When people in Eastern Tennessee consider bankruptcy, one of the first questions they ask is whether they should file under Chapter 7 or Chapter 13. Under Chapter 7, many of the family's debts will be discharged, that is, the debt will never have to be repaid in full. Under Chapter 13, the debtor files a plan under which all existing debts will be paid over time and the total balance due may be reduced. Many people naturally find Chapter 7's discharge procedure to be an attractive alternative, but not everyone is eligible to file under Chapter 7. In 2005, Congress, fearing that too many debtors with reasonable incomes would choose Chapter 7, imposed what is called a "means test." The means test is intended to ensure that persons with above-average incomes cannot use Chapter 7.
Business bankruptcies generally do not evoke an emotional response from anyone other than the company's shareholders and employees. A rare exception to that rule is the reaction to the recent announcement by toy retailer Toys 'R' Us that it will close all of its 740 stores in the United States over the next few months. The announcement was greeted with sadness and a sense of loss by the millions of adults who remember spending their childhoods wandering through the aisles of their favorite Toys 'R' Us store. The causes of this large commercial bankruptcy provide powerful warning signs for other big box retailers.
A firm that files a Chapter 11 bankruptcy petition often engages in complex and lengthy negotiations with its creditors during the course of the bankruptcy process. In some bankruptcies, however, these kinds of negotiations often occur before the petition is filed. Such pre-petition negotiations are often undertaken to determine if a suitable plan of reorganization is possible. A Chapter 11 petition may be fruitless if one or more large creditors are not willing to renegotiate the terms of their agreements with the debtor. An example of a pre-petition negotiation was recently provided in connection with the business bankruptcy filing of a large nursing home operator based in Tennessee.
For many people in southwestern Tennessee, bankruptcy seems like a black hole. After a person takes the plunge, what happens to the family home, the car, furniture and other personal possessions? The answers to these questions may vary, depending upon a person's particular financial situation. One beneficial feature of the bankruptcy code is, however, common to all bankruptcy proceedings: the automatic stay.
Creditors of a failing business in Tennessee often regard the filing of a bankruptcy petition by a creditor with dread because they fear that their claims will be dismissed by the bankruptcy court. Why, then, would a creditor want to force a debtor into business bankruptcy by filing what is known as an "involuntary petition"?