BankruptcyBASICS

Administrative Officeof the United States Courts

BankruptcyBASICS

Bankruptcy Judges Division

Administrative Officeof the United States Courts

November 2011Revised Third Edition

While the information presented is accurate as of the date of publication, it should not be citedor relied upon as legal authority. It should not be used as a substitute for reference to theUnited States Bankruptcy Code (title 11, United States Code) and the Federal Rules ofBankruptcy Procedure, both of which may be reviewed at local law libraries, or to local rules ofpractice adopted by each bankruptcy court. Finally, this publication should not substitute forthe advice of competent legal counsel.

Table ofCONTENTS

Introduction 5

The Discharge in Bankruptcy 9

Chapter 7. Liquidation Under the Bankruptcy Code 14

Chapter 13. Individual Debt Adjustment 22

Chapter 11. Reorganization Under the Bankruptcy Code 29

Chapter 12. Family Farmer or Family Fisherman Bankruptcy 43

Chapter 9. Municipality Bankruptcy 49

Chapter 15. Ancillary and Other Cross-Border Cases 57

SCRA. Servicemembers Civil Relief Act 60

SIPA. Securities Investor Protection Act 64

Bankruptcy Terminology 71

Bankruptcy BasicsA Publication ofthe Bankruptcy Judges Division

Introduction

Bankruptcy Basics is designed to providebasic information to debtors, creditors, courtpersonnel, the media, and the general publicon different aspects of the federal bankruptcylaws. It also provides individuals who may beconsidering bankruptcy with a basicexplanation of the different chapters underwhich a bankruptcy case may be filed and toanswer some of the most commonly askedquestions about the bankruptcy process.

Bankruptcy Basics provides generalinformation only. While every effort has beenmade to ensure that the information containedin it is accurate as of the date of publication, itis not a full and authoritative statement of thelaw on any particular topic. The informationpresented in this publication should not becited or relied upon as legal authority andshould not be used as a substitute forreference to the United States BankruptcyCode (title 11, United States Code) and theFederal Rules of Bankruptcy Procedure.

Most importantly, Bankruptcy Basics shouldnot substitute for the advice of competentlegal counsel or a financial expert. Neither theBankruptcy Judges Division nor theAdministrative Office of the United StatesCourts can provide legal or financial advice.Such advice may be obtained from acompetent attorney, accountant, or financialadviser.

The Process

Article I, Section 8, of the United StatesConstitution authorizes Congress to enactuniform Laws on the subject ofBankruptcies. Under this grant of authority,Congress enacted the Bankruptcy Code in1978. The Bankruptcy Code, which iscodified as title 11 of the United States Code,has been amended several times since itsenactment. It is the uniform federal law thatgoverns all bankruptcy cases.

The procedural aspects of the bankruptcyprocess are governed by the Federal Rules ofBankruptcy Procedure (often called theBankruptcy Rules) and local rules of eachbankruptcy court. The Bankruptcy Rulescontain a set of official forms for use inbankruptcy cases. The Bankruptcy Code andBankruptcy Rules (and local rules) set forththe formal legal procedures for dealing withthe debt problems of individuals andbusinesses.

There is a bankruptcy court for each judicialdistrict in the country. Each state has one ormore districts. There are 90 bankruptcydistricts across the country. The bankruptcycourts generally have their own clerksoffices.

The court official with decision-makingpower over federal bankruptcy cases is theUnited States bankruptcy judge, a judicialofficer of the United States district court. Thebankruptcy judge may decide any matterconnected with a bankruptcy case, such as

6eligibility to file or whether a debtor shouldreceive a discharge of debts. Much of thebankruptcy process is administrative,however, and is conducted away from thecourthouse. In cases under chapters 7, 12, or13, and sometimes in chapter 11 cases, thisadministrative process is carried out by atrustee who is appointed to oversee the case.

A debtors involvement with the bankruptcyjudge is usually very limited. A typicalchapter 7 debtor will not appear in court andwill not see the bankruptcy judge unless anobjection is raised in the case. A chapter 13debtor may only have to appear before thebankruptcy judge at a plan confirmationhearing. Usually, the only formal proceedingat which a debtor must appear is the meetingof creditors, which is usually held at theoffices of the U.S. trustee. This meeting isinformally called a 341 meeting becausesection 341 of the Bankruptcy Code requiresthat the debtor attend this meeting so thatcreditors can question the debtor about debtsand property.

A fundamental goal of the federal bankruptcylaws enacted by Congress is to give debtors afinancial fresh start from burdensome debts.The Supreme Court made this point about thepurpose of the bankruptcy law in a 1934decision:

[I]t gives to the honest but unfortunatedebtora new opportunity in life and a clearfield for future effort, unhampered by thepressure and discouragement of preexistingdebt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244(1934). This goal is accomplished through thebankruptcy discharge, which releases debtorsfrom personal liability from specific debts and

prohibits creditors from ever taking any actionagainst the debtor to collect those debts. Thispublication describes the bankruptcydischarge in a question and answer format,discussing the timing of the discharge, thescope of the discharge (what debts aredischarged and what debts are notdischarged), objections to discharge, andrevocation of the discharge. It also describeswhat a debtor can do if a creditor attempts tocollect a discharged debt after the bankruptcycase is concluded.

Six basic types of bankruptcy cases areprovided for under the Bankruptcy Code, eachof which is discussed in this publication. Thecases are traditionally given the names of thechapters that describe them.

Chapter 7, entitled Liquidation, contemplatesan orderly, court-supervised procedure bywhich a trustee takes over the assets of thedebtors estate, reduces them to cash, andmakes distributions to creditors, subject to thedebtors right to retain certain exemptproperty and the rights of secured creditors.Because there is usually little or nononexempt property in most chapter 7 cases,there may not be an actual liquidation of thedebtors assets. These cases are calledno-asset cases. A creditor holding anunsecured claim will get a distribution fromthe bankruptcy estate only if the case is anasset case and the creditor files a proof ofclaim with the bankruptcy court. In mostchapter 7 cases, if the debtor is an individual,he or she receives a discharge that releaseshim or her from personal liability for certaindischargeable debts. The debtor normallyreceives a discharge just a few months afterthe petition is filed. Amendments to theBankruptcy Code enacted in to theBankruptcy Abuse Prevention and Consumer

7Protection Act of 2005 require the applicationof a means test to determine whetherindividual consumer debtors qualify for reliefunder chapter 7. If such a debtors income isin excess of certain thresholds, the debtor maynot be eligible for chapter 7 relief.

Chapter 13, entitled Adjustment of Debts ofan Individual With Regular Income, isdesigned for an individual debtor who has aregular source of income. Chapter 13 is oftenpreferable to chapter 7 because it enables thedebtor to keep a valuable asset, such as ahouse, and because it allows the debtor topropose a plan to repay creditors over time usually three to five years. Chapter 13 isalso used by consumer debtors who do notqualify for chapter 7 relief under the meanstest. At a confirmation hearing, the courteither approves or disapproves the debtorsrepayment plan, depending on whether itmeets the Bankruptcy Codes requirements forconfirmation. Chapter 13 is very differentfrom chapter 7 since the chapter 13 debtorusually remains in possession of the propertyof the estate and makes payments to creditors,through the trustee, based on the debtorsanticipated income over the life of the plan.Unlike chapter 7, the debtor does not receivean immediate discharge of debts. The debtormust complete the payments required underthe plan before the discharge is received. Thedebtor is protected from lawsuits,garnishments, and other creditor actions whilethe plan is in effect. The discharge is alsosomewhat broader (i.e., more debts areeliminated) under chapter 13 than thedischarge under chapter 7.

Chapter 11, entitled Reorganization,ordinarily is used by commercial enterprisesthat desire to continue operating a businessand repay creditors concurrently through a

court-approved plan of reorganization. Thechapter 11 debtor usually has the exclusiveright to file a plan of reorganization for thefirst 120 days after it files the case and mustprovide creditors with a disclosure statementcontaining information adequate to enablecreditors to evaluate the plan. The courtultimately approves (confirms) or disapprovesthe plan of reorganization. Under theconfirmed plan, the debtor can reduce itsdebts by repaying a portion of its obligationsand discharging others. The debtor can alsoterminate burdensome contracts and leases,recover assets, and rescale its operations inorder to return to profitability. Under chapter11, the debtor normally goes through a periodof consolidation and emerges with a reduceddebt load and a reorganized business.

Chapter 12, entitled Adjustment of Debts of aFamily Farmer or Fisherman with RegularAnnual Income, provides debt relief to familyfarmers and fishermen with regular income.The process under chapter 12 is very similarto that of chapter 13, under which the debtorproposes a plan to repay debts over a periodof time no more than three years unless thecourt approves a longer period, not exceedingfive years. There is also a trustee in everychapter 12 case whose duties are very similarto those of a chapter 13 trustee. The chapter12 trustees disbursement of payments tocreditors under a confirmed plan parallels theprocedure under chapter 13. Chapter 12allows a family farmer or fisherman tocontinue to operate the business while theplan is being carried out.

Chapter 9, entitled Adjustment of Debts of aMunicipality, provides essentially forreorganization, much like a reorganizationunder chapter 11. Only a municipality mayfile under chapter 9, which includes cities and

8towns, as well as villages, counties, taxingdistricts, municipal utilities, and schooldistricts.

The purpose of Chapter 15, entitled Ancillaryand Other Cross-Border Cases, is to providean effective mechanism for dealing with casesof cross-border insolvency. This publicationdiscusses the applicability of Chapter 15where a debtor or its property is subject to thelaws of the United States and one or moreforeign countries.

