Liquidating Chapter 11 - Failed Solo Law Practice

Liquidating Chapter 11 Bankruptcy

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Liquidating Chapter 11 Bankruptcy: When Reorganization Isn’t the Goal

Bankruptcy often brings to mind either total liquidation under Chapter 7 or corporate reorganization under Chapter 11. But did you know there’s a lesser-known hybrid called a liquidating Chapter 11?

This type of bankruptcy is increasingly used by businesses that have decided to wind down operations in an orderly manner, rather than attempt a comeback.  The ideal candidate for a liquidating Chapter 11 is one with a salable business where the principals have significant personal guarantees to address.

What Is a Liquidating Chapter 11?

A liquidating Chapter 11 is when a company files for Chapter 11 bankruptcy—not to restructure and continue operations—but to liquidate its assets under court supervision. It gives the debtor more control than a Chapter 7 and can lead to a better outcome for the debtor and its principals because it allows an “orderly landing” to address personal guarantees when winding down a business.

Essentially, it combines the structure and protections of Chapter 11 with the end result of Chapter 7, selling off assets to pay creditors.

Why Choose Liquidating Chapter 11 Over Chapter 7?

There are several reasons a company might choose to liquidate under Chapter 11:

  • Control: The debtor often remains in possession (as “debtor-in-possession”) and runs the liquidation process, rather than handing everything over to a Chapter 7 trustee.
  • Maximizing Value: Selling assets in a more organized or strategic manner—such as through a going-concern sale—can yield better returns.
  • Contracts & Leases: The debtor can assume or reject executory contracts and leases under Chapter 11, giving them leverage to negotiate or cancel burdensome obligations.
  • Transparency: Creditors can be more involved, and plans are subject to court approval, which adds oversight and structure.
  • Speed and Flexibility: While some Chapter 11 cases drag on, liquidating cases can move quickly with a clear exit strategy.

How a Liquidating Chapter 11 Bankruptcy Works

In general terms, liquidating chapter 11 bankruptcy cases typically function through the following features.

1. Filing for Chapter 11. The company files a voluntary petition and becomes the debtor-in-possession.

2. Developing a Liquidation Plan. Instead of proposing a reorganization, the debtor creates a liquidation plan, outlining how it will sell assets and distribute the proceeds.

3. Disclosure Statement. A disclosure statement is filed to explain the plan to creditors. Once approved by the court, creditors vote on the plan.

4. Asset Sales. Assets can be sold piecemeal, in lots, or altogether. Typically, such sales occur through a sale under section 363 of the Bankruptcy Code or pursuant to the provisions of a confirmed plan. As a rule, such sales require strict court oversight and approval.

5. Plan Confirmation. If creditors approve and the court confirms the plan, the debtor in possession carries out the liquidation process under the terms of a confirmed Chapter 11 plan.

6. Final Distribution and Closure. Once assets are liquidated and proceeds distributed, the estate can be closed and, in some instances, the case may be converted to Chapter 7 for final wind-up if necessary.

Is Chapter 11 Liquidation the Most Favorable Endgame for Your Business?

A liquidating Chapter 11 is not about saving a struggling company—it’s about wrapping things up with care and strategy. For companies with significant assets, multiple creditors, or ongoing legal complexities, this path may offer more flexibility than straight chapter 7 liquidation.

If your business is facing tough decisions about its future, consulting a bankruptcy attorney early can help you evaluate whether a structured liquidation might be the best final chapter. Need help understanding your options or crafting a liquidation plan? Drop your questions in the comments or reach out—we’re here to demystify the process.

Unemployed? Here’s Why Waiting to File Bankruptcy Until You Find Employment May Be a Mistake.

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Filing for Chapter 7 bankruptcy while unemployed can have advantages in certain situations, but it’s essential to consult with an experienced bankruptcy attorney and consider your individual circumstances carefully. As a general matter, there are often numerous reasons why someone might choose to file for Chapter 7 bankruptcy while still unemployed.

