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Tenancy by the Entirety Simply Defined

Not to be confused with Joint Tenancy and Tenancy in Common, Tenancy by the Entirety is a relatively new legal concept in property law. Simply defined, Tenancy by the Entirety is a legal form of ownership of certain assets between a husband and wife.

In a tenancy by the entirety, the husband and wife must acquire their interest in the asset simultaneously and through one title; they must have equal interest in the asset as well as equal rights of possession; and they must be husband and wife as recognized by their state laws. Not all states have tenancy by the entirety laws, and some states have the laws only for real estate property.

Tenancy by the Entirety Laws Can Have an Affect on Bankruptcy

Tenancy by the Entirety laws may have an affect on your filing of a bankruptcy, especially when it comes to Chapter 7 exemptions. One such filer of a Chapter 7 recently asked this question from a state which has Tenancy by the Entirety laws: If I file a Chapter 7 alone, how is my interest in jointly held marital property calculated toward my total personal property exemptions?

Exemptions are important in filing a Chapter 7 because, either by state or federal exemption law, these assets are protected from the bankruptcy court liquidating them and paying the creditors.

How Creditors Are Treated in Tenancy by the Entirety States

Before you can understand how bankruptcy is affected in a tenancy by the entirety, you need to understand how the state having such laws covering all property treats creditors. In these type of states, creditors of an individual spouse cannot attach and sell the interest of the other spouse. Only creditors of the couple may attach and sell the interest of the property owned by the couple. That means a creditor must go to court to seek a judgment against both spouses in order to attach a lien and sell the property, but if only one spouse is in debt to the creditor, the creditor is out of luck in attaching a lien to the property or gaining control of it.

How Creditors are Treated Affects a Simple Chapter 7

How creditors are treated by a tenancy by the entirety complicates bankruptcy in a simple Chapter 7. Bankruptcy court trustees represent the creditors when liquidating assets. Normally in states without tenancy of entirety laws, the trustee seizes the asset if one of the spouses has an interest in it, sells it, and pays the creditors. Under these new state laws, time will tell through court challenges what precedence is set and how the trustee will have to handle the case. They may not be able to liquidate a non-exempt asset if only one of the spouses is filing. The type of exemptions in this case become very important to the creditors.

Exemptions Can be Affected by Tenancy by the Entirety

If only one spouse is filing a Chapter 7 and there are a lot of tenancy by the entirety non-exempt assets held by the couple, exemptions will become a larger issue than in states that do not have these types of laws. In effect, the tenancy by the entirety laws might provide in essence more exemptions for the filing debtor.

There are other complicated scenarios affecting a tenancy by the entirety in a bankruptcy filing, and these complicated scenarios are all good reasons to consult with a bankruptcy lawyer.

Related articles

• Exemption in a Bankruptcy Can be Productively Listed (betterbankruptcy.com)
• Chapter 7 Questions and Potential Answers (betterbankruptcy.com)
• Chapter 7 Replacement Values in Listing Personal Property (betterbankruptcy.com)
• Bankruptcy Spectrum and Protecting Individual’s Assets (betterbankruptcy.com)

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The Set UP

One of yesterday’s news headlines was “California to Run Out of Cash Without Any Action.” This past few years, we have been seeing these types of news headlines in states all across the nation. Does this type irresponsible actions by our states and local government place the entities alongside all the other deadbeats?

One news article written online in 2010 and titled “32 States are Now Officially Bankrupt” took its supporting statistics from the Economic Policy Journal. The news article stated that 32 states across the nation has borrowed $37.8 billion dollars from Uncle Sam just to pay for unemployment insurance. Those figures did not take into account all the other debt the states possess. All of the borrowed money for the unemployment insurance came from our Federal Government who is already in debt beyond what it can ever pay back.

In light of state and federal governments going bankrupt, are these actions setting us up, as individual citizens, for our filing bankruptcy?

The Accusations

Considering there are a large number of self righteous, self appointed, and financially secure individuals that reside in the United States who constantly harangue Congress to pass laws against the less fortunate individuals who go bankrupt, it is a minor wonder that the Feds have not been forced to slam all the deadbeats into debtor’s prison!