In addition to the basic types of bankruptcycases, Bankruptcy Basics provides anoverview of the Servicemembers Civil ReliefAct, which, among other things, providesprotection to members of the military againstthe entry of default judgments and gives thecourt the ability to stay proceedings againstmilitary debtors.

This publication also contains a description ofliquidation proceedings under the SecuritiesInvestor Protection Act (SIPA). Althoughthe Bankruptcy Code provides for astockbroker liquidation proceeding, it is farmore likely that a failing brokerage firm willfind itself involved in a SIPA proceeding. Thepurpose of SIPA is to return to investorssecurities and cash left with failed brokerages.Since being established by Congress in 1970,the Securities Investor Protection Corporationhas protected investors who deposit stocksand bonds with brokerage firms by ensuringthat every customers property is protected, upto $500,000 per customer.

The bankruptcy process is complex and relieson legal concepts like the automatic stay,discharge, exemptions, and assume.Therefore, the final chapter of this publication is a glossary of Bankruptcy Terminology

which explains, in laymans terms, most of thelegal concepts that apply in cases filed underthe Bankruptcy Code.

9The Discharge inBankruptcy The bankruptcy discharge varies dependingon the type of case a debtor files: chapter 7,11, 12, or 13. Bankruptcy Basics attempts toanswer some basic questions about thedischarge available to individual debtorsunder all four chapters including:

1. What is a discharge in bankruptcy?

2. When does the discharge occur?

3. How does the debtor get a discharge?

4. Are all the debtors debts discharged oronly some?

5. Does the debtor have a right to a dischargeor can creditors object to the discharge?

6. Can the debtor receive a second dischargein a later case?

7. Can the discharge be revoked?

8. May the debtor pay a discharged debt afterthe bankruptcy case has been concluded?

9. What can the debtor do if a creditorattempts to collect a discharged debt after thecase is concluded?

10. May an employer terminate a debtorsemployment solely because the person was adebtor or failed to repay a discharged debt?

WHAT IS A DISCHARGE IN BANKRUPTCY?

A bankruptcy discharge releases the debtorfrom personal liability for certain specifiedtypes of debts. In other words, the debtor is nolonger legally required to pay any debts thatare discharged. The discharge is a permanentorder prohibiting the creditors of the debtorfrom taking any form of collection action ondischarged debts, including legal action andcommunications with the debtor, such astelephone calls, letters, and personal contacts. Although a debtor is not personally liable fordischarged debts, a valid lien (i.e., a chargeupon specific property to secure payment of adebt) that has not been avoided (i.e., madeunenforceable) in the bankruptcy case willremain after the bankruptcy case. Therefore,a secured creditor may enforce the lien torecover the property secured by the lien.

WHEN DOES THE DISCHARGEOCCUR?

The timing of the discharge varies, dependingon the chapter under which the case is filed. Ina chapter 7 (liquidation) case, for example, thecourt usually grants the discharge promptly onexpiration of the time fixed for filing acomplaint objecting to discharge and the timefixed for filing a motion to dismiss the casefor substantial abuse (60 days following thefirst date set for the 341 meeting). Typically,this occurs about four months after the datethe debtor files the petition with the clerk ofthe bankruptcy court. In individual chapter 11cases, and in cases under chapter 12(adjustment of debts of a family farmer orfisherman) and 13 (adjustment of debts of anindividual with regular income), the courtgenerally grants the discharge as soon as

10practicable after the debtor completes allpayments under the plan. Since a chapter 12or chapter 13 plan may provide for paymentsto be made over three to five years, thedischarge typically occurs about four yearsafter the date of filing. The court may deny anindividual debtors discharge in a chapter 7 or13 case if the debtor fails to complete aninstructional course concerning financialmanagement. The Bankruptcy Code provideslimited exceptions to the financialmanagement requirement if the U.S. trusteeor bankruptcy administrator determines thereare inadequate educational programsavailable, or if the debtor is disabled orincapacitated or on active military duty in acombat zone.

HOW DOES THE DEBTOR GET ADISCHARGE?

Unless there is litigation involving objectionsto the discharge, the debtor will usuallyautomatically receive a discharge. The FederalRules of Bankruptcy Procedure provide forthe clerk of the bankruptcy court to mail acopy of the order of discharge to all creditors,the U.S. trustee, the trustee in the case, andthe trustees attorney, if any. The debtor andthe debtors attorney also receive copies of thedischarge order. The notice, which is simplya copy of the final order of discharge, is notspecific as to those debts determined by thecourt to be non-dischargeable, i.e., notcovered by the discharge. The notice informscreditors generally that the debts owed tothem have been discharged and that theyshould not attempt any further collection.They are cautioned in the notice thatcontinuing collection efforts could subjectthem to punishment for contempt. Anyinadvertent failure on the part of the clerk tosend the debtor or any creditor a copy of the

discharge order promptly within the timerequired by the rules does not affect thevalidity of the order granting the discharge.

ARE ALL OF THE DEBTORS DEBTSDISCHARGED OR ONLY SOME?

Not all debts are discharged. The debtsdischarged vary under each chapter of theBankruptcy Code. Section 523(a) of the Codespecifically excepts various categories ofdebts from the discharge granted to individualdebtors. Therefore, the debtor must still repaythose debts after bankruptcy. Congress hasdetermined that these types of debts are notdischargeable for public policy reasons (basedeither on the nature of the debt or the fact thatthe debts were incurred due to improperbehavior of the debtor, such as the debtorsdrunken driving).

There are 19 categories of debt excepted fromdischarge under chapters 7, 11, and 12. Amore limited list of exceptions applies tocases under chapter 13.

Generally speaking, the exceptions todischarge apply automatically if the languageprescribed by section 523(a) applies. Themost common types of nondischargeabledebts are certain types of tax claims, debts notset forth by the debtor on the lists andschedules the debtor must file with the court,debts for spousal or child support or alimony,debts for willful and malicious injuries toperson or property, debts to governmentalunits for fines and penalties, debts for mostgovernment funded or guaranteed educationalloans or benefit overpayments, debts forpersonal injury caused by the debtorsoperation of a motor vehicle whileintoxicated, debts owed to certain tax-advantaged retirement plans, and debts for

11certain condominium or cooperative housingfees.

The types of debts described in sections523(a)(2), (4) and(6) (obligations affected byfraud or maliciousness) are not automaticallyexcepted from discharge. Creditors must askthe court to determine that these debts areexcepted from discharge. In the absence of anaffirmative request by the creditor and thegranting of the request by the court, the typesof debts set out in sections 523(a)(2), (4) and(6) will be discharged.

A slightly broader discharge of debts isavailable to a debtor in a chapter 13 case thanin a chapter 7 case. Debts dischargeable in achapter 13, but not in chapter 7, include debtsfor willful and malicious injury to property,debts incurred to pay non-dischargeable taxobligations, and debts arising from propertysettlements in divorce or separationproceedings. Although a chapter 13 debtorgenerally receives a discharge only aftercompleting all payments required by thecourt-approved (i.e., confirmed) repaymentplan, there are some limited circumstancesunder which the debtor may request the courtto grant a hardship discharge even thoughthe debtor has failed to complete planpayments. Such a discharge is available onlyto a debtor whose failure to complete planpayments is due to circumstances beyond thedebtors control. The scope of a chapter 13hardship discharge is similar to that in achapter 7 case with regard to the types ofdebts that are excepted from the discharge. Ahardship discharge also is available in chapter12 if the failure to complete plan payments isdue to circumstances for which the debtorshould not justly be held accountable.

DOES THE DEBTOR HAVE THE RIGHTTO A DISCHARGE OR CANCREDITORS OBJECT TO THEDISCHARGE?

In chapter 7 cases, the debtor does not have anabsolute right to a discharge. An objection tothe debtors discharge may be filed by acreditor, by the trustee in the case, or by theU.S. trustee. Creditors receive a notice shortlyafter the case is filed that sets forth muchimportant information, including the deadlinefor objecting to the discharge. To object to thedebtors discharge, a creditor must file acomplaint in the bankruptcy court before thedeadline set out in the notice. Filing acomplaint starts a lawsuit referred to inbankruptcy as an adversary proceeding.

The court may deny a chapter 7 discharge forany of the reasons described in section 727(a)of the Bankruptcy Code, including failure toprovide requested tax documents; failure tocomplete a course on personal financialmanagement; transfer or concealment ofproperty with intent to hinder, delay, ordefraud creditors; destruction or concealmentof books or records; perjury and otherfraudulent acts; failure to account for the lossof assets; violation of a court order or anearlier discharge in an earlier casecommenced within certain time frames(discussed below) before the date the petitionwas filed. If the issue of the debtors right toa discharge goes to trial, the objecting partyhas the burden of proving all the factsessential to the objection.

In chapter 12 and chapter 13 cases, the debtoris usually entitled to a discharge uponcompletion of all payments under the plan. As

12in chapter 7, however, discharge may notoccur in chapter 13 if the debtor fails tocomplete a required course on personalfinancial management. A debtor is alsoineligible for a discharge in chapter 13 if he orshe received a prior discharge in another casecommenced within time frames discussed thenext paragraph. Unlike chapter 7, creditors donot have standing to object to the discharge ofa chapter 12 or chapter 13 debtor. Creditorscan object to confirmation of the repaymentplan, but cannot object to the discharge if thedebtor has completed making plan payments.

CAN A DEBTOR RECEIVE A SECONDDISCHARGE IN A LATER CHAPTER 7CASE?

