Who may File
Parties to a Case
Any person with a domicile, place of business, or property in the United States is a potential debtor. Chapter 7 relief is available to individuals as well as businesses of most forms. Governmental units, railroads, insurance companies, banks, savings and loan, credit unions and similar financial institutions, however, are all prohibited from filing for relief under Chapter 7.

Objective of the Debtor
In filing a Chapter 7, the debtor seeks a quick discharge from his personal debt liability. The debtor surrenders all its non-exempt assets to be liquidated for the benefit of its creditors and receives a discharged from its debts (with some exceptions). A discharge is only available to individual debtors; corporate debtors are excluded. The corporate debtor's aim is to legally and effectively wind down its business affairs under the protection of the bankruptcy court. Any debtor may only receive one discharge every 6 years.

Automatic Stay
The automatic stay arises upon the filing of the bankruptcy petition by the debtor. The automatic stay provides the main protection under the bankruptcy code, stopping any creditor action against the interests of the debtor or the debtors property. Unlike in Chapters 12 and 13, the co-debtor stay does not apply in Chapter 7 bankruptcies.

Effects of Discharge
The discharge of a Chapter 7 filing relieves the debtor of personal liability for the debt. The discharge creates a permanent injunction preventing a creditor from ever attempting to collect from the debtor on that debt. However, secured creditor liens remain intact, "passing through" the bankruptcy unaffected, the loan becoming non-recourse. Therefore, the creditor is free to exercise its rights of collection post Chapter 7 discharge, being careful not to demand payment.

All debts are not dischargeable. Public policy and other concerns as well as circumstances surrounding debtor's incursion of the debt prevent the discharge of certain debts. Some examples include: unscheduled debts, debts previously denied a discharge, unpaid income taxes, fines, penalties or forfeitures imposed by governmental entities, debts obtained through fraud, credit card binge debts, child support, alimony and maintenance, willful or malicious injury by the debtor, educational loans, and drunk driving damages.

The Court may deny a general discharge if a debtor conceals property, defrauds or hinders the Court in the prosecution of the case, or intentionally conveys property in an attempt to hinder or delay a creditor. In this case, the Trustee or creditor must commence a lawsuit in the Bankruptcy court. Then the Court enters an order concluding that the debtor's conduct made him/her ineligible to obtain a discharge.

What to File
The secured claim should include everything required to pay the debt in full as of the date the petition was filed. This includes principal, interest, attorney's fees, late charges, escrow advances (taxes and insurance), and other such items provided in the note or mortgage. Since no plan for cure and reinstatement of the debt exists in a Chapter 7, no itemization of an arrearage is required. However, many Chapter 7 Trustees request this information when evaluating the property for sale or abandonment.

Debtor's Compliance - Notice of Intention
The debtor with consumer debts secured by property of the estate is required to take certain actions. Within 30 days of filing a petition under Chapter 7 or on or before the date of the meeting of creditors, whichever is earlier, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property.

During this time, the court may allow the debtor additional time, for cause. If applicable, the statement will specify that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property. Within 45 days after the filing of a notice of intent or within such additional time as the court, for cause, within such 45-day period fixes, the debtor shall perform his intention with respect to such property.

If the debtor gives notice of his/her intent to retain the collateral, the creditor's attorney should contact the debtor's attorney regarding any default on the obligation and seek to obtain a reaffirmation agreement on the debt. If the debtor files a notice of intent to surrender the property, the creditor's attorney should contact the trustee to determine the trustee's intentions with respect to preserving and protecting the collateral upon surrender by the debtor. Debtors do not always file the statement of intentions as required, and it may require action by a creditor to force such a filing.