Florida Senator Marco Rubio, making the news, recently bashed the Obama Administration for leading the country into becoming a nation for deadbeats. He raises such questions of leadership all the while knowing that during his tenure while serving as Speaker of the House of Florida, Rubio shared co-ownership in a home which later fell into foreclosure after deferring months of mortgage payments. Does defaulting on a mortgage loan make Rubio one of the deadbeats?

We see in Rubio a self appointed financial expert telling the administration how to handle money as if he never had money issues. Rubio’s own financial issue was miraculously resolved when Rubio ran for the US Senate. Money seems to solve all insolvency questions, and lobbyists for big business has lots of money.

The Double Standard

Congress is the one which the Constitution of the United States has given authority to pass bankruptcy laws. Theoretically governments of any kind, at first, were not suppose to be able to file bankruptcy, but the Great Depression changed all of that. Congress gave municipalities the authority to file a bankruptcy under a Chapter 9. Now in light of this past economic downturn, states want to join the parade of municipalities who have recently filed.

All of this is occurring just seven years after Congress passed new bankruptcy legislation to get rid of the individual deadbeats who they claim abuse the bankruptcy system. Big business from the banking industry lobbied Congress to pass the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The title of the act is deceiving because it is arguable there is little in the law that protects consumers.

The Questions

Add the fact a selective group of rich people want to make it harder for deadbeats to escape their clutches to the fact Congress has been passing laws favorable to the credit card industry for years, and is there any wonder more and more individuals slip into the deadbeat phenomenon of bankruptcy?

Bankruptcy, are we set up for it?

Related articles

• Bankruptcy Law Makes Filing More Costly but Is It Fair? (betterbankruptcy.com)
• Eleven Common Bankruptcy Definitions You May Want to Know (betterbankruptcy.com)
• The Scariest Part About Bankruptcy (betterbankruptcy.com)
• Filing Financial Bankruptcy: Choice, Right, and New Beginning (betterbankruptcy.com)

These are just a few things that people should not do before filing a bankruptcy. The first, which I hear of quite often, is running up one’s credit card. In doing so, you will not only have to pay it back, but the trustee may decide to deny you a discharge as well. I had one person who put eight thousand dollars down on a car two month before filing. He agreed to pay that card the money over the next three years. Otherwise, he would not receive a discharge.

Another mistake people make when filing bankruptcy is leaving money in a bank that they owe money too. All banks have written in fine print, that if you fail to make timely payments, they can go into your checking account and take the money.

Yet another, and even more common mistake is treating one creditor different from the others. For example; your mom loaned you money to help you out when you needed it. You sell your house, because you can not afford it anymore, and then repay your mom the $5000 she loaned you six months, all before filing. The trustee has the right to acquire the money from her and distribute it evenly between her and the other creditors.

And last, but certainly not least, do not go buy a new car, big screen TV, furniture, or any other big-ticket items, because you will have to pay for them. These are just a few of the things that can make a bad thing worse. A bankruptcy is there to help us when things have gone bad. It enables us to put these bad times behind us in order to move forward.

These types of things can cause serious issues under the new laws concerning your receiving a discharge of your bankruptcy. Under the new law the creditors have more of a right to argue about what you have done before deciding to file a bankruptcy. In light of these changes, be sure to inform your attorney about everything that you may have done before you filed bankruptcy. He or she can then advise you as to what particular actions should be taken, as well as what outcomes are probable. Remember that the bankruptcy laws are there to help us when there has been a major change in our financial life.

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Personal Bankruptcy Story

This personal bankruptcy question came from a Californian who shared their personal bankruptcy story on a bankruptcy forum website today:

“I live in and work in California, my house is underwater, a HELOC loan is now requiring us to pay principal this month and (our mortgage) bank which now owns the house is not very accommodating. I have assets, so filing a Chapter 7 is out of the question. The assets are: a personal home with mortgage and HELOC current on payments, but the house is underwater in value; a house across the street my disabled mother lives in who lives off of social security and gets an inheritance check that pays for the mortgage on the home, which is in my name; a family vacation home that is in a joint tenancy with my siblings with no mortgage left; and a paid off timeshare which is probably worthless. Does anyone know whether or not they will allow me to keep any of these assets if I file a Chapter 13?