The court will deny a discharge in a laterchapter 7 case if the debtor received adischarge under chapter 7 or chapter 11 in acase filed within eight years before the secondpetition is filed. The court will also deny achapter 7 discharge if the debtor previouslyreceived a discharge in a chapter 12 or chapter13 case filed within six years before the dateof the filing of the second case unless (1) thedebtor paid all allowed unsecured claims inthe earlier case in full, or (2) the debtor madepayments under the plan in the earlier casetotaling at least 70 percent of the allowedunsecured claims and the debtors plan wasproposed in good faith and the paymentsrepresented the debtors best effort. A debtoris ineligible for discharge under chapter 13 ifhe or she received a prior discharge in achapter 7, 11, or 12 case filed four yearsbefore the current case or in a chapter 13 casefiled two years before the current case.

CAN THE DISCHARGE BE REVOKED?

The court may revoke a discharge undercertain circumstances. For example, a trustee,creditor, or the U.S. trustee may request thatthe court revoke the debtors discharge in achapter 7 case based on allegations that thedebtor: obtained the discharge fraudulently;failed to disclose the fact that he or sheacquired or became entitled to acquireproperty that would constitute property of thebankruptcy estate; committed one of severalacts of impropriety described in section727(a)(6) of the Bankruptcy Code; or failed toexplain any misstatements discovered in anaudit of the case or fails to provide documentsor information requested in an audit of thecase. Typically, a request to revoke thedebtors discharge must be filed within oneyear of the discharge or, in some cases, beforethe date that the case is closed. The court willdecide whether such allegations are true and,if so, whether to revoke the discharge.

In a chapter 11, 12 and 13 cases, ifconfirmation of a plan or the discharge isobtained through fraud, the court can revokethe order of confirmation or discharge.

MAY THE DEBTOR PAY ADISCHARGED DEBT AFTER THEBANKRUPTCY CASE HAS BEENCONCLUDED?

A debtor who has received a discharge mayvoluntarily repay any discharged debt. Adebtor may repay a discharged debt eventhough it can no longer be legally enforced.Sometimes a debtor agrees to repay a debtbecause it is owed to a family member orbecause it represents an obligation to anindividual for whom the debtors reputation isimportant, such as a family doctor.

13

WHAT CAN THE DEBTOR DO IF ACREDITOR ATTEMPTS TO COLLECTA DISCHARGED DEBT AFTER THECASE IS CONCLUDED?

If a creditor attempts collection efforts on adischarged debt, the debtor can file a motionwith the court, reporting the action and askingthat the case be reopened to address thematter. The bankruptcy court will often do soto ensure that the discharge is not violated.The discharge constitutes a permanentstatutory injunction prohibiting creditors fromtaking any action, including the filing of alawsuit, designed to collect a discharged debt.A creditor can be sanctioned by the court forviolating the discharge injunction. The normalsanction for violating the discharge injunctionis civil contempt, which is often punishable bya fine.

CAN AN EMPLOYER TERMINATE ADEBTORS EMPLOYMENT SOLELYBECAUSE THE PERSON WAS ADEBTOR OR FAILED TO PAY ADISCHARGED DEBT?

The law provides express prohibitions againstdiscriminatory treatment of debtors by bothgovernmental units and private employers. Agovernmental unit or private employer maynot discriminate against a person solelybecause the person was a debtor, wasinsolvent before or during the case, or has notpaid a debt that was discharged in the case.The law prohibits the following forms ofgovernmental discrimination: terminating anemployee; discriminating with respect tohiring; or denying, revoking, suspending, ordeclining to renew a license, franchise, or

similar privilege. A private employer may notdiscriminate with respect to employment if thediscrimination is based solely upon thebankruptcy filing.

14Chapter 7 Liquidation Under the BankruptcyCode

ALTERNATIVES TO CHAPTER 7

Debtors should be aware that there are severalalternatives to chapter 7 relief. For example,debtors who are engaged in business,including corporations, partnerships, and soleproprietorships, may prefer to remain inbusiness and avoid liquidation. Such debtorsshould consider filing a petition under chapter11 of the Bankruptcy Code. Under chapter 11,the debtor may seek an adjustment of debts,either by reducing the debt or by extendingthe time for repayment, or may seek a morecomprehensive reorganization. Soleproprietorships may also be eligible for reliefunder chapter 13 of the Bankruptcy Code.

In addition, individual debtors who haveregular income may seek an adjustment ofdebts under chapter 13 of the BankruptcyCode. A particular advantage of chapter 13 isthat it provides individual debtors with anopportunity to save their homes fromforeclosure by allowing them to catch uppast due payments through a payment plan.Moreover, the court may dismiss a chapter 7case filed by an individual whose debts areprimarily consumer rather than business debtsif the court finds that the granting of reliefwould be an abuse of chapter 7. 11 U.S.C. 707(b).

If the debtors current monthly income1 ismore than the state median, the BankruptcyCode requires application of a means test todetermine whether the chapter 7 filing ispresumptively abusive. Abuse is presumed if

the debtors aggregate current monthlyincome over 5 years, net of certain statutorilyallowed expenses, is more than (i) $11,725, or(ii) 25% of the debtors nonpriority unsecureddebt, as long as that amount is at least$7,025.2 The debtor may rebut a presumptionof abuse only by a showing of specialcircumstances that justify additional expensesor adjustments of current monthly income.Unless the debtor overcomes the presumptionof abuse, the case will generally be convertedto chapter 13 (with the debtors consent) orwill be dismissed. 11 U.S.C. 707(b)(1).

Debtors should also be aware that out-of-courtagreements with creditors or debt counselingservices may provide an alternative to abankruptcy filing.

BACKGROUND

A chapter 7 bankruptcy case does not involvethe filing of a plan of repayment as in chapter13. Instead, the bankruptcy trustee gathers andsells the debtors nonexempt assets and usesthe proceeds of such assets to pay holders ofclaims (creditors) in accordance with theprovisions of the Bankruptcy Code. Part of thedebtors property may be subject to liens andmortgages that pledge the property to othercreditors. In addition, the Bankruptcy Codewill allow the debtor to keep certain exemptproperty; but a trustee will liquidate thedebtors remaining assets. Accordingly,potential debtors should realize that the filingof a petition under chapter 7 may result in theloss of property.

CHAPTER 7 ELIGIBILITY

To qualify for relief under chapter 7 of theBankruptcy Code, the debtor may be an

15individual, a partnership, or a corporation orother business entity. 11 U.S.C. 101(41), 109(b). Subject to the means testdescribed above for individual debtors, reliefis available under chapter 7 irrespective of theamount of the debtors debts or whether thedebtor is solvent or insolvent. An individualcannot file under chapter 7 or any otherchapter, however, if during the preceding 180days a prior bankruptcy petition wasdismissed due to the debtors willful failure toappear before the court or comply with ordersof the court, or the debtor voluntarilydismissed the previous case after creditorssought relief from the bankruptcy court torecover property upon which they hold liens.11 U.S.C. 109(g), 362(d) and (e). Inaddition, no individual may be a debtor underchapter 7 or any chapter of the BankruptcyCode unless he or she has, within 180 daysbefore filing, received credit counseling froman approved credit counseling agency either inan individual or group briefing. 11 U.S.C. 109, 111. There are exceptions in emergencysituations or where the U.S. trustee (orbankruptcy administrator) has determined thatthere are insufficient approved agencies toprovide the required counseling. If a debtmanagement plan is developed duringrequired credit counseling, it must be filedwith the court.

One of the primary purposes of bankruptcy isto discharge certain debts to give an honestindividual debtor a fresh start. The debtorhas no liability for discharged debts. In achapter 7 case, however, a discharge is onlyavailable to individual debtors, not topartnerships or corporations. 11 U.S.C. 727(a)(1). Although an individual chapter 7case usually results in a discharge of debts,the right to a discharge is not absolute, andsome types of debts are not discharged.

Moreover, a bankruptcy discharge does notextinguish a lien on property.

HOW CHAPTER 7 WORKS

A chapter 7 case begins with the debtor filinga petition with the bankruptcy court servingthe area where the individual lives or wherethe business debtor is organized or has itsprincipal place of business or principal assets.3In addition to the petition, the debtor mustalso file with the court: (1) schedules of assetsand liabilities; (2) a schedule of currentincome and expenditures; (3) a statement offinancial affairs; and (4) a schedule ofexecutory contracts and unexpired leases. Fed.R. Bankr. P. 1007(b). Debtors must alsoprovide the assigned case trustee with a copyof the tax return or transcripts for the mostrecent tax year as well as tax returns filedduring the case (including tax returns for prioryears that had not been filed when the casebegan). 11 U.S.C. 521. Individual debtorswith primarily consumer debts have additionaldocument filing requirements. They must file:a certificate of credit counseling and a copy ofany debt repayment plan developed throughcredit counseling; evidence of payment fromemployers, if any, received 60 days beforefiling; a statement of monthly net income andany anticipated increase in income orexpenses after filing; and a record of anyinterest the debtor has in federal or statequalified education or tuition accounts. Id. Ahusband and wife may file a joint petition orindividual petitions. 11 U.S.C. 302(a). Evenif filing jointly, a husband and wife aresubject to all the document filing requirementsof individual debtors. (The Official Formsmay be purchased at legal stationery stores ordownloaded from the internet athttp://www.uscourts.gov/bkforms/index.html.They are not available from the court.)

16The courts must charge a $245 case filing fee,a $46 miscellaneous administrative fee, and a$15 trustee surcharge. Normally, the fees mustbe paid to the clerk of the court upon filing.With the courts permission, however,individual debtors may pay in installments. 28U.S.C. 1930(a); Fed. R. Bankr. P. 1006(b);Bankruptcy Court Miscellaneous FeeSchedule, Item 8. The number of installmentsis limited to four, and the debtor must makethe final installment no later than 120 daysafter filing the petition. Fed. R. Bankr. P.1006. For cause shown, the court may extendthe time of any installment, provided that thelast installment is paid not later than 180 daysafter filing the petition. Id. The debtor mayalso pay the $46 administrative fee and the$15 trustee surcharge in installments. If a jointpetition is filed, only one filing fee, oneadministrative fee, and one trustee surchargeare charged. Debtors should be aware thatfailure to pay these fees may result indismissal of the case. 11 U.S.C. 707(a).