Eligibility for Relief Under Chapter 7 of the Bankruptcy Code.

Chapter 7 bankruptcy has income eligibility requirements based on your household income in relation to the comparable median income in your area. 11 U.S.C. § 109. The United States trustee publishes and maintains a median income information for various household sizes. If you are currently unemployed, your income is likely to be lower, which can increase your chances of qualifying for Chapter 7. Waiting to file bankruptcy until you’re employed again may result in a higher income, making you ineligible for Chapter 7.

Get the Fresh Start You Need Now.

Chapter 7 offers a “fresh start” to eligible debtors. After meeting the basic requirements of a debtor in a Chapter 7 bankruptcy case, individual filers become entitled to a discharge. 11 U.S.C. § 727. By discharging most of their unsecured debts, such as credit card debt and medical bills, unemployed people often find themselves with a little more financial breathing space as they seek out employment. Moreover, by filing while unemployed, individuals can file bankruptcy and eliminate their debts sooner and get a head start in rebuilding their financial lives.

Asset Protection. Keep What You Have After Filing a Bankruptcy Case.

The United States Bankruptcy Code allows consumer debtors to keep certain essential assets through exemptions provided under federal or state laws. 11 U.S.C. § 522. Depending on state exemption laws, you may be able to select either the state or federal exemption scheme. Selection of the optimal exemption scheme, and prudent application of available exemptions are critical decisions, which you should discuss with your bankruptcy attorney.

Stress Reduction. Putting It All Behind You.

Financial distress can weigh heavily on people’s unemployed minds, increasing their anxiety and presenting a further barrier to rebuilding. The decision to file a bankruptcy case generally results in an “automatic stay,” relieving distressed consumer debtors from the persistent efforts of debt collectors, and the stress associated with mounting debt. In contrast, waiting for reemployment means continuing to deal with with ongoing creditor harassment and legal actions.

Bankruptcy as a Strategy for a Brighter Future.

Timing is crucial in bankruptcy cases. If you are unemployed but anticipate a return to stable employment in the near future, a bankruptcy discharge may lay the groundwork for you to retain more of what you earn. However, it is essential to consult with an experienced bankruptcy attorney to evaluate the impact of filing bankruptcy in your particular circumstances. The professionals at Robleto Kuruce will help you make an informed decision about the timing of a bankruptcy filing.

chapter 13 bankruptcy and your credit score

Will a Bankruptcy Filing Ruin My Credit? Exploring the Impact

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Bankruptcy Information You Need to Know

When facing overwhelming financial difficulties, the prospect of filing for bankruptcy can be both daunting and confusing. One of the primary concerns individuals have when considering bankruptcy is how it will impact their credit score and financial future. In this blog post, we will delve into the intricate relationship between bankruptcy filings and credit scores, exploring whether a bankruptcy filing will truly ruin your credit.

Understanding Bankruptcy

Bankruptcy is a legal process designed to help individuals and businesses manage unmanageable debt. It provides a fresh start by either discharging debts (Chapter 7) or establishing a manageable repayment plan (Chapter 13). While bankruptcy offers relief from unmanageable debt, it does come with certain consequences, and its impact on credit is one of the most significant concerns.

The Initial Impact

There’s no denying that a bankruptcy filing will have a negative impact on your credit score. The extent of the impact depends on your credit history and the type of bankruptcy you file for. A Chapter 7 bankruptcy, also known as liquidation bankruptcy, stays on your credit report for 10 years from the filing date. A Chapter 13 bankruptcy, which involves a repayment plan, remains on your credit report for 7 years from the filing date.

Credit Score Drop

The extent of the credit score drop varies from person to person. If your credit was excellent prior to filing, you might experience a more significant drop than someone whose credit was already poor due to missed payments and high debt levels. On average, a bankruptcy filing might lead to an initial credit score decrease of around 100 to 200 points. However, credit scores tend to fluctuate based on a variety of factors, and the drop following a bankruptcy case need not be permanent.