Chapter 13 Allows You to Keep Assets

A Chapter 13 is a type of bankruptcy where a person who has income can pay a part of all of his debts over a 3 or 5 years span. When you file a Chapter 13, you will have to file a plan to pay back a portion or all of your debts based upon your disposable income you have each month for the time of your devised plan. The bankruptcy court must approve your plan during a confirmation hearing. When you have completed the plan as approved, if there is any unsecured non-exempt debts left, the leftover debts will be discharged by the bankruptcy court so that you will no longer be legally responsible for having to pay the debts.

A Chapter 13 allows you to keep all of your assets as long as you are up to date on any secured loans and will make timely payments during the plan period to the bankruptcy court. If a problem should arise during a Chapter 13 plan, and almost two thirds of the plans for a Chapter 13 are never finished, there is a possibility you might be converted to a Chapter 7 bankruptcy.

Forced Conversion from Chapter 13 to Chapter 7

A bankruptcy court can sometime legally force a conversion from a Chapter 13 plan to a Chapter 7 “for cause.” A Chapter 7 is a type of bankruptcy where a bankruptcy court trustee liquidates your non-exempt assets to pay off creditors. In the case of the debtor in our illustration, being forced to convert to a Chapter 7 might be a bad thing since he has ownership in so many assets that have equity. A bankruptcy court trustee could theoretically seize any of the assets not exempt to pay off the man’s creditors.

There are a few reasons a bankruptcy court might force you into a Chapter 7 bankruptcy from a Chapter 13. These can occur if you fail to file a Chapter 13 plan on time, fail to make Chapter 13 plan payments, or there is an unreasonable delay that causes harm to your creditors. In any of these incidents, your Chapter 13 will most likely be dismissed.

You can keep your assets when you file a Chapter 13, but you have a responsibility to pay the confirmed plan once you file. A bankruptcy lawyer can help you with any legal complications during this time.

Related articles

• Chapter 7 Bankruptcy for a Family of Four (betterbankruptcy.com)
• Vices in a Chapter 13 (betterbankruptcy.com)
• Rental Allowance in a Chapter 13 Bankruptcy (betterbankruptcy.com)
• Bankruptcy Basics: Six Basic Types of Bankruptcies (betterbankruptcy.com)

The Journal of Empirical Legal Studies is a journal published on behalf of The Society of Empirical Legal Studies and Cornell University Law School. An article entitled Race, Attorney Influence, and Bankruptcy Chapter Choice was posted in the Journal on January 20, 2012. It was written by Robert M. Lawless, a law professor at the University of Illinois; Dov Cohen, a psychology professor at the University of Illinois; and Jean Braucher, a law professor at the University of Arizona.
The published report dealt with different uses of a Chapter 13 bankruptcy in relationship for potential racial bias. The bias in the report revolved around the question of why African Americans are more likely to end up in a Chapter 13 bankruptcy in lieu of a Chapter 7 in comparison to debtors of other races. The writers of the paper used two different studies to raise fairness about the bankruptcy system. Is the bankruptcy system unfair to African Americans or is there an already built in potential for bias in the bankruptcy process?

There would be no denying the facts that blacks file a disproportionate number of Chapter 13 bankruptcies than other races, almost twice as much as found in the first study in which the group based its paper. There is also no denying the fact bankruptcy attorneys were more likely to recommend filing Chapter 13 to blacks rather than their counterparts.

The disparity in more blacks filing a Chapter 13 than a Chapter 7 becomes important when you realize the statistics that encompasses the practice. Almost 70% of bankruptcy filers file a Chapter 7 bankruptcy despite the deterrents offered up with the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The act was passed to discourage and make it harder for filers to file a Chapter7, something that really has not turned out so far to be the case. There were almost 1.5 million bankruptcy filers in 2011.