If the debtors income is less than 150% of thepoverty level (as defined in the BankruptcyCode), and the debtor is unable to pay thechapter 7 fees even in installments, the courtmay waive the requirement that the fees bepaid. 28 U.S.C. 1930(f).

In order to complete the Official BankruptcyForms that make up the petition, statement offinancial affairs, and schedules, the debtormust provide the following information:

1. A list of all creditors and the amount andnature of their claims;

2. The source, amount, and frequency of thedebtors income;

3. A list of all of the debtors property; and

4. A detailed list of the debtors monthlyliving expenses, i.e., food, clothing, shelter,utilities, taxes, transportation, medicine, etc.

Married individuals must gather thisinformation for their spouse regardless ofwhether they are filing a joint petition,separate individual petitions, or even if onlyone spouse is filing. In a situation where onlyone spouse files, the income and expenses ofthe non-filing spouse is required so that thecourt, the trustee and creditors can evaluatethe households financial position.

Among the schedules that an individual debtorwill file is a schedule of exempt property.The Bankruptcy Code allows an individualdebtor4 to protect some property from theclaims of creditors because it is exempt underfederal bankruptcy law or under the laws ofthe debtors home state. 11 U.S.C. 522(b).Many states have taken advantage of aprovision in the Bankruptcy Code that permitseach state to adopt its own exemption law inplace of the federal exemptions. In otherjurisdictions, the individual debtor has theoption of choosing between a federal packageof exemptions or the exemptions availableunder state law. Thus, whether certainproperty is exempt and may be kept by thedebtor is often a question of state law. Thedebtor should consult an attorney to determinethe exemptions available in the state wherethe debtor lives.

Filing a petition under chapter 7automatically stays (stops) most collectionactions against the debtor or the debtorsproperty. 11 U.S.C. 362. But filing thepetition does not stay certain types of actionslisted under 11 U.S.C. 362(b), and the staymay be effective only for a short time in somesituations. The stay arises by operation of law

17and requires no judicial action. As long as thestay is in effect, creditors generally may notinitiate or continue lawsuits, wagegarnishments, or even telephone callsdemanding payments. The bankruptcy clerkgives notice of the bankruptcy case to allcreditors whose names and addresses areprovided by the debtor.

Between 21 and 40 days after the petition isfiled, the case trustee (described below) willhold a meeting of creditors. If the U.S. trusteeor bankruptcy administrator5 schedules themeeting at a place that does not have regularU.S. trustee or bankruptcy administratorstaffing, the meeting may be held no morethan 60 days after the order for relief. Fed. R.Bankr. P. 2003(a). During this meeting, thetrustee puts the debtor under oath, and boththe trustee and creditors may ask questions.The debtor must attend the meeting andanswer questions regarding the debtorsfinancial affairs and property. 11 U.S.C. 343. If a husband and wife have filed a jointpetition, they both must attend the creditorsmeeting and answer questions. Within 14 daysof the creditors meeting, the U.S. trustee willreport to the court whether the case should bepresumed to be an abuse under the means testdescribed in 11 U.S.C. 704(b).

It is important for the debtor to cooperate withthe trustee and to provide any financialrecords or documents that the trustee requests.The Bankruptcy Code requires the trustee toask the debtor questions at the meeting ofcreditors to ensure that the debtor is aware ofthe potential consequences of seeking adischarge in bankruptcy such as the effect oncredit history, the ability to file a petitionunder a different chapter, the effect ofreceiving a discharge, and the effect ofreaffirming a debt. Some trustees provide

written information on these topics at orbefore the meeting to ensure that the debtor isaware of this information. In order to preservetheir independent judgment, bankruptcyjudges are prohibited from attending themeeting of creditors. 11 U.S.C. 341(c).

In order to accord the debtor complete relief,the Bankruptcy Code allows the debtor toconvert a chapter 7 case to case under chapter11, 12 or 136 as long as the debtor is eligibleto be a debtor under the new chapter.However, a condition of the debtorsvoluntary conversion is that the case has notpreviously been converted to chapter 7 fromanother chapter. 11 U.S.C. 706(a). Thus, thedebtor will not be permitted to convert thecase repeatedly from one chapter to another.

ROLE OF THE CASE TRUSTEE

When a chapter 7 petition is filed, the U.S.trustee (or the bankruptcy court in Alabamaand North Carolina) appoints an impartialcase trustee to administer the case andliquidate the debtors nonexempt assets. 11U.S.C. 701, 704. If all the debtors assetsare exempt or subject to valid liens, the trusteewill normally file a no asset report with thecourt, and there will be no distribution tounsecured creditors. Most chapter 7 casesinvolving individual debtors are no assetcases. But if the case appears to be an assetcase at the outset, unsecured creditors7 mustfile their claims with the court within 90 daysafter the first date set for the meeting ofcreditors. Fed. R. Bankr. P. 3002(c). Agovernmental unit, however, has 180 daysfrom the date the case is filed to file a claim.11 U.S.C. 502(b)(9). In the typical no assetchapter 7 case, there is no need for creditors tofile proofs of claim because there will be nodistribution. If the trustee later recovers assets

18for distribution to unsecured creditors, theBankruptcy Court will provide notice tocreditors and will allow additional time to fileproofs of claim. Although a secured creditordoes not need to file a proof of claim in achapter 7 case to preserve its security interestor lien, there may be other reasons to file aclaim. A creditor in a chapter 7 case who hasa lien on the debtors property should consultan attorney for advice.

Commencement of a bankruptcy case createsan estate. The estate technically becomesthe temporary legal owner of all the debtorsproperty. It consists of all legal or equitableinterests of the debtor in property as of thecommencement of the case, includingproperty owned or held by another person ifthe debtor has an interest in the property.Generally speaking, the debtors creditors arepaid from nonexempt property of the estate.

The primary role of a chapter 7 trustee in anasset case is to liquidate the debtorsnonexempt assets in a manner that maximizesthe return to the debtors unsecured creditors.The trustee accomplishes this by selling thedebtors property if it is free and clear of liens(as long as the property is not exempt) or if itis worth more than any security interest or lienattached to the property and any exemptionthat the debtor holds in the property. Thetrustee may also attempt to recover money orproperty under the trustees avoidingpowers. The trustees avoiding powersinclude the power to: set aside preferentialtransfers made to creditors within 90 daysbefore the petition; undo security interests andother prepetition transfers of property thatwere not properly perfected undernonbankruptcy law at the time of the petition;and pursue nonbankruptcy claims such asfraudulent conveyance and bulk transfer

remedies available under state law. Inaddition, if the debtor is a business, thebankruptcy court may authorize the trustee tooperate the business for a limited period oftime, if such operation will benefit creditorsand enhance the liquidation of the estate. 11U.S.C. 721.

Section 726 of the Bankruptcy Code governsthe distribution of the property of the estate.Under 726, there are six classes of claims;and each class must be paid in full before thenext lower class is paid anything. The debtoris only paid if all other classes of claims havebeen paid in full. Accordingly, the debtor isnot particularly interested in the trusteesdisposition of the estate assets, except withrespect to the payment of those debts whichfor some reason are not dischargeable in thebankruptcy case. The individual debtorsprimary concerns in a chapter 7 case are toretain exempt property and to receive adischarge that covers as many debts aspossible.

THE CHAPTER 7 DISCHARGE

A discharge releases individual debtors frompersonal liability for most debts and preventsthe creditors owed those debts from takingany collection actions against the debtor.Because a chapter 7 discharge is subject tomany exceptions, though, debtors shouldconsult competent legal counsel before filingto discuss the scope of the discharge.Generally, excluding cases that are dismissedor converted, individual debtors receive adischarge in more than 99 percent of chapter7 cases. In most cases, unless a party ininterest files a complaint objecting to thedischarge or a motion to extend the time toobject, the bankruptcy court will issue adischarge order relatively early in the case

19generally, 60 to 90 days after the date first setfor the meeting of creditors. Fed. R. Bankr. P.4004(c).

The grounds for denying an individual debtora discharge in a chapter 7 case are narrow andare construed against the moving party.Among other reasons, the court may deny thedebtor a discharge if it finds that the debtor:failed to keep or produce adequate books orfinancial records; failed to explainsatisfactorily any loss of assets; committed abankruptcy crime such as perjury; failed toobey a lawful order of the bankruptcy court;fraudulently transferred, concealed, ordestroyed property that would have becomeproperty of the estate; or failed to complete anapproved instructional course concerningfinancial management. 11 U.S.C. 727; Fed.R. Bankr. P. 4005.

Secured creditors may retain some rights toseize property securing an underlying debteven after a discharge is granted. Dependingon individual circumstances, if a debtorwishes to keep certain secured property (suchas an automobile), he or she may decide toreaffirm the debt. A reaffirmation is anagreement between the debtor and the creditorthat the debtor will remain liable and will payall or a portion of the money owed, eventhough the debt would otherwise bedischarged in the bankruptcy. In return, thecreditor promises that it will not repossess ortake back the automobile or other property solong as the debtor continues to pay the debt.