Rebuilding Credit

While a bankruptcy filing does have an initial negative impact, it’s not the end of the road for your credit. The impact diminishes over time, and with responsible financial management, you can start rebuilding your credit sooner than you might think.

Here are some steps to help you rebuild your credit after bankruptcy:

  • Secured Credit Cards: These cards require a deposit and can be a great way to start rebuilding credit. Make small purchases and pay them off in full each month.
  • Timely Payments: Pay all bills, including rent, utilities, and any new credit you obtain, on time. Consistent, on-time payments show responsible behavior.
  • Credit-Builder Loans: Some financial institutions offer loans designed to help you build credit. These loans hold the borrowed amount in an account while you make payments, demonstrating your ability to repay.
  • Budgeting: Develop a budget that ensures you can meet your financial obligations. This will help prevent new debt and late payments.
  • Monitor Your Credit Report: Regularly check your credit report for errors or inaccuracies. Dispute any discrepancies promptly.

Conclusion

While a bankruptcy filing does have a negative impact on your credit, it’s not a life sentence for poor credit. With time, responsible financial practices, and patience, you can gradually rebuild your credit score. The important thing is to use the bankruptcy as a fresh start to develop better money management habits and work towards a healthier financial future. If you’re considering bankruptcy, it’s recommended to consult with a financial advisor or bankruptcy attorney to fully understand the implications and options available to you.

Chapter 13 - Recover your Repossessed Vehicle

Leveraging Chapter 13 Bankruptcy to Reclaim a Repossessed Vehicle

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Reorganization Bankruptcy for Consumer Debtors

Experiencing a vehicle repossession can be a distressing event, but there is a legal avenue that might help you regain control of your repossessed vehicle: Chapter 13 bankruptcy. This powerful tool not only provides relief from debt but can also serve as a lifeline for individuals who want to reclaim their vehicles while reorganizing their finances. In this blog post, we’ll explore the basics of Chapter 13 bankruptcy and how it can be used to recover a repossessed vehicle.

A Brief Overview of Chapter 13 Bankruptcy

Chapter 13 bankruptcy, sometimes referred to as a “wage earner’s plan,” is a form of bankruptcy that allows individuals with regular income to develop a repayment plan to pay off all or part of their debts over a three to five-year period. Unlike Chapter 7 bankruptcy, which involves the liquidation of assets to discharge debts, Chapter 13 focuses on reorganizing debts while allowing individuals to keep their property.

Recovering a Repossessed Vehicle

One of the most compelling aspects of Chapter 13 bankruptcy is its potential to help individuals recover a repossessed vehicle. Here’s how it generally works:

  • Automatic Stay: When you file for Chapter 13 bankruptcy, an automatic stay goes into effect. This stay prohibits creditors, including the lender who repossessed your vehicle, from taking any further collection actions. This means that the lender cannot sell your vehicle while the bankruptcy case is active.
  • Repayment Plan: As part of your Chapter 13 bankruptcy filing, you’ll propose a repayment plan to the court. This plan outlines how you intend to repay your debts, including any missed car payments, over the next three to five years. The plan must be approved by the court.
  • Vehicle Debt: If you want to reclaim your repossessed vehicle, the debt associated with the vehicle is included in your repayment plan. You will need to continue making regular payments on the vehicle loan as well as catch up on any missed payments over the course of the plan.
  • Plan Confirmation: Once your repayment plan is approved by the court, you will begin making monthly payments to a court-appointed trustee. The trustee will then distribute these payments to your creditors, including the lender who repossessed your vehicle.
  • Completion of Plan: If you successfully complete your Chapter 13 repayment plan, which typically lasts three to five years, you will have repaid the missed car payments, along with other debts. At the end of the plan, you will be current on your vehicle payments, and any remaining unsecured debt might be discharged.
  • Reclaiming the Vehicle: Once you’ve completed the repayment plan, and as long as you’ve continued to make regular vehicle payments during the bankruptcy, you should be able to reclaim full ownership of your vehicle. The lender will release the vehicle’s lien, and you’ll regain possession without further interference.