A Chapter 13 can offer some legal advantages for persons seeking to protect valuable assets, but it costs more and offers less relief than a Chapter 7. The writers in the report adjusted for income, home ownership, assets and education when evaluating the results of the studies. That means the statistics are not as likely to be skewed when you consider that 36 percent of blacks fall in the poverty level compared to 14% of whites who fall in the same poverty level, all of which would have few assets, little education, low income, and almost no home ownership.

The writers suggest there was no obvious evidence of discrimination, but instead, a bias of moving African Americans toward a more expensive bankruptcy. They also admit a Chapter 13 is not always an inferior choice, but that fact does not explain why the blacks who had no assets were still twice as likely to file a Chapter 13.

There are no known statistics kept for how many of each race file for bankruptcy.

What is known is that the bankruptcy system, with all of its built in potential for bias, is open to be used by any American, regardless of their race.

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Related articles

• Vices in a Chapter 13 (betterbankruptcy.com)
• Chapter 7 Questions and Potential Answers (betterbankruptcy.com)
• Chapter 7 Bankruptcy for a Family of Four (betterbankruptcy.com)
• Chapter 13 and Schedule I When Applying for Bankruptcy (betterbankruptcy.com)

If you are considering filing bankruptcy and are involved in a lawsuit as either the plaintiff or the defendant, then it is important that you understand how the bankruptcy will impact the lawsuit.

First, let us consider the case where you are the plaintiff in a lawsuit where you expect to receive a cash settlement.  When you declare bankruptcy, you are required to list all of your real and personal property.  Real property refers to real estate, whereas personal property refers to virtually everything else you own (e.g., cash, checking and savings account balances, household furnishings, clothing, jewelry, firearms, stocks, automobiles, boats, and any other property with value).

A settlement owed to you related to a lawsuit is definitely considered an asset if you have already won the lawsuit and the amount owed to you has been set by the court.  In this case, where you have won the lawsuit and are expected to receive a settlement, then even if you have not yet received the money, it is considered an asset for the purpose of a bankruptcy and you must list it in the appropriate bankruptcy schedule.

In addition, even if you are still in the midst of a lawsuit and only believe you will win the suit and thus receive a cash payment as a result, you should declare such a possible payment and list it as an asset in the bankruptcy schedules.  Even though you do not yet legally posses an asset, the simple possibility that you may receive a settlement is sufficient from the bankruptcy perspective for it to be considered an asset.  Therefore, if you want to protect your right to the settlement in the future, you need to take the conservative approach of listing the potential asset and seeking to have it exempted from the bankruptcy.  Otherwise, the bankruptcy trustee may be able to obtain a default claim to the asset because you failed to declare it in the bankruptcy as directed by law.

Alternatively, what happens if you are being sued for a financial settlement and you declare bankruptcy? Can a bankruptcy be used to discharge any liability ruled against you?  Regardless of whether you are seeking to file a Chapter 7 bankruptcy to liquidate your assets or a Chapter 13 bankruptcy to reorganize your debts, the effect the bankruptcy has on the lawsuit and whether you can obtain a discharge depends largely on the reason for the lawsuit.

Bankruptcy can give you a discharge of a lawsuit seeking a financial settlement if the lawsuit originates related to one or more of the following sources:

• Unsecured loan or credit card debt
• Medical expenses
• Bad business debt
• Debt above the amount received when a home or automobile is repossessed or related to the lease of a home or automobile
• Damages related to automobile or other accidents
• Tax-related penalties over three years old
• Taxes that are not considered priority claims

Alternatively, if the lawsuit against you is for one of the following reasons, you likely cannot receive a discharge in a bankruptcy:

• Damages related to intentional injuries you caused to others or because you were under the influence of alcohol or other drugs
• Money you obtained through fraud, embezzlement, or other crimes
• Fines charged to you as part of the punishment for a crime
• Support you owe relating to a child or family
• Student loans
• Any debt that has been upheld in a previous bankruptcy
• Tax-related penalties less than three years old
• Taxes that are considered priority claims
• Any other money you owe that you neglect to list and include in your bankruptcy

Remember that the information about receiving a discharge through a bankruptcy or declaring a possible lawsuit settlement in your favor is general in nature and may be subject to change.  You should speak with a bankruptcy attorney to confirm how declaring bankruptcy will affect you given the specific circumstances of your lawsuit.