If the debtor decides to reaffirm a debt, he orshe must do so before the discharge is entered.The debtor must sign a written reaffirmationagreement and file it with the court. 11 U.S.C. 524(c). The Bankruptcy Code requires thatreaffirmation agreements contain an extensive

set of disclosures described in 11 U.S.C. 524(k). Among other things, the disclosuresmust advise the debtor of the amount of thedebt being reaffirmed and how it is calculatedand that reaffirmation means that the debtorspersonal liability for that debt will not bedischarged in the bankruptcy. The disclosuresalso require the debtor to sign and file astatement of his or her current income andexpenses which shows that the balance ofincome paying expenses is sufficient to paythe reaffirmed debt. If the balance is notenough to pay the debt to be reaffirmed, thereis a presumption of undue hardship, and thecourt may decide not to approve thereaffirmation agreement. Unless the debtor isrepresented by an attorney, the bankruptcyjudge must approve the reaffirmationagreement.

If the debtor was represented by an attorney inconnection with the reaffirmation agreement,the attorney must certify in writing that he orshe advised the debtor of the legal effect andconsequences of the agreement, including adefault under the agreement. The attorneymust also certify that the debtor was fullyinformed and voluntarily made the agreementand that reaffirmation of the debt will notcreate an undue hardship for the debtor or thedebtors dependants. 11 U.S.C. 524(k). TheBankruptcy Code requires a reaffirmationhearing if the debtor has not been representedby an attorney during the negotiating of theagreement, or if the court disapproves thereaffirmation agreement.11 U.S.C. 524(d)and (m). The debtor may repay any debtvoluntarily, however, whether or not areaffirmation agreement exists. 11 U.S.C. 524(f).

An individual receives a discharge for most ofhis or her debts in a chapter 7 bankruptcy

20case. A creditor may no longer initiate orcontinue any legal or other action against thedebtor to collect a discharged debt. But not allof an individuals debts are discharged inchapter 7. Debts not discharged include debtsfor alimony and child support, certain taxes,debts for certain educational benefitoverpayments or loans made or guaranteed bya governmental unit, debts for willful andmalicious injury by the debtor to anotherentity or to the property of another entity,debts for death or personal injury caused bythe debtors operation of a motor vehiclewhile the debtor was intoxicated from alcoholor other substances, and debts for certaincriminal restitution orders.11 U.S.C. 523(a).The debtor will continue to be liable for thesetypes of debts to the extent that they are notpaid in the chapter 7 case. Debts for money orproperty obtained by false pretenses, debts forfraud or defalcation while acting in a fiduciarycapacity, and debts for willful and maliciousinjury by the debtor to another entity or to theproperty of another entity will be dischargedunless a creditor timely files and prevails in anaction to have such debts declarednondischargeable. 11 U.S.C. 523(c); Fed. R.Bankr. P. 4007(c).

The court may revoke a chapter 7 dischargeon the request of the trustee, a creditor, or theU.S. trustee if the discharge was obtainedthrough fraud by the debtor, if the debtoracquired property that is property of the estateand knowingly and fraudulently failed toreport the acquisition of such property or tosurrender the property to the trustee, or if thedebtor (without a satisfactory explanation)makes a material misstatement or fails toprovide documents or other information inconnection with an audit of the debtors case.11 U.S.C. 727(d).

NOTES

1. The current monthly income received bythe debtor is a defined term in the BankruptcyCode and means the average monthly incomereceived over the six calendar months beforecommencement of the bankruptcy case,including regular contributions to householdexpenses from nondebtors and includingincome from the debtors spouse if thepetition is a joint petition, but not includingsocial security income or certain paymentsmade because the debtor is the victim ofcertain crimes. 11 U.S.C. 101(10A).

2. To determine whether a presumption ofabuse arises, all individual debtors withprimarily consumer debts who file a chapter 7case must complete Official Bankruptcy FormB22A, entitled Statement of Current MonthlyIncome and Means Test Calculation - For Usein Chapter 7. (The Official Forms may bepurchased at legal stationery stores ordownloaded from the internet at: http://www.uscourts.gov/bkforms/index.html.They are not available from the court.)

3. An involuntary chapter 7 case may becommenced under certain circumstances by apetition filed by creditors holding claimsagainst the debtor. 11 U.S.C. 303.

4. Each debtor in a joint case (both husbandand wife) can claim exemptions under thefederal bankruptcy laws. 11 U.S.C. 522(m).

5. In North Carolina and Alabama, bankruptcyadministrators perform similar functions thatU.S. trustees perform in the remaining 48states. These duties include establishing apanel of private trustees to serve as trustees inchapter 7 cases and supervising theadministration of cases and trustees in cases

21under chapters 7, 11, 12, and 13 of theBankruptcy Code. The bankruptcyadministrator program is administered by theAdministrative Office of the United StatesCourts, while the U.S. trustee program isadministered by the Department of Justice.For purposes of this publication, references toU.S. trustees are also applicable to bankruptcyadministrators.

6. A fee is charged for converting, on requestof the debtor, a case under chapter 7 to a caseunder chapter 11. The fee charged is thedifference between the filing fee for a chapter7 and the filing fee for a chapter 11. 28 U.S.C. 1930(a). Currently, the difference is $755.Id. There is no fee for converting from chapter7 to chapter 13.

7. Unsecured debts generally may be definedas those for which the extension of credit wasbased purely upon an evaluation by thecreditor of the debtors ability to pay, asopposed to secured debts, for which theextension of credit was based upon thecreditors right to seize collateral on default,in addition to the debtors ability to pay.

22Chapter 13Individual Debt Adjustment

BACKGROUND

A chapter 13 bankruptcy is also called a wageearners plan. It enables individuals withregular income to develop a plan to repay allor part of their debts. Under this chapter,debtors propose a repayment plan to makeinstallments to creditors over three to fiveyears. If the debtors current monthly incomeis less than the applicable state median, theplan will be for three years unless the courtapproves a longer period for cause.1 If thedebtors current monthly income is greaterthan the applicable state median, the plangenerally must be for five years. In no casemay a plan provide for payments over aperiod longer than five years. 11 U.S.C.1322(d). During this time the law forbidscreditors from starting or continuingcollection efforts.

This chapter discusses six aspects of a chapter13 proceeding: the advantages of choosingchapter 13, the chapter 13 eligibilityrequirements, how a chapter 13 proceedingworks, what may be included in chapter 13repayment plan and how it is confirmed,making the plan work, and the special chapter13 discharge.

ADVANTAGES OF CHAPTER 13

Chapter 13 offers individuals a number ofadvantages over liquidation under chapter 7.Perhaps most significantly, chapter 13 offersindividuals an opportunity to save their homesfrom foreclosure. By filing under this chapter,individuals can stop foreclosure proceedings

and may cure delinquent mortgage paymentsover time. Nevertheless, they must still makeall mortgage payments that come due duringthe chapter 13 plan on time. Anotheradvantage of chapter 13 is that it allowsindividuals to reschedule secured debts (otherthan a mortgage for their primary residence)and extend them over the life of the chapter13 plan. Doing this may lower the payments.Chapter 13 also has a special provision thatprotects third parties who are liable with thedebtor on consumer debts. This provisionmay protect co-signers. Finally, chapter 13acts like a consolidation loan under which theindividual makes the plan payments to achapter 13 trustee who then distributespayments to creditors. Individuals will haveno direct contact with creditors while underchapter 13 protection.

CHAPTER 13 ELIGIBILITY

Any individual, even if self-employed oroperating an unincorporated business, iseligible for chapter 13 relief as long as theindividuals unsecured debts are less than$360,475 and secured debts are less than$1,081,400. 11 U.S.C. 109(e). Theseamounts are adjusted periodically to reflectchanges in the consumer price index. Acorporation or partnership may not be achapter 13 debtor. Id.

An individual cannot file under chapter 13 orany other chapter if, during the preceding 180days, a prior bankruptcy petition wasdismissed due to the debtors willful failure toappear before the court or comply with ordersof the court or was voluntarily dismissed aftercreditors sought relief from the bankruptcycourt to recover property upon which theyhold liens. 11 U.S.C. 109(g), 362(d) and(e). In addition, no individual may be a debtor

23under chapter 13 or any chapter of theBankruptcy Code unless he or she has, within180 days before filing, received creditcounseling from an approved creditcounseling agency either in an individual orgroup briefing. 11 U.S.C. 109, 111. Thereare exceptions in emergency situations orwhere the U.S. trustee (or bankruptcyadministrator) has determined that there areinsufficient approved agencies to provide therequired counseling. If a debt managementplan is developed during required creditcounseling, it must be filed with the court.

HOW CHAPTER 13 WORKS

A chapter 13 case begins by filing a petitionwith the bankruptcy court serving the areawhere the debtor has a domicile or residence.Unless the court orders otherwise, the debtormust also file with the court: (1) schedules ofassets and liabilities; (2) a schedule of currentincome and expenditures; (3) a schedule ofexecutory contracts and unexpired leases; and(4) a statement of financial affairs. Fed. R.Bankr. P. 1007(b). The debtor must also file acertificate of credit counseling and a copy ofany debt repayment plan developed throughcredit counseling; evidence of payment fromemployers, if any, received 60 days beforefiling; a statement of monthly net income andany anticipated increase in income orexpenses after filing; and a record of anyinterest the debtor has in federal or statequalified education or tuition accounts. 11U.S.C. 521. The debtor must provide thechapter 13 case trustee with a copy of the taxreturn or transcripts for the most recent taxyear as well as tax returns filed during thecase (including tax returns for prior years thathad not been filed when the case began). Id. Ahusband and wife may file a joint petition orindividual petitions. 11 U.S.C. 302(a). (The

Official Forms may be purchased at legalstationery stores or downloaded from theinternet at http://www.uscourts.gov/bkforms/index.html.They are not available from the court.)