Is Chapter 13 the Right Choice for You?

Chapter 13 bankruptcy offers individuals an opportunity to regain control of a repossessed vehicle while also managing other debts. However, the bankruptcy process can be complex, from eligibility and disclosure of financial information to maximizing the value of your exemptions and obtaining a discharge. Take advantage of the experienced bankruptcy attorneys at Robleto Kuruce. We can guide you through the process, help you understand your options, and provide personalized advice based on your unique financial situation. Chapter 13 bankruptcy can be a lifeline for many, but you should have experienced counsel on your side.

Super Lawyers Rated Robleto Kuruce

Robleto Kuruce Attorneys Named to 2020 Pennsylvania Super Lawyers List

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Robleto Kuruce is proud to announce that, once again, Super Lawyers Magazine has recognized and honored both of the firm’s partners in its selections for 2020. Super Lawyers works to identify exceptional attorneys based upon their professional achievements and the recognition of their peers.

The publication named Aurelius Robleto as a Pennsylvania Super Lawyer in the field of Business Bankruptcy. Mr. Robleto was humbled and expressed his gratitude to the publication, as well as to his peers and the clients of Robleto Kuruce, who made the award possible.

For a third consecutive year, Super Lawyers has recognized Renée Kuruce as a Rising Star in the field of Business Bankruptcy in the state of Pennsylvania. Each year no more than 2.5 percent of the lawyers in the state are selected by the research team at Super Lawyers to receive this honor. According to her law partner, “Renée’s third consecutive Rising Star award acknowledges her continued commitment to professional excellence and helping the firm’s clients reach their goals.”

Bankruptcy Code Revisions Designed to Address COVID-19 Challenges

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Relief for Debtors Harmed by Response to Corona Virus

Bankruptcy Code amendments respond to Corona Virus

Social distancing is proving to be an effective response to the Corona Virus public health crisis. Unfortunately, those same measures will harm the economy. Most analysts agree that commercial and consumer bankruptcy filings will rise sharply. In response, Congress has acted with temporary Bankruptcy Code revisions. Now, consumer debtors may be able to decrease their monthly payments by extending the terms of their chapter 13 repayment plans. The amendments will also benefit businesses affected by the COVID-19 pandemic. The amendment expands eligibility for the relaxed, “small business debtor” bankruptcy process. The bankruptcy relief provided under the CARES Act could provide meaningful relief to debtors in business and personal bankruptcy cases.

Temporary Revisions to Chapter 13 of the Bankruptcy Code (COVID-19)

Chapter 13 bankruptcy is a voluntary “reorganization” bankruptcy for individuals. Ordinarily, chapter 13 debtors cannot extend their plan payments beyond a term of five years. That five-year maximum can prevent struggling families from saving their homes from mortgage foreclosure. Typically, debtors fund their chapter 13 plans from the income they receive during the term of the plan. Thus, plan duration and debtors’ income impose a limit on plan funding. That limit may prevent debtors from curing mortgage delinquencies through a chapter 13 plan. Bankruptcy lawyers call that problem “infeasibility.”

Bankruptcy Code revisions in the CARES Act permit modification of plans, extending up to seven years. Debtors must have court approval to extend their confirmed plans beyond a 60-month term. Debtors must also have experienced a “material financial hardship due.” The hardship must, “directly or indirectly, to coronavirus disease 2019 (COVID-19) pandemic.”

Protections Related to Stimulus Payments

The CARES Act Bankruptcy Code revisions ensure that stimulus payments won’t affect debtors’ “current monthly income” and “disposable income.” Those calculations have important implications to the chapter 13 process. Current monthly income determines whether a plan term may be three years or must extend to five. Disposable income determines whether a debtor meets the “best efforts” requirement for plan confirmation. Chapter 13 debtors often pay unsecured creditors less than 100% of their claims over the life of the plan. However, such debtors must devote all of their “disposable income” to fund the plan. If disposable income increased as result of payments from the government, they could threaten the viability of chapter 13 for some debtors. Congress wisely avoided that potential problem through its Bankruptcy Code revisions.

