CHAPTER…HUH? All you need to know about bankruptcy R. Manny Montero, Esq. Michael A. Ostroff, Esq

Chapters of Bankruptcy Chapter 7: Liquidation – individual debtors/businesses Chapter 9 – Municipalities Chapter 11: Reorganization/repayment – continuing businesses and complex individual debtors Chapter 12 – Farmers and fisherman Chapter 13: Reorganization/repayment - individual debtors 2

Consumer Bankruptcies Chapter 7 is commonly used when: Chapter 13 is commonly used when: You have little property except for the basic necessities like furniture and clothing. You have significant equity in a home or other property and you want to keep it. You have little or no money left after paying basic expenses each month—or you're not even meeting basic expenses. You have regular income and can pay your living expenses, but you can't keep up the scheduled payments on your debts. You are willing to part with money or property in exchange for a quick and comprehensive resolution of your unsecured debt issues 3

Consumer Bankruptcies Who can file under Chapter 7?Who can file under Chapter 13? Debtors who have qualified under the 'means test‘, meaning your gross monthly income is below the median income for your family size Any individual debtor whose total unsecured debts are below $360,475 and whose secured debts are less than $1,081,400 May not have received a Chapter 7 discharge within the last 8 years Any individual debtor and/or spouse that have regular income and can manage a repayment schedule May not have disposable income An individual that is time-barred from filing a Chapter 7 due to a previous filing 4

Consumer Bankruptcies Advantages of Chapter 7Advantages of Chapter 13 Most unsecured debts can be discharged (completely eliminated) You can keep most of your property and spread out required payments over 3-5 years The process moves quickly—you may receive your discharge in just a few months Co-signers may be protected Creditors can't contact you while the automatic stay is in effect—or after debts are discharged. You may be able to avoid a second mortgage on your home or reduce a mortgage on an investment property By cleaning up unsecured debt issues, you may become eligible for loss mitigation options on secured debt (i.e., loan modification of primary residence) Unlike nonbankruptcy debt repayment plans, Chapter 13 plans may not require 100% repayment and/or creditor acceptance 5

Pre-petition debts – from the day you filed backward Personal Liability vs. In rem (or property) liability No calls, collections or lawsuits Not dischargeable- Student loans, child support, some taxes, fraud, etc. 6

Equity – exemptions, liquidation and payment loans Reaffirmation Agreements – Continuing liability Chapter 7 Redemption – a new loan to “buy the value” of your underwater car Chapter 13 Cramdown – paying the “value”, spreading out payments, and lowering your interest rate 7

Avoiding foreclosure by curing arrears upon completion Lien avoidance – discharge of the debt and voiding the lien upon completion Cramdown – payment of the “value” and lowering the interest rate (investment properties only) Surrendering property (also available in Chapter 7) 8

Paying the “liquidation value” of non-exempt equity Valuation issues – Houses, businesses & income levels Note: You do not actually liquidate (or sell) assets in a Chapter unless you chose to 9

Paying what you can “reasonably afford” Cutting unreasonable, extravagant and unnecessary expenses Common Problems: Charity, higher education, support to the family and losses on businesses/investment property 10

Chapter year plan vs. 5 year plan Family SizeMarylandDistrict of Columbia 1 person$59,269$52,148 2 people$76,281$80,785 3 people$86,807$80,785 4 people$104,114*$119,656* * Add $7,500 for each additional person 11

Income – when and how do you get paid? Bank Accounts: Credit Unions and cross- collateralization Freezing of account Use of Credit Cards Preference payments – paying family and friends before others Lawsuits, garnishments, and foreclosures 12

Don’t be ashamed... Rooted in Biblical mandates: “At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbour shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the LORD's release.” ~ Deuteronomy 15:1-2 Provided for in the U.S. Consitutional “The Congress shall have the Power... To establish uniform Laws on the subject of Bankruptcies throughout the United States” ~ Article I, Section 8 And socially acceptable... 13

To name but a few... Thomas Jefferson* Abraham Lincoln Ulysses S. Grant William McKinley Henry Ford Walt Disney Milton Hershey Burt Reynolds H.J. Heinz P.T. Barnum Kim Bassinger Larry King Donald Trump M.C. Hammer Willie Nelson Charles Goodyear Elton John Oscar Wilde Johnny Unitas Debbie Reynolds Stan Lee Jerry Lee Lewis Mark Twain 14