The courts must charge a $235 case filing feeand a $46 miscellaneous administrative fee.Normally the fees must be paid to the clerk ofthe court upon filing. With the courtspermission, however, they may be paid ininstallments. 28 U.S.C. 1930(a); Fed. R.Bankr. P. 1006(b); Bankruptcy CourtMiscellaneous Fee Schedule, Item 8. Thenumber of installments is limited to four, andthe debtor must make the final installment nolater than 120 days after filing the petition.Fed. R. Bankr. P. 1006(b). For cause shown,the court may extend the time of anyinstallment, as long as the last installment ispaid no later than 180 days after filing thepetition. Id. The debtor may also pay the $46administrative fee in installments. If a jointpetition is filed, only one filing fee and oneadministrative fee are charged. Debtors shouldbe aware that failure to pay these fees mayresult in dismissal of the case. 11 U.S.C. 1307(c)(2).

In order to complete the Official BankruptcyForms that make up the petition, statement offinancial affairs, and schedules, the debtormust compile the following information:

1. A list of all creditors and the amounts andnature of their claims;

2. The source, amount, and frequency of thedebtors income;

3. A list of all of the debtors property; and

244. A detailed list of the debtors monthlyliving expenses, i.e., food, clothing, shelter,utilities, taxes, transportation, medicine, etc. Married individuals must gather thisinformation for their spouse regardless ofwhether they are filing a joint petition,separate individual petitions, or even if onlyone spouse is filing. In a situation where onlyone spouse files, the income and expenses ofthe non-filing spouse is required so that thecourt, the trustee and creditors can evaluatethe households financial position.

When an individual files a chapter 13 petition,an impartial trustee is appointed to administerthe case. 11 U.S.C. 1302. In some districts,the U.S. trustee or bankruptcy administrator2appoints a standing trustee to serve in allchapter 13 cases. 28 U.S.C. 586(b). Thechapter 13 trustee both evaluates the case andserves as a disbursing agent, collectingpayments from the debtor and makingdistributions to creditors. 11 U.S.C. 1302(b).

Filing the petition under chapter 13automatically stays (stops) most collectionactions against the debtor or the debtorsproperty. 11 U.S.C. 362. Filing the petitiondoes not, however, stay certain types ofactions listed under 11 U.S.C. 362(b), andthe stay may be effective only for a short timein some situations. The stay arises byoperation of law and requires no judicialaction. As long as the stay is in effect,creditors generally may not initiate orcontinue lawsuits, wage garnishments, or evenmake telephone calls demanding payments.The bankruptcy clerk gives notice of thebankruptcy case to all creditors whose namesand addresses are provided by the debtor.

Chapter 13 also contains a special automaticstay provision that protects co-debtors. Unless

the bankruptcy court authorizes otherwise, acreditor may not seek to collect a consumerdebt from any individual who is liable alongwith the debtor. 11 U.S.C. 1301(a).Consumer debts are those incurred by anindividual primarily for a personal, family, orhousehold purpose. 11 U.S.C. 101(8).

Individuals may use a chapter 13 proceedingto save their home from foreclosure. Theautomatic stay stops the foreclosureproceeding as soon as the individual files thechapter 13 petition. The individual may thenbring the past-due payments current over areasonable period of time. Nevertheless, thedebtor may still lose the home if the mortgagecompany completes the foreclosure sale understate law before the debtor files the petition.11U.S.C. 1322(c). The debtor may also losethe home if he or she fails to make the regularmortgage payments that come due after thechapter 13 filing.

Between 21 and 50 days after the debtor filesthe chapter 13 petition, the chapter 13 trusteewill hold a meeting of creditors. If the U.S.trustee or bankruptcy administrator schedulesthe meeting at a place that does not haveregular U.S. trustee or bankruptcyadministrator staffing, the meeting may beheld no more than 60 days after the debtorfiles. Fed. R. Bankr. P. 2003(a). During thismeeting, the trustee places the debtor underoath, and both the trustee and creditors mayask questions. The debtor must attend themeeting and answer questions regarding his orher financial affairs and the proposed terms ofthe plan.11 U.S.C. 343. If a husband andwife file a joint petition, they both must attendthe creditors meeting and answer questions.In order to preserve their independentjudgment, bankruptcy judges are prohibitedfrom attending the creditors meeting. 11

25U.S.C. 341(c). The parties typically resolveproblems with the plan either during orshortly after the creditors meeting. Generally,the debtor can avoid problems by making surethat the petition and plan are complete andaccurate, and by consulting with the trusteeprior to the meeting.

In a chapter 13 case, to participate indistributions from the bankruptcy estate,unsecured creditors must file their claims withthe court within 90 days after the first date setfor the meeting of creditors. Fed. R. Bankr. P.3002(c). A governmental unit, however, has180 days from the date the case is filed file aproof of claim.11 U.S.C. 502(b)(9).

After the meeting of creditors, the debtor, thechapter 13 trustee, and those creditors whowish to attend will come to court for a hearingon the debtors chapter 13 repayment plan.

THE CHAPTER 13 PLAN ANDCONFIRMATION HEARING

Unless the court grants an extension, thedebtor must file a repayment plan with thepetition or within 14 days after the petition isfiled. Fed. R. Bankr. P. 3015. A plan must besubmitted for court approval and must providefor payments of fixed amounts to the trusteeon a regular basis, typically biweekly ormonthly. The trustee then distributes the fundsto creditors according to the terms of the plan,which may offer creditors less than fullpayment on their claims.

There are three types of claims: priority,secured, and unsecured. Priority claims arethose granted special status by the bankruptcylaw, such as most taxes and the costs ofbankruptcy proceeding.3 Secured claims arethose for which the creditor has the right takeback certain property (i.e., the collateral) if

the debtor does not pay the underlying debt.In contrast to secured claims, unsecuredclaims are generally those for which thecreditor has no special rights to collect againstparticular property owned by the debtor.

The plan must pay priority claims in fullunless a particular priority creditor agrees todifferent treatment of the claim or, in the caseof a domestic support obligation, unless thedebtor contributes all disposable income -discussed below - to a five-year plan.11 U.S.C. 1322(a).

If the debtor wants to keep the collateralsecuring a particular claim, the plan mustprovide that the holder of the secured claimreceive at least the value of the collateral. Ifthe obligation underlying the secured claimwas used to buy the collateral (e.g., a carloan), and the debt was incurred within certaintime frames before the bankruptcy filing, theplan must provide for full payment of thedebt, not just the value of the collateral (whichmay be less due to depreciation). Payments tocertain secured creditors (i.e., the homemortgage lender), may be made over theoriginal loan repayment schedule (which maybe longer than the plan) so long as anyarrearage is made up during the plan. Thedebtor should consult an attorney to determinethe proper treatment of secured claims in theplan.

The plan need not pay unsecured claims infull as long it provides that the debtor will payall projected disposable income over anapplicable commitment period, and as longas unsecured creditors receive at least as muchunder the plan as they would receive if thedebtors assets were liquidated under chapter7. 11 U.S.C. 1325. In chapter 13,disposable income is income (other thanchild support payments received by the

26debtor) less amounts reasonably necessary forthe maintenance or support of the debtor ordependents and less charitable contributionsup to 15% of the debtors gross income. If thedebtor operates a business, the definition ofdisposable income excludes those amountswhich are necessary for ordinary operatingexpenses. 11 U.S.C. 1325(b)(2)(A) and (B).The applicable commitment period dependson the debtors current monthly income. Theapplicable commitment period must be threeyears if current monthly income is less thanthe state median for a family of the same size- and five years if the current monthly incomeis greater than a family of the same size. 11U.S.C. 1325(d). The plan may be less thanthe applicable commitment period (three orfive years) only if unsecured debt is paid infull over a shorter period.

Within 30 days after filing the bankruptcycase, even if the plan has not yet beenapproved by the court, the debtor must startmaking plan payments to the trustee. 11U.S.C. 1326(a)(1). If any secured loanpayments or lease payments come due beforethe debtors plan is confirmed (typically homeand automobile payments), the debtor mustmake adequate protection payments directlyto the secured lender or lessor - deducting theamount paid from the amount that wouldotherwise be paid to the trustee. Id.

No later than 45 days after the meeting ofcreditors, the bankruptcy judge must hold aconfirmation hearing and decide whether theplan is feasible and meets the standards forconfirmation set forth in the BankruptcyCode. 11 U.S.C. 1324, 1325. Creditors willreceive 28 days notice of the hearing andmay object to confirmation. Fed. R. Bankr. P.2002(b). While a variety of objections may bemade, the most frequent ones are thatpayments offered under the plan are less than

creditors would receive if the debtors assetswere liquidated or that the debtors plan doesnot commit all of the debtors projecteddisposable income for the three or five yearapplicable commitment period.

If the court confirms the plan, the chapter 13trustee will distribute funds received under theplan as soon as is practicable. 11 U.S.C. 1326(a)(2). If the court declines to confirmthe plan, the debtor may file a modified plan.11 U.S.C. 1323. The debtor may alsoconvert the case to a liquidation case underchapter 7.4 11 U.S.C. 1307(a). If the courtdeclines to confirm the plan or the modifiedplan and instead dismisses the case, the courtmay authorize the trustee to keep some fundsfor costs, but the trustee must return allremaining funds to the debtor (other thanfunds already disbursed or due to creditors).11 U.S.C. 1326(a)(2).

Occasionally, a change in circumstances maycompromise the debtors ability to make planpayments. For example, a creditor may objector threaten to object to a plan, or the debtormay inadvertently have failed to list allcreditors. In such instances, the plan may bemodified either before or after confirmation.11 U.S.C. 1323, 1329. Modification afterconfirmation is not limited to an initiative bythe debtor, but may be at the request of thetrustee or an unsecured creditor. 11 U.S.C. 1329(a).