Small Business Reorganization Streamlined Process

The CARES Act amends Small Business Reorganization Act of 2019, increasing the debt threshold from $2,725,625 to $7.5 million. Considering the advantages offered under the streamlined “Small Business” bankruptcy, that amendment could provide a cost-effective reorganization option to many more companies.

The chapter 11 process for small businesses may be attractive to financially distressed companies, concerned about the potential cost and delay of a traditional chapter 11 filing. The cost-saving features include the elimination of the requirement of payment of quarterly fees to the United States trustee, and the absence of official appointed committees (e.g., a committee of unsecured creditors). Instead, a standing trustee oversees case administration and ensures Bankruptcy Code compliance.

The time saving characteristics of a small business chapter 11 may also be attractive. Small business debtors do not require a hearing on a disclosure statement. Unlike an ordinary chapter 11 case where parties in interest can file a plan after the debtor’s right to exclusivity expires, only the debtor may file a plan in a small business case.

Small Business Bankruptcy – Additional Advantages

Among the most enticing features of the new small business law are its simplified approach to “cramdown” and the “absolute priority rule.” Here, cramdown refers to confirmation of a plan over creditor objections. The small business process eliminates the requirement of an impaired class of creditors who voted in favor of the plan. In simplified terms, the “absolute priority rule” mandates that lower priority interest holders must not receive any value under the plan while any senior creditors have unpaid claims. Since an owner’s interest in a debtor exists at a lower priority than general unsecured claims, some courts have interpreted the absolute priority rule to prevent debtors from discharging debt without affecting ownership interests.

Bankruptcy Amendments Sunset Provisions

The CARES Act Bankruptcy Code revisions diverge from the existing statutory scheme. For that reason, the Bankruptcy Code revisions are temporary and will terminate after one year. The bankruptcy amendments give individuals and small businesses some advantages in their reorganization bankruptcies. However, only time will tell whether those adjustments will be enough to protect those hit hardest by the economic ripple effects of COVID-19.

Contact Robleto Kuruce if you have questions about the COVID-19 amendments, or simply want to learn about your bankruptcy options. Experienced bankruptcy lawyers will give you answers during a no-contact, free consultation.

Call now (412) 925-8194.

Paycheck Protection Program – A Provision of the CARES Act

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Federally Backed Emergency Lending is Available to Protect Employers and Employees in the Wake of the Corona Virus and COVID-19 Pandemic

Paycheck Protection Program – Stimulus Loans to Protect American Jobs

The Coronavirus Aid, Relief, and Economic Security Act known as the CARES Act has been signed into law, including its Paycheck Protection Program (PPP). Under the program small businesses may be eligible for stimulus financial aid that could help protect jobs and reduce the flood of bankruptcy filings as a result of the COVID-19 pandemic. Certain PPP loans under the CARES Act will be “forgivable” (meaning that they will not need to be repaid). But it’s critical to look closely at the terms of program since not all loans may not be eligible for forgiveness.

The Paycheck Protection Program is part of the Keeping American Workers Paid and Employed Act. Under the program, if your company has fewer than 500 employees, it may be eligible to receive stimulus funds equal to 2.5 times your average monthly payroll up to $10 million, as a result of business interruption from COVID-19. Although in the form of an unsecured, no-fee loan, loan forgiveness may be available if your company uses the loan proceeds to fund certain eligible expenses, including payroll, mortgage obligations, rent, utilities; and your company maintains its payroll during the crisis period or restores their payrolls afterward, as required by the law.

Frequently Asked Questions (FAQ) Regarding the CARES Act and the Payment Protection Program Stimulus

What Loans are Covered by the Paycheck Protection Program?

