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BANKRUPTCY I. OVERVIEW of BANKRUPTCY 1. results in a debtor’s being discharged from most of their debts/obligations. 2. is a legal state 3. is a matter of federal law : the Federal Bankruptcy Code governs, and only U.S. Bankruptcy courts have jurisdiction. 4. The BANKRUPTCY CODE is divided into “chapters”, each of which has a different purpose: a) CHAPTER 7: straight bankruptcy or liquidation . Very few exceptions to filing. ( Most CPA bankruptcy questions are on Chp. 7) b) CHAPTER 9: deals w/the adjustment of debts of a municipality. c) CHAPTER 11: deals w/corporate reorganizations. Unsecured creditors form a committee to make decisions. d) CHAPTER 13: deals w/the debts of an individual w/regular income , less than $307,675 of unsecured debt and less than $922,975 of secured debt. Permits extension of the time for repayment. Note: The Bankruptcy reform act of 2005 made a lot of changes as to which debtors are entitled to file for Chp. 7 relief. Those who cannot qualify are forced into Chp. 13 filings. In Chp 13, more indebtedness is repaid, but the debtor gets to keep more assets-there is no liquidation. II. BANKRUPTCY CASE PROCEDURE A. ELIGIBILITY 1. Must be a PERSON, which includes individuals, corporations, and (even) partnerships. Note: Trusts, estates, and government units are not persons . 2. Some entities are specifically excluded from coverage by Chapters 7 & 11 of the Bankruptcy Code. A good general rule is that excluded entities are frequently those that are subject to a lot of other federal regulation (i.e., banks, railroads, insurance companies, etc.). 3. Under the 2005 law, individuals filing for Chp 7 relief must FAIL a “means test. Debtor must undergo credit counseling w/in 180 days of filing. B. CASE COMMENCEMENT
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1. VOLUNTARY: person files petition in Bankruptcy court. Note: it is not necessary that the person be insolvent . 2. INVOLUNTARY: Note: A person can be forced into bankruptcy against their will. To determine the applicable rules, look to the number of creditors and amount owed in unsecured debt. a) if the debtor has 12 or more creditors, who are owed an aggregate of $14,425 or more in unsecured claims, then a minimum of 3 creditors must file together. b) if the debtor has less than 12 creditors, any one creditor owed at least $14,425 in unsecured debt, may file the petition w/the bankruptcy court. c)
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