Meeting of Creditors
Many secured creditors elect not to attend the first meeting of creditors and suffer no loss by failing to attend. Creditors can and often do obtain valuable information at such meetings. If the debtor defaulted on the loan prior to filing, a creditor may be able to obtain the consent of the Chapter 7 Trustee and the debtor to an order providing for relief from the automatic stay. This action would eliminate the delay of obtaining a hearing date on a motion for relief from stay. The first meeting of creditors is an ideal time to urge the Trustee to abandon the interest of the estate in the real property and obtain a reaffirmation from the debtor.

In a no asset proceeding, the Meeting of Creditors is normally the only appearance that a debtor is required to make. Here the Trustee and creditors examine the debtor and the Trustee asks questions based upon review of the Statement and Schedules. Barring any objections, an individual debtor or joint debtors automatically receive a discharge. The discharge legally relieves a debtor of all dischargeable obligations, voids any existing judgments, and permanently enjoins the collection of any debt subject to the discharge. Certain debts are specifically not dischargeable, including secured debts, alimony, and support payments.

Distribution of Assets
In a Chapter 7 asset case, it is the Trustee's duty to liquidate and administer those assets. In a Chapter 7 proceeding where there are no assets available for creditors, the Trustee concludes the administration of the case rather quickly. Upon the Trustee's recommendation, the Court will issue an Order discharging the debtor of its debts and close the case.

By contrast, if there are non-exempt assets available for distribution, the Trustee collects the assets, reduces them to cash, and distributes the cash to creditors in order of priority. However, if the cost of administration exceeds the benefit that will ultimately be given to creditors an asset may be abandoned. The decision to abandon or liquidate the assets rests with the Trustee. The Trustee then submits a schedule of proposed distribution of assets to creditors requiring court approval.

Objective of the Debtor
A Chapter 11 debtor aims to formulate and confirm a Plan of Reorganization that provides for the repayment of all of the claims held against it.

The Automatic Stay
As in any bankruptcy case, filing a bankruptcy petition under Chapter 11 automatically initiates the automatic stay. Creditors are barred from pursuing any collection type activities, and any willful violation of the stay may result in an award of damages to the debtor. The co-debtor stay does not apply.

Proof of Claim
If a claim is correctly set forth in the debtor's Chapter 11 schedules, and the claim is not designated as disputed, contingent, or unliquidated, there is no need to file a proof of claim because it is deemed filed under Section 501. If the claim is not properly set forth in the schedules, the creditor should file a proof of claim because of the substantial risk that the debtor or another creditor will propose a Chapter 11 plan which could alter the creditor's rights in some fashion. A proof of claim must be filed within the time fixed by the court.

What to File
Generally the secured creditor should claim everything required to pay the debt in full as of the petition date, including principal, interest, late charges, attorney's fees, loan advances for insurance, and any other such items as provided in the promissory note or security agreement.

Meeting of Creditors
All secured creditors with significant claims should play and active role in a Chapter 11 case, and that includes attending and participating in the 341 meeting of creditors. The creditor can obtain valuable information to aid in deciding whether to cooperate in the formulation of a plan or fight to obtain relief from stay or take aggressive action.

Once approved by the Court, the Disclosure Statement is sent with the Plan and a ballot to all of the creditors. Impaired creditors with an allowed claim are entitled to vote for or against a Plan. The creditors decide on how to cast their ballots after reviewing the Disclosure Statement prepared by the debtor. They then submit written ballots to the debtor's attorney indicating acceptance or rejection of the plan. If a majority of the creditors in number and two-thirds in dollar amount vote to accept the Plan, it will be confirmed. If less than a majority of the creditors in numbers or less then two-thirds in dollar amount vote to accept the Plan, then a cramdown procedure will be necessary to confirm the Plan over the rejection.

The debtor's financial affairs are subject to constant monitoring and the debtor is required to file operating reports on a monthly basis. This is a regular report of the debtor's ongoing post-petition business operations and will advise the creditors and the Trustee if the debtor is generating profits or losses during the proceeding.