Related articles

• Debt Settlement, Collection Agencies, and Your P&L Before Bankruptcy (betterbankruptcy.com)
• Federal income tax significant events, Part 9 – Bankruptcy (taxlawhome.com)
• Filing Financial Bankruptcy: Choice, Right, and New Beginning (betterbankruptcy.com)
• Should You File Bankruptcy if You are Collection Proof? (betterbankruptcy.com)
• Why Bother to File Bankruptcy? (betterbankruptcy.com)

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Bankruptcy codes are not the same throughout the world. As a matter of fact, bankruptcy law is not even the same throughout the United States. Although the bankruptcy codes are primarily federal laws in the United States, state bankruptcy statutes are allowed to mange the details within the federal bankruptcy law system.

Here is a look at how some of the different countries handle bankruptcy around the world:

The United States

Article 1, Section 8, Clause 4 of the United States Constitution allows Congress to enact “uniform laws on the subject of bankruptcies throughout the Untied States.”

That means the bankruptcy laws in the United States are federal in nature and protected by the Constitution. Title 11 of the United States Code was enacted by Congress to handle bankruptcies. The United States federal law provides for six types of bankruptcies as options for any kind of insolvency that may arise.

In addition, State bankruptcy laws have been passed to provide details where federal bankruptcy law expressly defers to state laws or has failed in provide adequate details. Federal law supersedes state law if there is a discrepancy between the two. The validity of claims and exemptions are the laws most dependent on state laws within bankruptcy context.

The United Kingdom

Primarily within the United Kingdom, the term bankruptcy legally relates only to individuals and partnerships. Businesses enter into solvency procedures such as liquidation or an administrative receivership on a case by case need, and although referred to as a bankruptcy in common language throughout the United Kingdom, business bankruptcies are technically different legal acts than the bankruptcy filings of individuals and partnerships.

Current bankruptcy laws in the United Kingdom are largely governed by the Insolvency Act of 1986 and the Enterprise Act of 2002. Most bankruptcies last less than 12 months.

The People’s Republic of China

The People’s Republic of China (PRC) passed their first bankruptcy laws in 1986, the Enterprise Bankruptcy Law. The law applied only to state owned enterprises, was inadequate in some cases, and was not in line with China’s new market centered economy. In June of 2007, the PRC passed a new version of the Enterprise Bankruptcy Law bringing it more in line with China’s market goals and bankruptcy laws around the world, but the new code still does not apply to individuals. Hong Kong and Macau have their own bankruptcy laws.

India

Individual bankruptcy laws have been in existence in India since 1874. Their current bankruptcy law, the Provincial Insolvency Act, was enacted in 1920.

Business bankruptcy laws in India have been evolving for years and have been contested within the Indian legal system in great regularity through the jurisdiction of their court system. Restructuring has usually been undertaken at the behest of The Board of Industrial and Financial Reconstruction using receivership by a Public Finance Institution.

Bankruptcy Laws Worldwide

Although most all bankruptcy laws around the world deal with insolvency, they can greatly vary in legal content, applications, and jurisdictions. Only a few places around the world do not have some type of bankruptcy laws in place today, but many are still inadequate, vague or not in line with world markets.

If you live in the United States or one of its territories, the best way to proceed when you are bankrupt, in financial trouble, and do not understand bankruptcy laws, is to seek out professional legal help.

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A Recent Personal Bankruptcy Story

This recent personal bankruptcy statement was made on a bankruptcy website this past week: “I filed Chapter 7 and it went through and was discharged in May 2010. It took [my home mortgage company] forever to get the property back and they finally took the property back in May 2011. Today, I go to my mail box and I have a 1099A tax form. I didn’t think I would get this, since the property was included in a chapter 7 bankruptcy.”

