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What information is required in a Chapter 7 bankruptcy petition?

When people in Bradley County consider filing a bankruptcy petition, they are usually more concerned with the outcome than with properly commencing the proceeding. Sometimes, gathering the information that must be provided with the petition can seem an overwhelming task. This post will provide a bird's eye view of the types of information that must be submitted to the bankruptcy court in order to start a Chapter 7 proceeding.

The debtor must acquire a set of the official forms specified by the Bankruptcy Court. The court will not provide these forms, but they are available online and in most stationery stores. The bankruptcy forms are intended to ensure that the debtor provides the types of information that will illuminate the debtor's financial situation and expectation for future income.

Comparing Chapter 7 bankruptcy with Chapter 13 bankruptcy

Many individuals in eastern Tennessee who are wondering about filing a bankruptcy petition are often puzzled by the differences between a Chapter 7 and a Chapter13 proceeding. Depending upon a person's individual financial situation, the differences can be subtle and complex, but understanding certain major features of each type of proceeding can help make a sensible decision.

A Chapter 7 bankruptcy is intended to use the debtor's existing assets to pay off debts. In order to use Chapter 7, the debtor must show that his or her income is lower than the median income for the state of Tennessee. If the debtor's income is more than the state limit, the debtor will not be allowed to seek a Chapter 7 discharge.

Understanding involuntary bankruptcy

The great majority of bankruptcy petitions filed in Bradley County and in Tennessee at large are filed by debtors seeking to have all or a portion of their debt load erased by the bankruptcy court. The rare exception is a petition filed against a person or an entity by three or more creditors asking to have the defendant declared bankrupt and to have the court take charge of the debtor's assets. Such petitions are called involuntary bankruptcies, and they are used by creditors to freeze the assets of an entity who may be mismanaging or wasting its assets.

Involuntary bankruptcies are governed by Sec. 303 of the Bankruptcy Code. All involuntary proceedings must be commenced under either Chapter 7 seeking dissolution of the entity or under Chapter 11 seeking to impose a plan of reorganization. An involuntary bankruptcy must be commenced by at least three creditors, each of which holds a claim against the debtor. Such claims must not be contingent or the subject of a "bona fide" dispute. The combined value of the claims must exceed $10,000.

Understanding reaffirmation agreements

When residents of Bradley County contemplate filing a bankruptcy petition, one of their most bothersome concerns is whether they can keep their house or automobile. The bankruptcy process provides several alternatives for keeping essential assets, but one of the most important techniques is executing a reaffirmation agreements in which the debtor agrees to keep making payments on a loan secured by a lien or mortgage.

In a Chapter 7 proceeding, all debts will ordinarily be discharged unless the debtor takes action to keep the underlying security agreement in force. If the debtor takes no action, the creditor can enforce whatever rights are specified in the security agreement to repossess the asset in question. For example, a bank that extended a loan to purchase an automobile may repossess the car if the debtor does not reaffirm the security agreement with the bank.

Gibson Guitars plans to exit bankruptcy, resume production

Many people were saddened by the announcement of Sears' bankruptcy, but a smaller group experienced even greater sadness when iconic guitar maker Gibson announced its bankruptcy in May of this year. Based in Nashville, Gibson manufactured many types of guitars, including both electric and acoustic. But its most famous product was the electric "Les Paul" model. The recent announcement that Gibson was emerging from bankruptcy gladden the hearts of many guitar aficionados.

Gibson experienced financial difficulties when it attempted to expand beyond the manufacture of musical instruments. The company borrowed money to fund the purchase of electronics manufacturers in an effort to expand its revenues, but sales were slow while debt continued to increase. Finally, a heavy turnover in the company's financial executives prevented any new business plan from being effective.

The use and abuse of executory contracts in bankruptcy

Bankruptcy can be a difficult journey for a financially troubled business, but the risks for customers of the debtor can also be both significant and unexpected. One of the greatest hazards faced by customers of companies in commercial bankruptcy is the chance of having a once stable and ongoing business relationship turned on its head if the trustee should decide that one or more of the debtor's contracts is not necessary to the health or recovery of the business. Such contracts are referred to as "executory contracts." Any business that has a business relationship with a bankrupt or nearly bankrupt firm should be aware of what may happen to such contracts.

Without providing an explicit definition of an executory contract, the bankruptcy code gives the trustee the power to either reject or assume an executory contract. Generally speaking, an executory contract is a contract that has been partially performed by the parties but one or both parties is under a continuing duty to perform.

Tennessee coal mining company seeks bankruptcy protection

The coal mining industry may seem to have only a tenuous connection with Bradley County, but a recent bankruptcy filing by a coal mining company that is headquartered in northeast Tennessee calls attention to the struggles of an industry that can affect the rest of the state. President Trump has blamed what he calls overly-strict regulations for the worsening financial condition of the coal industry, but in fact, the main problem is the competition from cheaper forms of energy, especially natural gas.

Mission Coal Company, a small coal miner with headquarters in Kingsport, Tennessee, recently announced that it had filed a petition under Chapter 11 of the Bankruptcy Code. Mission operates three mines in West Virginia and one in Alabama. With its Chapter 11 petition, Mission joins Westmoreland Coal, Peabody Energy, Arch Coal and Alpha Natural Resources as one of five coal mining companies to seek bankruptcy protection since 2015.

How can bankruptcy help the average wage earner?

Filing for bankruptcy is often touted as a miracle cure for financial troubles. Many people in Bradley County wonder how a complicated federal statute can repair years of overspending and poor financial decision making. The answer is two-fold: bankruptcy is not a miracle, but in the right circumstances, it can provide additional time to negotiate with creditors and perhaps reduce the amount of outstanding debt.

The most powerful weapon in the bankruptcy quiver is the automatic stay provided by Sec. 362 of the bankruptcy code. The automatic is a court order that is issued automatically by the court where the bankruptcy petition is filed. The stay prohibits any further attempts to collect debts that were due as of the date of filing of the petition.

Toys R Us planning a comeback

One of the most publicized bankruptcies of the summer was the decision by Toys R Us to end its business operations. Perhaps because so many people had beloved memories of visiting the stores with their parents, the business bankruptcy filing struck an emotional nerve in eastern Tennessee and other states. Now, the company's secured creditors have announced plans to attempt to resuscitate the brand.

Toys R Us was being crushed by $5 billion in debt and stiff competition from Amazon.com, Target and Walmart when its management decided to liquidate the company. The bankruptcy filing led to the closing of 800 stores and the loss of 30,000 jobs. The bankruptcy had an effect throughout the toy industry, including the decision by Mattel to trim 2,200 jobs because of lost sales to Toys R Us.

Selling the debtor's assets in bankruptcy

Companies who find themselves in a bankruptcy proceeding often decide to sell a portion of their assets to generate cash that can be used to pay creditors' claims. Some debtors even sell all or a substantial portion of their businesses while in bankruptcy. For buyers of such assets, the bankruptcy code provides a powerful incentive: such sales generally result in the transfer of assets free and clear of all liens and encumbrances. The starting point for such sales is Sec. 363 of the bankruptcy code.

Section 363 allows the trustee to sell assets of the debtor free and clear of any interest if the sale satisfies the conditions in Sec. 363(f), which include obtaining the consent of the debtor, showing that applicable non-bankruptcy law permits such sales free and clear of other interests, and the sale price exceeds the aggregate value of all liens on the property. The advantage of such sales for purchasers is the statutory guarantee that all liens and claims will be resolved in bankruptcy court and that the asset is transferred free and clear of such claims. Sec. 363 sales require notice to all creditors and approval by the court via motion.

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