Moving to Dismiss or Convert
A creditor or other party in interest may move to convert the case to a Chapter 7 or to have it dismissed, whichever is in the best interest of creditors and the estate, for cause, including:

• Continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation;
  Inability to effectuate a plan;
• Unreasonable delay by the debtor that is prejudicial to creditors;
• Failure to propose a plan under Section1121 of this title within any timed fixed by the court;
• Denial of confirmation of every proposed plan and denial of a request made for additional time for filing another plan or a modification of a plan;
• Revocation of an order of confirmation under Section 1144 of this title, and denial of confirmation of another plan or a modified plan under Section1129 of this title;
• Inability to effectuate substantial consumption of a confirmed plan;
• Material default by the debtor with respect to a confirmed plan;
• Termination of a plan by reason of the occurrence of a condition specified in the plan; or
• Nonpayment of any fees or charges required under Chapter 123 of Title 28.

Only if a debtor is eligible to be a debtor under Chapter 7 will the conversion be permitted.

Confirmation of Chapter 11 Plans
Upon filing a Chapter 11 case, the debtor becomes known as the "Debtor in Possession". The debtor in possession assumes the role and performs the functions of the Trustee, with a few exceptions. If the Debtor in Possession fails to provide appropriate service to the estate, a party in interest or the United States Trustee may move for the appointment of a trustee for cause, including:

• Fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before of after the commencement of the case, or similar cause, but not including the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor; or
• If such appointment is in the interest of creditors, any equity security holders, and other interests of the estate, without regard to the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor.

In a Chapter 11 case, no discharge is granted except through the confirmation of a plan of reorganization. The debtor may file a plan at any time after the filing of the bankruptcy petition. In fact, the initial 120 days after the filing of a petition is an exclusive period in which only the debtor can file a plan of reorganization. If the debtor fails to file a plan within the 120 day exclusivity period, or if the debtor's proposed plan has not been accepted by each class impaired under the plan within 180 days after the entry of the order for relief, then any party in interest may file a plan. The Bankruptcy Court may, for cause, reduce or increase these periods. No party other than the debtor may file a plan after the entry of an order approving a disclosure statement unless confirmation of the plan has been denied or the court orders otherwise.

Timeframes may be different in a case in which a debtor is a small business and the debtor so elects. The exclusivity period may be reduced from 120 days to 100 days, and the absolute bar date is established requiring all plans to be filed within 160 days after the entry of the order for relief. A small business is one in which the aggregate, noncontingent, liquidated secured and unsecured debts as of the date of the petition are equal to or less than $2,000,000.00. The Court may reduce these periods for cause, but only the 100-day period may be increased.

Disclosure Statement
Before a proponent of a plan may solicit acceptances of the plan, the party must prepare and have approved by the court a disclosure statement. The disclosure statement must contain adequate information regarding the nature and the history of the debtor and the condition of the debtor's books and records sufficient to enable a hypothetical reasonable investor typical of holders of claims and interest of the debtor to make an informed judgment about the plan. The disclosure statement is delivered to the creditors along with the plan and provides information to the creditors so that they can make an informed decision regarding the plan. The plan must contain "adequate information" about the debtor before the court may approve it.

The Office of the United States Trustee and the creditors review the adequacy of the disclosure statement. Objections may be filed upon disclosure statements that fail to disclose sufficient information. Federal Rule of Bankruptcy Procedure 3017 requires notice of a hearing on the approval of a disclosure statement be given to creditors at least 25 days prior to a hearing. The amount of detail necessary for a disclosure statement will vary with the sophistication of the debtor's financial transactions, creditor cooperation, and the extent to which the debtor has
fulfilled post-petition obligations of payment and disclosure in the case.