Chapter 7 in Relationship to a Foreclosure

A Chapter 7 bankruptcy involves liquidating non-exempt assets to pay off unsecured debts. A home is not considered a part of the liquidation if it is exempted under the homestead exemption in bankruptcy or if the equity in the home is not enough for the bankruptcy trustee to justify selling it.

Foreclosure Results in 1099A Form

In the illustrated case above, the debtor who filed the Chapter 7, defaulted on the home loan and did not reaffirm it during the bankruptcy process. The foreclosure by the mortgage company was completed as of May of last year. The mortgage lender has sent the debtor a 1099A form because IRS tax laws require the mortgage lender to send the form to any homeowner abandoning their home and after the foreclosure process has completed .

The Reasons for Sending a 1099A Form

The 1099A form is sent because you may have had reportable income or loss when you acquired and then abandoned the property. A gain or loss due to your acquiring the property is measured by the difference between the adjusted basis of the property and the amount of your debt canceled in exchange for the property or the sale proceeds, if greater.

If you have abandoned the property, there is the possibility you might have income from the discharge of indebtedness. This comes about through the unpaid balance of your canceled debt.

IRS Tax Consequences of Receiving a 1099A Form

IRS tax consequences will depend on whether or not you are liable for the debt. If you are reliable for the debt, the loan is a recourse loan, but if you are not liable for the debt, the loan is considered to be a non-recourse loan.

If you have a loss on the acquisition of the property after abandoning, you cannot use the losses as a tax write off. But, if you have a gain on the property, the gain may or may not be considered taxable income, depending on whether or not the property is your primary residence.

Property in this case means any real property, any intangible property, and tangible personal property that is held for investment or used in a trade or business.

The 1099A Form and Relationship to other 1099 Forms

A 1099A form is not to be confused with other 1099 forms which involve personal income from a other sources outside of employment from an employer. If you have a co-signer on the debt for the property, each one of you should get a 1099A form.

Relationship Between Chapter 7 and 1099A Form

Filing a Chapter 7 should not influence whether you get a 1099A form. The form will come when the house is foreclosed on and abandonment occurs, regardless of whether or not you file a Chapter 7.

Related articles

• Bankruptcy and the Mortgage Forgiveness Debt Relief Act of 2007 (betterbankruptcy.com)
• Chapter 7 Questions and Potential Answers (betterbankruptcy.com)
• Bankruptcy & IRS Tax: Types, Requirements, & Discharging (backtaxeshelp.com)
• How Soon After a Foreclosure and Bankruptcy Can You Buy Another House? (betterbankruptcy.com)

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Leigh Steinberg has recently come forward in the news media to set the record strait about his financial affairs and personal life. Steinberg is known as the agent whom represented famous athletes and inspired the movie, Jerry McGuire.

In a self written article posted online in ThePostGame of Yahoo Sports, Steinberg wrote, “The public interest in my financial affairs and the inaccurate descriptions of my situation have led me to write this column: Today I have filed for Chapter 7, personal bankruptcy.”

A Chapter 7 is a type of bankruptcy that is the simplest and easiest type to complete. Commonly called liquidation, a Chapter 7 enables a person who has more debt than income to overcome some of the debts through discharge of their non-exempt debts.

You might think a man like Steinberg who has represented some of the most famous names in football would not even be eligible to file a Chapter 7, let alone go completely bankrupt.

In order to file a Chapter 7, you have to either make less than the median family income for similar size families in your area or pass the Means Test. Since most Chapter 7 applicants do not have any assets to liquidate, Steinberg’s lifestyle and bankruptcy become particularly interesting to those who work in the bankruptcy industry.