The PPP extends only to loans during the period of February 15, 2020 through June 30, 2020, that are made pursuant to the Paycheck Protection Program. Importantly, Congress amended the existing Small Business Act to provide the mechanism for issuance of PPP loans. 15 U.S.C. § 636(a)(36)

Which Lenders are Authorized to Issue Loans Under the Paycheck Protection Program?

All lenders authorized to issue SBA loans under the Small Business Act also should be empowered to issue PPP stimulus loans. In the new authorizes the Secretary of the Treasury and the Administrator of the SBA to extend lending authorization to non-SBA lenders if they find that those lenders are sufficiently qualified.

Is There a Limit to the Amount a Company May Borrow Through a PPP Loan?

Yes, in most cases the amount of any PPP loan will be limited to a maximum loan amount equal to two and a half times the company’s 2019 average annual payroll cost, or $10 million.

If My Company Did Not Exist in 2019, Can It Be Eligible for a PPP Loan?

Companies that were not in business in 2019 may calculate their average payroll costs by reference to the payroll expense incurred from January 1, 2020 through February 29, 2020. As with most other companies, the maximum amount of a stimulus loan under the Paycheck Protection Program is limited to an amount equal to two and a half times the company’s average annual payroll cost, or $10 million.

What Information Should I Have for the PPP Loan Application?

Prospective borrowers under the Paycheck Protection Program should be prepared with the following information:
(i) compensation, including salary, wage, and commissions;
(ii) payment of state or local tax assessed on employee compensation;
(iii) payment of cash tips, or the equivalent;
(iv) payments for leave, including vacation, parental, family, medical or sick;
(v) allowance for dismissal, termination or similar separation;
(vi) payment of health care or medical insurance premiums; and
(vii) payments for retirement benefits.

What Representations Must Borrowers Make to Be Eligible for PPP Loans?

Prospective borrowers of a PPP loan must represent, among other things, that:
(i) the current economic uncertainty has made the loan request necessary;
(ii) they understand the limitation on the use of PPP loan proceeds for use to maintain payroll and certain other items such as rent, mortgage interest and utilities; and
(iii) they have no other loans or pending applications for loans for the same purpose.

We recommend that you discuss these matters with experienced, qualified attorneys before taking any action. As a general matter, we will address some frequently asked questions asked about the Paycheck Protection Program. If you need assistance navigating this application or any other issues related to the continued operation or liquidation of your business, please don’t hesitate to contact our law firm.

Chapter 13 Lawyer, Pittsburgh

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Chapter 13 Lawyer, Pittsburgh

chapter 13 lawyer pittsburgh

Finding a lawyer in Pittsburgh experienced in chapter 13 bankruptcy

Information on Chapter 13 Bankruptcy and Finding an Experienced Lawyer

Are you considering filing a chapter 13 bankruptcy case without a lawyer?  Before deciding to file a bankruptcy petition without an attorney, you should consider that less than 3% of debtors who file chapter 13 cases on their own are successful.  Chapter 13 bankruptcy cases often involve complex calculations, procedural hurdles and occasionally counterintuitive laws that balance the interests of debtors and creditors.  Missteps by debtors who have had no legal guidance often result in their cases being dismissed.  Since most chapter 13 debtors seek bankruptcy protection in order to save their homes from foreclosure, the consequences of dismissal of chapter 13 cases can be catastrophic.  Before you decide to file bankruptcy without a lawyer, why not allow yourself the benefit of a free initial consultation to help you understand the road ahead?

The No-Cost Chapter 13 Bankruptcy Consultation

While bankruptcy lawyers are not required to provide free consultations, many attorneys will agree to meet with people in financial distress for an initial discussion.  For people facing mortgage foreclosure in Pittsburgh, there is simply no reason not to take advantage of a no-cost discussion with an experienced bankruptcy lawyer in Pittsburgh.

A free initial consultation will give you an opportunity to ask questions about the chapter 13 process.  Additionally, a bankruptcy attorney with experience in chapter 13 cases may be able to provide valuable insight into how chapter 13 cases are handled in your jurisdiction.  Procedural differences among bankruptcy courts can often be profound, and understanding those nuances prior to filing your case can be critical to achieving your bankruptcy goals.