The following factors should be included in a disclosure statement to allow a creditor to evaluate a proposed plan of reorganization:

• A description of the debtor's business and operations, including a statement regarding the source and regularity of income;
• A description of events leading to the filing of a petition for relief and actions taken to correct, eliminate, reduce, or remedy the problems or circumstances leading to the filing of the petition for relief;
• Significant events that occurred while the case was pending;
• A description and valuation of assets and indebtedness with a disclosure of the basis of valuation;
• A liquidation analysis: an estimated return to creditors under a Chapter 7 liquidation;
• Present condition of the debtor while in a Chapter 11, including a summary of the debtor's monthly financial operating reports;
• Description of accounting method utilized to produce financial information and the names of the responsible accountants or preparers;
• Source(s) of information contained in the disclosure statement;
• Anticipated future of the debtor in funding reorganization, source of funds, conditions of relevant market, etc.;
• Disclosure of all known risks to creditors under the plan bearing on success or failure;
• Present and future capital needs of the debtor;
• Description of debtor's director's, officers, and shareholders including information as to claims and compensation;
• Disclosure of future management of the debtor;
• Information as to subsidiaries, affiliates, and related entities;
• A summary of the principal terms of the proposed plan, including provisions for each class of claims or interests;
• Disclosure of the amount of debt in each class;
• Statement as to which claims are "impaired";
• Information regarding leases and executory contracts;
• Institution of a bar date for the filing of claims and any plan deadline for objecting to claims; and
• Information regarding preferential transfers, accounts receivable, pending litigation, and tax attributes of the debtor.

All of these factors should be considered in evaluating a disclosure statement, though this is not an exhaustive list. Other disclosures may be required to provide "adequate information", depending on the type of debtor and the sophistication of the debtor's financial transactions.

Classification of Claims
The court may not confirm a proposed plan of reorganization with respect to each class of claims or interest, unless such class has accepted the plan or such class is not impaired under the plan. However, if all other provisions of Section 1129 have been met, other than the acceptance of the plan by each impaired class (paragraph 8), "the court, on request of the proponent of the plan, shall confirm the plan, notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interest that is impaired under, and has not accepted the plan." Thus, merely voting to reject a plan may not result in the plan being denied confirmation. An objection to confirmation should be filed and the issues presented to the court to protect a creditor's interest in the case.

The classification of claims is an important area in the confirmation process. To confirm a plan, the debtor must obtain the acceptance of at least one class of impaired claims. If the secured creditor in a single asset case has a large deficiency claim, then the vote of the unsecured portion of that claim would dominate and control the acceptance of the unsecured class. Since there are relatively few creditors in a single asset real estate case, it is often crucial for the debtor to separately classify this deficiency claim in order to obtain an accepting class. Section 1122 states that a plan may place a claim in a particular class, "only if such claim or interest is substantially similar to the other claims or interest of such class." A majority of the courts permit separate classification only upon a demonstration of good business reasons. The Fifth and Ninth Circuits have held that deficiency claims are not similar to other unsecured creditor's claims and therefore must be classified separately, even without the demonstration of good business justification.

Fair and Equitable
Plan confirmation requires the acceptance of a class of "impaired claims". The issue of what constitutes and impaired class remains unsettled in the court. Under Section 1129(b), a plan must not "discriminate unfairly" against an impaired class that has not accepted the plan. A secured creditor must either negotiate acceptable payment terms under the plan of reorganization or face being forced to accept payments in conformity with the "cramdown" provisions of section 1129(b)(1). The provision states that the court may confirm the plan only if it does not "discriminate unfairly" and is "fair and equitable" with respect to each class of claims that is impaired under, and has not accepted, the plan. The condition that a plan be "fair and equitable" includes the following requirements:

• The secured creditor will retain the liens securing its claim to the extent of the value of its collateral; and
• The secured creditor will receive deferred cash payments totaling at least the amount of the "secured" claim.

If the value of the collateral is not sufficient to satisfy the claimant in full, the creditor holds an unsecured claim for the remaining balance due. This deficiency claim is not entitled to the same rights as the secured claim. No valuation of the claim is required and no interest rate determination is made since, unless the debtor is solvent, the debtor is not required to pay the present value of the claim.

