A Chapter 11 is much more time consuming and expensive than Chapter 7
or Chapter 13. Generally, a Chapter 11 would not be appropriate for an individual unless
the debtor is operating as a business, or has debts that exceed the Chapter 13 limits.
What is an exemption? What property is exempt?
An exemption is property an individual debtor, or a couple, is allowed to keep despite the
bankruptcy. There are two different sets of exemptions to choose between, and the
choice is based upon an analysis of the assets and obligations of the debtor.
Will filing bankruptcy affect my credit rating?
Yes, it will. However, the effect should, ultimately, be beneficial. If you are
contemplating bankruptcy, it is probable that your current credit rating has already been
adversely affected. By discharging debts and starting fresh, you have the opportunity to
rebuild your credit. After your discharge, if you have an income, you will be eligible for
one or two small new accounts. If you make regular timely payments on them, you
should be able to reestablish your credit rating within a few years.
How long will a bankruptcy show on my credit reports?
The major credit-reporting agencies will generally continue to report a bankruptcy for the
maximum allowable period of ten years after the case was filed. However, if you begin
to rebuild your credit as soon as possible, and are regular and timely in your payments,
the effects of the bankruptcy will not last that long. With an income and a new positive
payment history, you can even become eligible for a mortgage loan within a few years. Is bankruptcy for you?
That question can only be answered after a thorough review and analysis of your entire
financial situation, involving consideration of all of your debts, all of your assets, your
income, and your anticipated future income. Sometimes, there are less extreme
alternatives to bankruptcy. If you are considering bankruptcy as a means of addressing
your financial difficulties, it would be in your best interest to consult with a bankruptcy
attorney, who would be able to evaluate your individual circumstances and to advise you
regarding all of your alternatives. |
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