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Understanding the outcomes in a Chapter 13 proceeding

For many Kentuckians, choosing between filing bankruptcy under Chapter 7 and Chapter 13 can be difficult. This post will examine the choice from a different perspective: the outcome of a Chapter 13 proceeding. In other words, what happens to a person's assets and debts when the Chapter 13 proceeding finally comes to an end with the entry of the order confirming the repayment plan?

The heart of a Chapter 13 proceeding is the reorganization plan prepared by the debtor. This plan provides for regular payments to the trustee, who uses the money to pay prescribed amounts to the various creditors. The plan must deal with three kinds of debts: priority, secured and unsecured. Priority claims are those claims that cannot be discharged; these claims comprise taxes, child support and similar debts. Secured debts are those debts for which the creditor may seize assets of the debtor in the event of default. Unsecured claims, such as credit card debt, are those debts which do not give the creditor an interest in the debtor's assets.

Online selling forcing many retailers into bankruptcy

The increasing popularity of on-line selling by firms such as Amazon and others is having a severe adverse effect on traditional retailers in Kentucky and elsewhere. This effect has been recently demonstrated by the number of retailers filing for Chapter 11 protection from their creditors.

The most recent such filing was made by San Francisco-based Gymboree Corp., a seller of children's clothing. Gymboree management has stated that its goal is to reduce its overall indebtedness by $900 million. The company plans to operate most of its 1,300 stores during the bankruptcy proceeding, but some of its stores will be closed as part of the reorganization. Gymboree has obtained $308.5 million in financing to fund its operations during the bankruptcy process.

What debts cannot be discharged in a Chapter 7 bankruptcy?

Many Kentuckians who seek discharge of their debts under Chapter 7 of the United States Bankruptcy Code are surprised to learn that some debts cannot be discharged. The types of debts that cannot be discharged in a personal bankruptcy are enumerated in the Bankruptcy Code, and this post will provide a summary of these kinds of obligations.

The non-dischargeable nature of certain debts is fairly obvious. Past due federal, state and local taxes may not be discharged. Child support and alimony likewise cannot be discharged in a Chapter 7 proceeding. Other non-dischargeable debts may not be so obvious. Fines, penalties and restitution imposed by a government agency cannot be discharged. Personal injury damages owed to others as the result of the debtor's drunk driving cannot be discharged. Debts obtained through fraud, embezzlement, larceny or breach of fiduciary duty cannot be discharged if the creditor objects to discharge during the bankruptcy proceeding and proves that the debt falls within the prohibited category.

Understanding the meaning of "debtor in possession"

The United States Bankruptcy Code contains many terms that are unique and not always easy to understand. One of the key terms in any business bankruptcy is "debtor in possession." When a Kentucky business makes the decision to file a petition in bankruptcy, it must choose from several different types of proceedings, including complete liquidation, reorganization of debts and continued operations and submitting to the oversight of a court-appointed trustee. A business that decides to keep operating while reorganizing its finances often becomes a "debtor in possession."

Unlike a Chapter 7 bankruptcy where the debtor turns over its property to a trustee, a debtor in possession remains in possession of the business assets of company. The debtor may remain in possession and continue to operate the business during the course of the entire bankruptcy proceeding. The advantage of being a debtor in possession is the fact that the business can continue to operate without being required to sell its assets. If the debtor is able to prepare a plan of reorganization that is approved by the court, compliance with the plan will result in the discharge or postponement of payments on certain obligations, thereby giving the debtor time to revitalize its business.

What is a "small business bankruptcy"?

Many of the Kentucky businesses that file bankruptcy petitions under Chapter 11 of the Bankruptcy Code are colloquially known as "small businesses." Some of these small businesses are so small that they are governed by a separate provision of the Bankruptcy Code known as the "small business bankruptcy."

Sometimes, the trustee may not be able to find the necessary number of creditors to form a committee of unsecured creditors, or the committee may not be actively involved in the case. (See accompanying post for a description of the committee's role.) If the debtor meets certain requirements, the case can be treated as a "small business case." First, the debtor must be engaged in a business or commercial activity other than the exclusive ownership or operation of real estate. Second, the debtor cannot have unsecured debts that exceed $2,556,050. Finally, the trustee cannot have appointed a creditors' committee, or the court must have determined that the committee has not been sufficiently active to provide effective oversight of the debtor's business.