Absolute Priority Rule
If the plan provides for payment of less than 100 percent of the unsecured claim, the debtor must satisfy the absolute priority rule. The absolute priority rule is a longstanding rule that a plan of reorganization must be "fair and equitable", by paying creditors in full before junior creditors of equity interests can receive any payment on their claims. This limitation began because of the inherent danger that any plan of reorganization proposed by a debtor would benefit the debtor's owners to the detriment of creditors.

The U.S. Supreme Court acknowledged, in dictum, a corollary to the absolute priority rule that permitted equity holders to participate in a plan of reorganization. This could occur if a necessity exists for new capital and the old equity holders agree to make fresh contributions to the debtor and receive in return a participation that is reasonably equivalent to the contribution. The Bankruptcy Code enacted in 1978 codified the absolute priority rule at 11 U.S.C. § 1129(b)(2)(B)(ii), but did not specifically provide for the so-called new value corollary or exception noted by the Supreme Court. However, many courts have interpreted the provision to contain this corollary. The circuit courts that have considered the rule remain split.

More recently, the Supreme Court again reserved the issue by denying confirmation of a debtor's plan because the plan vested the "equity in the reorganized business in the debtor's partners without extending an opportunity to anyone else to bid for that equity or to propose a competing reorganization. The Court held that a "market test" was necessary under Section 1129(b)(2)(B)(ii) since the absolute priority rule prohibits junior interests from retaining property "on account of" its prior ownership interest when senior creditors are not being paid in full and do not otherwise consent to the plan. Justices Thomas and Scalia, however, made it clear in a concurring opinion that the new value exception does not exist under their plain unambiguous interpretation of the statute. However, since the Supreme Court refused to deny the existence of the new value exception, it is likely that the exception will continue to exist and be used by the Bankruptcy and Circuit Courts to permit retention of an ownership interest through new value when contributions are determined to be sufficient by competing bids or a competing plan.

Who may file
Chapter 13 is a reorganization proceeding where a debtor attempts to repay debts over a period of time. A Chapter 13 is a program for individuals with regular income who have unsecured debt of less than $250,000.00 and secured debt of $750,000.00. A debtor attempts to repay a debt and retain non-exempt assets or continue to operate a business.

Objective of the Debtor
The debtor is looking to retain his/her assets and effect a repayment arrangement with creditors. Under the plan of reorganization, the debtor restructures secured debts (with certain limitations) and composes unsecured debts (pay less than 100%).

Proof of Claim
A secured creditor should file a proof of claim in each Chapter 13 case filed by a borrower. Proofs of claim must be filed within 90 days after the first date set for the first meeting of creditors. Nevertheless, a secured creditor should file the claim before the first meeting of creditors so that the Chapter 13 Trustee will have the claim at the meeting. The Chapter 13 Trustee evaluates a case at that time for objections to the confirmation of the plan and may set payments to some creditors to assure payment of the claim within a reasonable time. If the lender fails to file a claim in a timely manner and the debtor's plan is confirmed, the lender may not be paid. Under some circumstances, the court will allow a late proof of claim upon the motion of the secured creditor.

A creditor who has filed a proof of claim in a case may amend its claim provided the debtor, trustee, or other creditor files no objection. Absent an objection, the claim as amended will be allowed. If an objection is filed, the court may, and often will, disallow the amendment. A mortgage creditor needing to amend its claim to include items inadvertently omitted should file the amended claim as soon as practical, and definitely before the incorrect claim is paid fully.

The Plan
The main component of a Chapter 13 proceeding is the Plan. In essence, the Plan acts as a new contract between the debtor and all of the creditors. Usually the Chapter 13 plan operates to cure mortgage default and decelerate any accelerated loan. It acts as a type of forbearance agreement. Creditors must approve the Chapter 13 Plan at a Confirmation Hearing. Creditors do not vote on the Plan, but are permitted to object to the Plan. A Chapter 13 plan will be confirmed if it is feasible and if it is the debtor's best efforts in paying his unsecured debts. Once confirmed, all creditors are bound by the terms of the Plan. The debtor's arrears are re-paid through the plan for a period of up to five years. At the same time, the debtor is required to make regularly monthly mortgage payments.

