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Why do creditors usually accept a plan for financial rehabilitation rather than demand liquidation o

A Hearing, or Meeting of the Creditors, is held in a hearing room, and you will be asked questions about the schedules that are filed in your case. Then the Trustee will typically let me ask you questions about your paperwork, just to check and be sure everything is truthful and accurate for the record. Most of the questions require only yes or no answers, and the hearings typically last about 7 minutes…they schedule several every hour, believe it or not.

For example, one of the questions is: Usually all of your assets are exempt, meaning you get to keep them. There are a variety of these questions that are contained in the bankruptcy petition and schedules.

When I analyze a case, I look for anything that might cause a problem. My years of experience will help make the bankruptcy process and the hearing go smoothly for you. I look forward to meeting you and helping you through this difficult time. Your spouse does NOT have to file.

However, your marital status is important. Too much excess income and you might have to file a Chapter 13 even though you might prefer to file a Chapter 7 case. I look forward to meeting you, and talking to you more about your financial situation, and helping you through this very difficult time. Typically, a collection agency begins its efforts with an introductory letter.

This letter usually contains the required legal disclosures, which include: The amount of the debt, The name of the original creditor, The period of time in which the debtor may dispute the validity of the debt thirty daysand, The obligation of the collection agency to send the debtor verification of the debt if its validity is disputed.

In the original correspondence, the collection agency why do creditors usually accept a plan for financial rehabilitation rather than demand liquidation o also inform the debtor that it is attempting to collect a debt and that any information it gathers from the debtor or other sources will be used for that purpose. If this information is not included in the initial contact letter, the collection agency must provide it within five days.

Most lawyers recommend that debtors request verification of the debt because, in that case, a collection agency may not resume collection efforts until the information is confirmed with the original creditor. The debtor has the right to dispute the debt for thirty days. Collection agents who contact third parties must state their names, and may only add that they are confirming or correcting information about the debtor. They cannot state that they are calling about a debt.

Collection agents may not contact a third party repeatedly unless they believe an earlier response was wrong or incomplete and that the third party has revised information. Further, collection agents cannot communicate with third parties by postcard or by correspondence that uses words or symbols that betray their collection motive.

What is 'Financial Distress'

A collection agency cannot contact the debtor directly if counsel represents him or her unless the debtor gives the collection agency specific permission to do so. Collection agents may not contact debtors before 8: Collection agents also may not contact a debtor at work if he or she knows that the employer bans receipt of collection calls while on the job. Agents cannot threaten or use violence against the debtor or another person. They cannot use obscene or profane language.

Agents cannot call repeatedly or contact the debtor without identifying themselves as bill collectors. False or misleading statements. Agents may not lie about the debt, their identity, the amount owed, or the consequences for the debtor. They cannot send documents that resemble legal filings or court papers. Agents cannot offer incentives to disclose information. Agents may not engage in unfair or shocking methods to collect, including adding interest or fees to the debt, soliciting post-dated checks by threatening criminal prosecution, calling the debtor collect, or threatening to seize property to which the agency has no right.

Debtors who have faced obstacles to paying off their debts when due have no doubt received more than their fair share of demand letters and phone calls, and the thought of getting rid of their debts, and thus the constant demands, through bankruptcy can be quite appealing.

Before making a decision to pursue that route, which can affect a credit rating and the ability to make large purchases, like a home, debtors should consider other alternatives. Also, creditors may wish to avoid the difficulties of a court proceeding to collect on the debt, which can be time-consuming and expensive. Consumer credit counselors can also help creditors work out a repayment plan. Some of these advisors work for non-profit agencies, so they charge no fees.

Many credit-counseling services charge a fee for their guidance, however, and it may not appeal to an already over-stressed debtor to add another debt to the stockpile. In many cases, bankruptcy can be the right option to enable debtors to make a fresh start.

Educational loans are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable, however, in an adversary proceeding if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependants.

In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future.

Application for a hardship why do creditors usually accept a plan for financial rehabilitation rather than demand liquidation o is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student load. Courts have applied different standards, but they often apply a three-part test to determine eligibility: A Chapter 7 filing should have no effect on such collections, but a Chapter 13 proceeding may stop the collection activities, at least temporarily. Money earned after the bankruptcy is filed, however, is not property of the estate.

A debtor must make allowance in his Chapter 13 plan for payment of past due support obligations.

BREAKING DOWN 'Financial Distress'

Neither a Chapter 7 nor a Chapter 13 discharge affects future child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain. The rules on which debts are discharged, or eliminated, are different depending on which type of bankruptcy is filed. A Chapter 13 discharge affects only those debts provided for in the plan.

Additional exceptions to a Chapter 13 discharge include claims for spousal and child support; educational loans; drunk driving liabilities; criminal fines and restitution obligations; and certain long-term obligations, such as home mortgages, that extend beyond the term of the plan.

Financial Distress

In a Chapter 7 proceeding, the following debts are not discharged: In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories: Debts from fraud, including certain debts for luxury goods or services incurred within sixty days before filing and certain cash advances taken within sixty days after filing; Debts from willful and malicious acts; Debts from embezzlement, larceny, or breach of fiduciary duty; and Debts from a divorce settlement agreement or court decree.

A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for ten years from the time the case is filed. One major consumer credit reporting agency is said to remove Chapter 13 information after only seven years, but it is not legally required to do so. Most other credit information can be included in a consumer credit report for seven years. Civil suits, civil judgments, and arrest records, however, can be reported for at least seven years, and longer if the information is relevant for a longer time period.