What is interesting is Steinberg’s explanation of why he is filing a Chapter 7. He stated in the article, “I delayed taking this step for a number of years because of my moral and legal obligation to people who advanced me funds or performed services in good faith. But the constant and aggressive collection efforts and press initiatives undertaken by creditors have harassed my family and prevented me from working to be able to pay these debts. Prospective clients have been pushed away after receiving notice of my debts. It doesn’t seem logical to prevent a person who owes you money from working in their chosen field by attempting to ruin his reputation, but that is what has happened. I have lived with this in recent years, and it is time to follow a more constructive path.”

Steinberg admits in the article to another cause for his financial demise, alcoholism. He stated that his addictive behavior contributed to his voluntarily placing his finances and business aside until he was able to overcome his problem.

Like you, famous people handle their problems similarly. Steinberg allowed an addiction to influence his financial decisions, and when he got into financial difficulty with his creditors, he is doing what you might do in his situation. He is filing for Chapter 7 bankruptcy protection, if for no other reason than to take advantage of the automatic stay of the bankruptcy court. The automatic stay will stop the aggressive collections and harassment from the collection agencies.

In addition, just like you, he most likely needs a fresh new start, “a more constructive path” he called it. He not only needs a fresh new start financially, but from his alcoholism as well.

If you need a fresh new start with your financial situation, contact a bankruptcy lawyer today.

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A Recent Bankruptcy News Story

According to recent news sources, Eastman Kodak filed for bankruptcy protection last week. By filing, Kodak is seeking to increase its cash position in order to stay in business. In anticipation of filing the Chapter 11, Kodak borrowed $950 million from Citigroup this past Thursday to pay for operations during its reorganization plan. Bankruptcy came after numerous failures by Kodak within the digital photography industry, and because the company failed to sell its 1100 digital imaging patents purportedly valued in the billions of dollars. Kodak earlier stated if they could not sell the patents the company stood a real chance of running out of cash within a year.

Chapter 11 Defined

A Chapter 11 is a type of bankruptcy used to protect assets of a business, whether run as a sole proprietorship, partnership, or corporation. A Chapter 11 under the Bankruptcy Code permits an insolvent business to make a reorganization plan in order to become solvent again.

In most Chapter 11 cases, the debtor stays in control of the business operations as the debtor in possession, but the debtor is still subject to the oversight and jurisdiction of the bankruptcy court.

Like a Chapter 7 the assets in this type of bankruptcy can be liquidated, but the proceeds will be used to improve the solvency of the overall state of business. Like a Chapter 13 bankruptcy, the reorganization plan can be designed over a specific time span, but unlike a Chapter 13 where the debtor is the only one to propose a plan, a creditor or any interested party may propose a plan after 120 days have passed where the debtor has not proposed an approved plan.

The Confirmation Hearing

The confirmation hearing on a Chapter 11 reorganization plan is held and the bankruptcy court judge must approve the plan along with all of the creditors. If one class of creditors does not approve the plan, the plan may still be confirmed if the requirements of cram down are met. To be confirmed over the objection of a class of creditors, the plan cannot discriminate against that class of creditors and must be found fair and equitable to that particular class.

After the plan is confirmed, it identifies how debts are to be treated, how the operations of the business will be affected, and the duration of the plan.

Other Considerations Specific to a Chapter 11

• If the debts of the business exceed its assets, the rights of the owners are immediately ended and the ownership of the newly reorganized company is transferred to the creditors.
• The business filing a Chapter 11 is effectively operating under the protection of the court until it emerges. The court has great leeway in seeing to it that a company emerges solvent. The court can often forestall the rights of the creditors to ensure the company emerges.
• If a company filing a Chapter 11 publicly trades their stock, filing generally causes the stock to be delisted from its primary stock exchange, but many of the companies are successful at trading their stock in over the counter markets. Most Chapter 11 plans, when confirmed, tend to render the stock valueless.

Eastman Kodak stock closed on the market today with a price of $.533. Kodak was trading at almost $45 in July of 2003.

Related articles

• Bankruptcy Basics: Six Basic Types of Bankruptcies (betterbankruptcy.com)
• Discharge of Debt in Bankruptcy? (betterbankruptcy.com)