In order to be confirmed, the Plan must comply with a number of provisions:

• All disposable income must be used to fund the Plan
• The Plan must be proposed in "good faith"
• The Plan must be feasible.
• The Plan may not exceed five years
• The Plan must pay unsecured creditors at least as much as they would have been paid in a Chapter 7
• The Plan must pay secured creditors the "value" of their secured claim
• The Plan must provide that real estate mortgage arrears be cured within a "reasonable" period of time
• Plan payments must begin within 30 days of the filing of the case
• The Plan must provide that the debtor remain current on all payments to be made outside the Plan

Meeting of Creditors
At the first meeting of creditors, the secured creditor can obtain valuable information that may be useful in other actions the creditor may pursue. The creditor can determine the debtor's intentions with respect to the collateral and determine the time necessary to pay the claim in full through payments coming from the Chapter 13 Trustee. The Trustee reviews the creditor's claims and its allowance and payment terms are determined. Attendance by creditors enables them to determine whether an objection is warranted. Objections to confirmation not raised at the 341 meeting may be waived and the case may be confirmed, resulting in poor treatment of a creditor's claim.

Some creditors' attorneys are reluctant to attend the meetings because the debtors often fail to attend, and the meeting must be rescheduled. Attorneys, however, are not required to attend the meetings. Paralegals skilled in the area of bankruptcy are effective at the meeting and may reduce the costs to the creditor.

Modification of Plan
Bankruptcy law permits post-confirmation modification of a Chapter 13 plan by the debtor, trustee, or unsecured creditor for the following limited purposes:

• To increase or reduce the amount of payments on claims of a particular class provide for by the plan;
• To extend or reduce the time for such payments; and
• To alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan.

In addition, the movant must show a substantial change in circumstance that was not anticipated at the time of confirmation. All affected creditors and the Chapter 13 Trustee must be given notice and an opportunity to object to the modified Plan. The Plan, as modified, must meet all confirmation standards.

Moving to Dismiss or Convert
A creditor may move to convert a Chapter 13 case to one under Chapter 7 or to have it dismissed, whichever is in the best interests of the creditors and the estate, for cause, including:

• Unreasonable delay by the debtor that is prejudicial to creditors;
• Nonpayment of any fees and charges required under Chapter 123 of Title 28;
• Failure to file a plan timely under Section 1321 of this Title;
• Failure to commence making timely payments under Section 1326 of this Title;
• Denial of confirmation of a plan under Section 1325 of this Title and denial of a request made for additional time for filing another plan or a modification;
• Material default by the debtor with respect to a term or a confirmed plan;
• Revocation of the order of confirmation under Section 1330 of this Title and denial of confirmation of a modified plan under Section 1329 of this Title; and
• Termination of a confirmed plan by reason of the occurrence of a condition specified in the plan, other than completion of payments under the plan.

Dismissal with Prejudice
A Chapter 13 case can be dismissed on the occurrence of either of the following: 1) a motion by the debtor to dismiss the case at any point, unless he had previously converted the case to a Chapter 13, or 2) if the debtor fails to comply with the obligations set forth in the Plan. Ordinarily nothing bars the debtor from refiling and commencing a new case after the dismissal of an old one. Serial filing, as this is known, has become an issue for creditors as debtors often abuse it.

Fortunately for creditors, Judges have the discretion to prevent serial filings. Upon request from a creditor or the Trustee, the judge may enter an order dismissing a case with prejudice, rendering a debtor ineligible to file another bankruptcy for an extended period of time. The law provides that if the Court finds that the debtor willfully disregarded the orders of the court and prosecuted a case, then the debtor is rendered ineligible to file another case for 180 days.