The role of the creditors' committee in a Chapter 11 bankruptcy

Most Kentucky businesses contemplating filing a petition for a Chapter 11 bankruptcy understand that control of the business will be subjected to the control of the court. But few understand exactly how this happens. This blog has previously commented on the role of the bankruptcy trustee in a Chapter 11 proceeding. This post will examine the role of the creditors' committee.

The general purpose of the creditors' committee is to cooperate with the trustee in overseeing the conduct of the debtor's business (or businesses). The trustee appoints the committee, and it usually consists of those creditors who hold the seven largest unsecured claims. After organizing itself, the committee consults with the debtor in possession about administration of the case and operation of the business while the bankruptcy proceeding is underway. The committee can provide effective oversight of the conduct of the debtor and conduct of the business. The committee must also meet with the trustee to review the same topics.

Secured claims and other aspects of the Chapter 13 plan

If you decided to file Chapter 13 bankruptcy, you must manage your debts by submitting a repayment plan for court approval. You will need to provide monthly or bi-weekly payments in fixed amounts to a trustee, who will distribute the funds to creditors in accordance with the plan.

Claims from creditors fall into three categories: priority, secured and unsecured. Your attorney will help you understand how to manage the various claims, but following is an encapsulated explanation.

Lawsuits force cancer clinic network to file Chapter 11 petition

Many people in Kentucky have used the services of 21st Century Oncology, a large cancer treatment network concentrated in southeastern states. Following years of declining revenue and the settlement of several lawsuits, the company recently filed a petition for bankruptcy under Chapter 11.

The company provides a number of cancer-related diagnostic procedures and treatments, including radiation, pathology, urology and oncology. The company operates clinics at 179 locations in 17 states, mostly in the southeastern United States. The bankruptcy petition was filed in bankruptcy court in Manhattan. The company reported a nine-month operating loss of $92.9 million as of Sept. 30, 2016. The company has also listed more than $1.1 billion in long-term debt. With promised new financing, the company hopes to restructure its long term debt and to keep operating.

Bankruptcy under Chapter 7 of the Bankruptcy Act

Kentuckians who struggle with debt, whether from overuse of credit cards or medical bills or other unexpected financial catastrophe, often view bankruptcy as a means of relief. However, personal bankruptcy comes in two different flavors known by their location in the United States Bankruptcy Act: Chapter 7 and Chapter 13. Chapter 7 is generally used to apply a debtor's assets to pay debts and to discharge all debts that are not repaid or settled. Chapter 13 is used to establish a plan to reorganize those debts and pay them off over time. In this post, we will provide an overview of the mechanics of Chapter 7.

A person seeking relief under Chapter 7 must file a petition with the bankruptcy court that sets forth essential information about the debtor, such as schedules of assets and liabilities, a schedule of current income and living expenses, a statement of financial condition, a schedule of executory contracts and unexpired leases. In addition, the debtor must provide tax returns for the year immediately preceding the year of filing. Filing fees must be paid when the petition is filed. The debtor must also provide a complete list of creditors and the amounts owed.

E. coli outbreak leads to bankruptcy of soy butter manufacturer

Many factors can force a person or business into bankruptcy. A recent Chapter 7 filing involving a Kentucky-based food manufacturer highlights this fact and provides a devastating irony: the seller of a peanut-free peanut butter called "I. M. Healthy" has been forced to file a business bankruptcy under Chapter 7 because its product has been found to be contaminated with the bacillus E. coli

SoyNut Butter Co. markets a brand of soy nut butter that is advertised as "peanut free." The company purchases the product in bulk from Dixie Dew Products, a firm located in Kentucky. On March 30, 2017, the United States Food & Drug Administration suspended the registration of Dixie Dew because an inspection of its manufacturing facility showed "insanitary [sic] conditions that could lead to contamination with E. Coli."

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