MAKING THE PLAN WORK

The provisions of a confirmed plan bind thedebtor and each creditor. 11 U.S.C. 1327.Once the court confirms the plan, the debtormust make the plan succeed. The debtor mustmake regular payments to the trustee eitherdirectly or through payroll deduction, whichwill require adjustment to living on a fixed

27budget for a prolonged period. Furthermore,while confirmation of the plan entitles thedebtor to retain property as long as paymentsare made, the debtor may not incur new debtwithout consulting the trustee, becauseadditional debt may compromise the debtorsability to complete the plan. 11 U.S.C. 1305(c), 1322(a)(1), 1327.

A debtor may make plan payments throughpayroll deductions. This practice increases thelikelihood that payments will be made on timeand that the debtor will complete the plan. Inany event, if the debtor fails to make thepayments due under the confirmed plan, thecourt may dismiss the case or convert it to aliquidation case under chapter 7 of theBankruptcy Code. 11 U.S.C. 1307(c). Thecourt may also dismiss or convert the debtorscase if the debtor fails to pay any post-filingdomestic support obligations (i.e., childsupport, alimony), or fails to make requiredtax filings during the case. 11 U.S.C. 1307(c) and (e), 1308, 521.

THE CHAPTER 13 DISCHARGE

The bankruptcy law regarding the scope of thechapter 13 discharge is complex and hasrecently undergone major changes. Therefore,debtors should consult competent legalcounsel prior to filing regarding the scope ofthe chapter 13 discharge.

A chapter 13 debtor is entitled to a dischargeupon completion of all payments under thechapter 13 plan so long as the debtor: (1)certifies (if applicable) that all domesticsupport obligations that came due prior tomaking such certification have been paid; (2)has not received a discharge in a prior casefiled within a certain time frame (two yearsfor prior chapter 13 cases and four years forprior chapter 7, 11 and 12 cases); and (3) has

completed an approved course in financialmanagement (if the U.S. trustee or bankruptcyadministrator for the debtors district hasdetermined that such courses are available tothe debtor). 11 U.S.C. 1328. The court willnot enter the discharge, however, until itdetermines, after notice and a hearing, thatthere is no reason to believe there is anypending proceeding that might give rise to alimitation on the debtors homesteadexemption. 11 U.S.C. 1328(h).

The discharge releases the debtor from alldebts provided for by the plan or disallowed(under section 502), with limited exceptions.Creditors provided for in full or in part underthe chapter 13 plan may no longer initiate orcontinue any legal or other action against thedebtor to collect the discharged obligations.

As a general rule, the discharge releases thedebtor from all debts provided for by the planor disallowed, with the exception of certaindebts referenced in 11 U.S.C. 1328. Debtsnot discharged in chapter 13 include certainlong term obligations (such as a homemortgage), debts for alimony or child support,certain taxes, debts for most governmentfunded or guaranteed educational loans orbenefit overpayments, debts arising fromdeath or personal injury caused by drivingwhile intoxicated or under the influence ofdrugs, and debts for restitution or a criminalfine included in a sentence on the debtorsconviction of a crime. To the extent that theyare not fully paid under the chapter 13 plan,the debtor will still be responsible for thesedebts after the bankruptcy case has concluded.Debts for money or property obtained by falsepretenses, debts for fraud or defalcation whileacting in a fiduciary capacity, and debts forrestitution or damages awarded in a civil casefor willful or malicious actions by the debtorthat cause personal injury or death to a person

28will be discharged unless a creditor timelyfiles and prevails in an action to have suchdebts declared nondischargeable. 11 U.S.C. 1328, 523(c); Fed. R. Bankr. P. 4007(c).

The discharge in a chapter 13 case issomewhat broader than in a chapter 7 case.Debts dischargeable in a chapter 13, but not inchapter 7, include debts for willful andmalicious injury to property (as opposed to aperson) , debts incurred to paynondischargeable tax obligations, and debtsarising from property settlements in divorce orseparation proceedings. 11 U.S.C. 1328(a).

THE CHAPTER 13 HARDSHIPDISCHARGE

After confirmation of a plan, circumstancesmay arise that prevent the debtor fromcompleting the plan. In such situations, thedebtor may ask the court to grant a hardshipdischarge. 11 U.S.C. 1328(b). Generally,such a discharge is available only if: (1) thedebtors failure to complete plan payments isdue to circumstances beyond the debtorscontrol and through no fault of the debtor; (2)creditors have received at least as much asthey would have received in a chapter 7liquidation case; and (3) modification of theplan is not possible. Injury or illness thatprecludes employment sufficient to fund evena modified plan may serve as the basis for ahardship discharge. The hardship discharge ismore limited than the discharge describedabove and does not apply to any debts that arenondischargeable in a chapter 7 case. 11U.S.C. 523.

NOTES

1. The current monthly income received bythe debtor is a defined term in the BankruptcyCode and means the average monthly income

received over the six calendar months beforecommencement of the bankruptcy case,including regular contributions to householdexpenses from nondebtors and includingincome from the debtors spouse if thepetition is a joint petition, but not includingsocial security income or certain paymentsmade because the debtor is the victim ofcertain crimes. 11 U.S.C. 101(10A).

2. In North Carolina and Alabama, bankruptcyadministrators perform similar functions thatU.S. trustees perform in the remaining forty-eight states. The bankruptcy administratorprogram is administered by theAdministrative Office of the United StatesCourts, while the U.S. trustee program isadministered by the Department of Justice.For purposes of this publication, references toU.S. trustees are also applicable to bankruptcyadministrators.

3. Section 507 sets forth 10 categories ofunsecured claims which Congress has, forpublic policy reasons, given priority ofdistribution over other unsecured claims.

4. A fee of $15 is charged for converting acase under chapter 13 to a case under chapter7.

29Chapter 11Reorganization Under theBankruptcy Code

BACKGROUND

A case filed under chapter 11 of the UnitedStates Bankruptcy Code is frequently referredto as a reorganization bankruptcy.

An individual cannot file under chapter 11 orany other chapter if, during the preceding 180days, a prior bankruptcy petition wasdismissed due to the debtors willful failure toappear before the court or comply with ordersof the court, or was voluntarily dismissed aftercreditors sought relief from the bankruptcycourt to recover property upon which theyhold liens. 11 U.S.C. 109(g), 362(d)-(e). Inaddition, no individual may be a debtor underchapter 11 or any chapter of the BankruptcyCode unless he or she has, within 180 daysbefore filing, received credit counseling froman approved credit counseling agency either inan individual or group briefing. 11 U.S.C. 109, 111. There are exceptions inemergency situations or where the U.S. trustee(or bankruptcy administrator) has determinedthat there are insufficient approved agenciesto provide the required counseling. If a debtmanagement plan is developed duringrequired credit counseling, it must be filedwith the court.

HOW CHAPTER 11 WORKS

A chapter 11 case begins with the filing of apetition with the bankruptcy court serving thearea where the debtor has a domicile orresidence. A petition may be a voluntarypetition, which is filed by the debtor, or it maybe an involuntary petition, which is filed by

creditors that meet certain requirements. 11U.S.C. 301, 303. A voluntary petition mustadhere to the format of Form 1 of the OfficialForms prescribed by the Judicial Conferenceof the United States. Unless the court ordersotherwise, the debtor also must file with thecourt: (1) schedules of assets and liabilities;(2) a schedule of current income andexpenditures; (3) a schedule of executorycontracts and unexpired leases; and (4) astatement of financial affairs. Fed. R. Bankr.P. 1007(b). If the debtor is an individual (orhusband and wife), there are additionaldocument filing requirements. Such debtorsmust file: a certificate of credit counseling anda copy of any debt repayment plan developedthrough credit counseling; evidence ofpayment from employers, if any, received 60days before filing; a statement of monthly netincome and any anticipated increase inincome or expenses after filing; and a recordof any interest the debtor has in federal orstate qualified education or tuitionaccounts.11 U.S.C. 521. A husband andwife may file a joint petition or individualpetitions. 11 U.S.C. 302(a). (The OfficialForms are not available from the court, butmay be purchased at legal stationery stores ordownloaded from the internet at:http://www.uscourts.gov/bkforms/index.html.)

The courts are required to charge an $1,000case filing fee and a $46 miscellaneousadministrative fee. The fees must be paid tothe clerk of the court upon filing or may, withthe courts permission, be paid by individualdebtors in installments. 28 U.S.C. 1930(a);Fed. R. Bankr. P. 1006(b); Bankruptcy CourtMiscellaneous Fee Schedule, Item 8. Fed. R.Bankr. P. 1006(b) limits to four the number ofinstallments for the filing fee. The finalinstallment must be paid not later than 120days after filing the petition. For cause shown,the court may extend the time of any

30installment, provided that the last installmentis paid not later than 180 days after the filingof the petition. Fed. R. Bankr. P. 1006(b). The$46 administrative fee may be paid ininstallments in the same manner as the filingfee. If a joint petition is filed, only one filingfee and one administrative fee are charged.Debtors should be aware that failure to paythese fees may result in dismissal of the case.11 U.S.C. 1112(b)(10).

The voluntary petition will include standardinformation concerning the debtors name(s),social security number or tax identificationnumber, residence, location of principal assets(if a business), the debtors plan or intentionto file a plan, and a request for relief under theappropriate chapter of the Bankruptcy Code.Upon filing a voluntary petition for reliefunder chapter 11 or, in an involuntary case,the entry of an order for relief, the debtorautomatically assumes an additional identityas the debtor in possession. 11 U.S.C. 1101. The term refers to a debtor that keepspossession and control of its assets whileundergoing a reorganization under chapter 11,without the appointment of a case trustee. Adebtor will remain a debtor in possession untilthe debtors plan of reorganization isconfirmed, the debtors case is dismissed orconverted to chapter 7, or a chapter 11 trusteeis appointed. The appointment or election ofa trustee occurs only in a small number ofcases. Generally, the debtor, as debtor inpossession, operates the business andperforms many of the functions that a trusteeperforms in cases under other chapters. 11U.S.C. 1107(a).