For example, if the civil judgment against the debtor is valid for ten years, it can be reported for credit-rating purposes for the same time period. Although the code imposes this requirement only when the trustee or a creditor demands it, in realty the trustee always requires it, at least at the beginning of the plan.

Whether changes in salary will change the payment plan depends on a complete consideration of all of the circumstances.

  • A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for ten years from the time the case is filed;
  • Under the Interim Rules of Procedure on Corporate Rehabilitation, a "petition shall be dismissed if no rehabilitation plan is approved by the court upon the lapse of one hundred eighty 180 days from the date of the initial hearing;
  • In most instances, the bankruptcy case is filed by the debtor, which is considered a voluntary bankruptcy.

After the thirty-sixth month of a confirmed plan of an under-median debtor there is no specific code requirement that disposable income be contributed to the plan, so an increase in income would probably make little difference. The trustee will consider not only the salary increase, but also whether there has been a corresponding increase in disposable income, on which the payments are based.

If there is a significant increase in disposable income, the trustee may ask for an increase in payments. Preferences and fraudulent conveyances are two ways in which a debtor facing the prospect of bankruptcy may attempt to show favoritism to a particular creditor or close family member or associate, or even set aside some property for himself or herself to avoid losing it to the bankruptcy estate.

A preference occurs when a debtor treats one creditor more favorably than the others. Bankruptcy law disfavors preferences if they are made for the benefit of a particular creditor and for why do creditors usually accept a plan for financial rehabilitation rather than demand liquidation o debt owed prior to filing bankruptcy, if the debtor is insolvent at the time of the payment, and if payment is made within ninety days before filing or one year, if made to an insider like a family member or an officer of a corporate debtor.

Fraudulent conveyances are another vehicle by which debtors may attempt to defraud creditors. The Uniform Fraudulent Transfer Act UFTA was enacted to remove any temptation the debtor may have to hide property before declaring bankruptcy, such as by giving it to a relative. If the court concludes that the debtor was attempting to defraud creditors by selling property at a below-market price, for instance, the court can order that the property be turned over to the trustee. Anything sold for fair market value before the bankruptcy filing cannot, however, be recovered by the court under the UFTA.

The best and perhaps the easiest way to find out whether a debt is a secured debt is to review the documents signed at the time the debt was incurred. Sometimes, however, the type of debt itself will suggest whether it is secured. The following types of debts are often secured debts, which means that it the debtor does not make payments on the debt when due, the creditor can take back the property that secures the debt, sell it, and apply the proceeds to pay off the debt.

If the sale price is not enough to cover the full amount owed, the debtor may still be liable for the remainder. Companies financing home purchases almost always require a mortgage on the house. If the borrower defaults on the mortgage payments, the lender can force a foreclosure, in which case the house is sold and the proceeds are used to pay off the debt.

When a person purchases a car on credit, the lender puts a lien on the car, which allows it to repossess the car if the borrower defaults i. Although many consumers are unaware of this, when they charge something that they purchase at the local department store, the store may retain a security interest in the item purchased based on the agreement that the consumer signed when he or she first opened the account.

As a result, if the purchaser fails to pay according to the credit-card agreement, the store can take back the merchandise. When a borrower obtains a loan from a finance company and is asked to list things that he or she owns, it is possible that the finance company will obtain a security interest in the items listed. The United States Constitution grants to Congress the power to establish uniform bankruptcy laws throughout the United States, which ensures uniformity in how bankruptcy proceedings are conducted, encourages interstate commerce and promotes national economic security.

Bankruptcy law provides two basic forms of relief: Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. The trustee distributes the resulting fund among the creditors in a particular order of priority described in the Code.

Not all creditors will receive the full amount owed through this process, and some may receive nothing. When liquidation and distribution are complete, the bankruptcy court may discharge any remaining debts of an individual debtor.

If the debtor is a corporation, it ceases to exist after liquidation and distribution, and there is therefore no real reason for further discharge because the creditors cannot seek payment from an entity that no longer exists.

  • Individual debtor's rehabilitation, making it more likely that the tax claims will be paid in a personal bankruptcy whereas the loss to private creditors — who often receive nothing in a liquidation when there are extensive priority available about the debtor's financial condition than general business creditors the debtor is;
  • Many credit-counseling services charge a fee for their guidance, however, and it may not appeal to an already over-stressed debtor to add another debt to the stockpile;
  • False or misleading statements;
  • The court held the reinsurer's liability for excess judgment was insurance rather than rehabilitation, and liquidation and creditors and to do all;
  • Answer to why do creditors usually accept a plan for financial rehabilitation rather than demand liquidation of a business;
  • The Uniform Fraudulent Transfer Act UFTA was enacted to remove any temptation the debtor may have to hide property before declaring bankruptcy, such as by giving it to a relative.

In a rehabilitation or reorganization, the option courts often prefer, creditors may be provided with a better opportunity to recoup what they are owed. Chapter 11 or Chapter 13 of the Bankruptcy Code governs this type of bankruptcy. Chapter 11 usually applied to individual debtors with excessive or complex debts, or to large commercial entities like corporations. Chapter 13 usually applies to individual consumers with smaller debts. Reorganization provides a greater opportunity to retain assets if the debtor agrees to pay off debts according to a plan approved by the bankruptcy court.

If the debtor fails to do so, however, the court may order liquidation.