Generally, a written disclosure statement anda plan of reorganization must be filed with thecourt. 11 U.S.C. 1121, 1125. Thedisclosure statement is a document that mustcontain information concerning the assets,

liabilities, and business affairs of the debtorsufficient to enable a creditor to make aninformed judgment about the debtors plan ofreorganization. 11 U.S.C. 1125. Theinformation required is governed by judicialdiscretion and the circumstances of the case.In a small business case (discussed below)the debtor may not need to file a separatedisclosure statement if the court determinesthat adequate information is contained in theplan. 11 U.S.C. 1125(f). The contents of theplan must include a classification of claimsand must specify how each class of claimswill be treated under the plan. 11 U.S.C. 1123. Creditors whose claims areimpaired, i.e., those whose contractualrights are to be modified or who will be paidless than the full value of their claims underthe plan, vote on the plan by ballot. 11 U.S.C. 1126. After the disclosure statement isapproved by the court and the ballots arecollected and tallied, the court will conduct aconfirmation hearing to determine whether toconfirm the plan.11 U.S.C. 1128.

In the case of individuals, chapter 11 bearssome similarities to chapter 13. For example,property of the estate for an individual debtorincludes the debtors earnings and propertyacquired by the debtor after filing until thecase is closed, dismissed or converted;funding of the plan may be from the debtorsfuture earnings; and the plan cannot beconfirmed over a creditors objection withoutcommitting all of the debtors disposableincome over five years unless the plan paysthe claim in full, with interest, over a shorterperiod of time. 11 U.S.C. 1115,1123(a)(8), 1129(a)(15).

31THE CHAPTER 11 DEBTOR INPOSSESSION

Chapter 11 is typically used to reorganize abusiness, which may be a corporation, soleproprietorship, or partnership. A corporationexists separate and apart from its owners, thestockholders. The chapter 11 bankruptcy caseof a corporation (corporation as debtor) doesnot put the personal assets of the stockholdersat risk other than the value of their investmentin the companys stock. A sole proprietorship(owner as debtor), on the other hand, does nothave an identity separate and distinct from itsowner(s). Accordingly, a bankruptcy caseinvolving a sole proprietorship includes boththe business and personal assets of theowners-debtors. Like a corporation, apartnership exists separate and apart from itspartners. In a partnership bankruptcy case(partnership as debtor), however, the partnerspersonal assets may, in some cases, be used topay creditors in the bankruptcy case or thepartners, themselves, may be forced to file forbankruptcy protection.

Section 1107 of the Bankruptcy Code placesthe debtor in possession in the position of afiduciary, with the rights and powers of achapter 11 trustee, and it requires the debtor toperform of all but the investigative functionsand duties of a trustee. These duties, set forthin the Bankruptcy Code and Federal Rules ofBankruptcy Procedure, include accounting forproperty, examining and objecting to claims,and filing informational reports as required bythe court and the U.S. trustee or bankruptcyadministrator (discussed below), such asmonthly operating reports. 11 U.S.C. 1106,1107; Fed. R. Bankr. P. 2015(a). The debtorin possession also has many of the otherpowers and duties of a trustee, including theright, with the court's approval, to employattorneys, accountants, appraisers,

auctioneers, or other professional persons toassist the debtor during its bankruptcy case.Other responsibilities include filing taxreturns and reports which are either necessaryor ordered by the court after confirmation,such as a final accounting. The U.S. trustee isresponsible for monitoring the compliance ofthe debtor in possession with the reportingrequirements.

Railroad reorganizations have specificrequirements under subsection IV of chapter11, which will not be addressed here. Inaddition, stock and commodity brokers areprohibited from filing under chapter 11 andare restricted to chapter 7. 11 U.S.C. 109(d).

THE U.S. TRUSTEE OR BANKRUPTCYADMINISTRATOR

The U.S. trustee plays a major role inmonitoring the progress of a chapter 11 caseand supervising its administration. The U.S.trustee is responsible for monitoring thedebtor in possessions operation of thebusiness and the submission of operatingreports and fees. Additionally, the U.S. trusteemonitors applications for compensation andreimbursement by professionals, plans anddisclosure statements filed with the court, andcreditors committees. The U.S. trusteeconducts a meeting of the creditors, oftenreferred to as the section 341 meeting, in achapter 11 case. 11 U.S.C. 341. The U.S.trustee and creditors may question the debtorunder oath at the section 341 meetingconcerning the debtors acts, conduct,property, and the administration of the case.

The U.S. trustee also imposes certainrequirements on the debtor in possessionconcerning matters such as reporting itsmonthly income and operating expenses,establishing new bank accounts, and paying

32current employee withholding and other taxes.By law, the debtor in possession must pay aquarterly fee to the U.S. trustee for eachquarter of a year until the case is converted ordismissed. 28 U.S.C. 1930(a)(6). Theamount of the fee, which may range from$250 to $10,000, depends on the amount ofthe debtors disbursements during eachquarter. Should a debtor in possession fail tocomply with the reporting requirements of theU.S. trustee or orders of the bankruptcy court,or fail to take the appropriate steps to bringthe case to confirmation, the U.S. trustee mayfile a motion with the court to have thedebtors chapter 11 case converted to anotherchapter of the Bankruptcy Code or to have thecase dismissed.

In North Carolina and Alabama, bankruptcyadministrators perform similar functions thatU.S. trustees perform in the remaining forty-eight states. The bankruptcy administratorprogram is administered by theAdministrative Office of the United StatesCourts, while the U.S. trustee program isadministered by the Department of Justice.For purposes of this publication, references toU.S. trustees are also applicable to bankruptcyadministrators.

CREDITORS COMMITTEES

Creditors committees can play a major role inchapter 11 cases. The committee is appointedby the U.S. trustee and ordinarily consists ofunsecured creditors who hold the sevenlargest unsecured claims against the debtor.11 U.S.C. 1102. Among other things, thecommittee: consults with the debtor inpossession on administration of the case;investigates the debtors conduct andoperation of the business; and participates informulating a plan. 11 U.S.C. 1103. Acreditors committee may, with the courts

approval, hire an attorney or otherprofessionals to assist in the performance ofthe committees duties. A creditorscommittee can be an important safeguard tothe proper management of the business by thedebtor in possession.

THE SMALL BUSINESS CASE ANDTHE SMALL BUSINESS DEBTOR

In some smaller cases the U.S. trustee may beunable to find creditors willing to serve on acreditors committee, or the committee maynot be actively involved in the case. TheBankruptcy Code addresses this issue bytreating a small business case somewhatdifferently than a regular bankruptcy case. Asmall business case is defined as a case with asmall business debtor. 11 U.S.C. 101(51C). Determination of whether adebtor is a small business debtor requiresapplication of a two-part test. First, the debtormust be engaged in commercial or businessactivities (other than primarily owning oroperating real property) with total non-contingent liquidated secured and unsecureddebts of $2,343,300 or less. Second, thedebtors case must be one in which the U.S.trustee has not appointed a creditorscommittee, or the court has determined thecreditors committee is insufficiently activeand representative to provide oversight of thedebtor. 11 U.S.C. 101(51D).

In a small business case, the debtor inpossession must, among other things, attachthe most recently prepared balance sheet,statement of operations, cash-flow statementand most recently filed tax return to thepetition or provide a statement under oathexplaining the absence of such documents andmust attend court and the U.S. trustee meetingthrough senior management personnel andcounsel. The small business debtor must make

33ongoing filings with the court concerning itsprofitability and projected cash receipts anddisbursements, and must report whether it isin compliance with the Bankruptcy Code andthe Federal Rules of Bankruptcy Procedureand whether it has paid its taxes and filed itstax returns. 11 U.S.C. 308, 1116.

In contrast to other chapter 11 debtors, thesmall business debtor is subject to additionaloversight by the U.S. trustee. Early in thecase, the small business debtor must attend aninitial interview with the U.S. trustee atwhich time the U.S. trustee will evaluate thedebtors viability, inquire about the debtorsbusiness plan, and explain certain debtorobligations including the debtorsresponsibility to file various reports. 28U.S.C. 586(a)(7). The U.S. trustee will alsomonitor the activities of the small businessdebtor during the case to identify as promptlyas possible whether the debtor will be unableto confirm a plan.

Because certain filing deadlines are differentand extensions are more difficult to obtain, acase designated as a small business casenormally proceeds more quickly than otherchapter 11 cases. For example, only the debtormay file a plan during the first 180 days of asmall business case. 11 U.S.C. 1121(e). Thisexclusivity period may be extended by thecourt, but only to 300 days, and only if thedebtor demonstrates by a preponderance ofthe evidence that the court will confirm a planwithin a reasonable period of time. When thecase is not a small business case, however, thecourt may extend the exclusivity period forcause up to 18 months.

THE SINGLE ASSET REAL ESTATEDEBTOR

Single asset real estate debtors are subject tospecial provisions of the Bankruptcy Code.The term single asset real estate is definedas a single property or project, other thanresidential real property with fewer than fourresidential units, which generates substantiallyall of the gross income of a debtor who is nota family farmer and on which no substantialbusiness is being conducted by a debtor otherthan the business of operating the realproperty and activities incidental. 11 U.S.C. 101(51B). The Bankruptcy Code providescircumstances under which creditors of asingle asset real estate debtor may obtainrelief from the automatic stay which are notavailable to creditors in ordinary bankruptcycases. 11 U.S.C. 362(d). On request of acreditor with a claim secured by the singleasset real estate and af