The initial consultation will also be an opportunity for you to “interview” the attorney offering to represent you throughout your chapter 13 case.  It is important that your lawyer can effectively communicate with you.  You should be able to get complete answers to your bankruptcy questions.  The initial consultation serves as an opportunity for you to build a relationship of trust with your bankruptcy attorney.

What Do I Get to Keep if I File Bankruptcy?

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Keep Your Car and Other Assets After Filing a Bankruptcy Case

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]”In most cases, debtors with  experienced bankruptcy counsel find that they are able to keep all of the assets that they want to retain.”[/perfectpullquote]Want to keep your car after filing bankruptcy? You’re not alone, one of the first questions that people considering filing a bankruptcy case ask is, “if I file bankruptcy, can I still keep my car?” The answer to that question may depend upon a number of factors, but most debtors are pleased to find that they can keep their automobile after filing a voluntary bankruptcy petition. In this post, we will focus on the basic principles that commonly govern whether a debtor is able to retain an asset after filing a bankruptcy case.

Lien Rights of Creditors Bankruptcy Cases

Many of the consumer debtors that we have represented have owned assets subject to a loan.  Most of our clients have purchased their vehicles under a vehicle retail installment contract (in plain terms, a car loan). If your car loan is current when you file your bankruptcy case, you can continue to make your car payment and keep your car.

If you are behind on your car payments, you may still be able to keep your car by catching up on your missed payments over time in a case under chapter 13. In fact, some borrowers who are behind on their car payments when their cases are filed, keep their cars by catching up on the payments directly after their cases are filed, without chapter 13 repayment plans. Every case is different, and clients should discuss the most prudent course of action in their particular cases with a highly experienced and knowledgeable bankruptcy attorney.

Keeping your car through bankruptcy

You may be able to file bankruptcy and still keep your car. Make the most of your fresh start!

Other secured loans (that is, loans used to purchase assets where the lender retains the right of repossession) are treated similarly to automobile loans. For many reasons, loans secured by mortgages are governed by other rules. However, the basic framework remains the same and, if you continue to pay for your mortgage on time, your lender usually cannot foreclose upon your mortgage.

Reaffirmation of Debts

Reaffirmation Agreement

Discuss reaffirmation of debts with your bankruptcy lawyer.

Your vehicle lender or other secured creditor may request that you sign a reaffirmation agreement. A reaffirmation agreement is an agreement between a lender and its borrower that the pre-bankruptcy rights of both parties will continue in force even after the borrower’s debts are discharged. You may be able to keep your car without reaffirming the loan. Reaffirming a debt may have serious consequences, and debtors should discuss their particular situations with their bankruptcy attorneys before deciding whether a reaffirmation agreement is in their best interests.

The Interplay Between Equity and Exemptions

Debtors who owe much less on their vehicles than they are worth may face another challenge.  An unencumbered asset (that is, one that isn’t subject to a lender’s lien) in a case under chapter 7 of the Bankruptcy Code, may attract the attention of a chapter 7 trustee who may wish to sell the asset and distribute the proceeds to unsecured creditors. Similarly, in a chapter 13 case, parties in interest may object to the confirmation of a chapter 13 plan if the “liquidation alternative test” is not met. The liquidation alternative test requires debtors to pay their unsecured creditors at least as much as they would receive in a hypothetical case under chapter 7. In some chapter 13 cases, unencumbered assets may require debtors to increase their chapter 13 plan payments to provide a greater distribution to the holders of unsecured claims.

Exemptions are the first line of defense that debtors have against losing their unencumbered assets. The Bankruptcy Code enumerates certain exemptions that allow some debtors to retain their vehicles and homes. However, state law determines whether debtors residing in that state may use the federal exemptions contained within the Bankruptcy Code, or another exemption scheme provided under that state’s law. Pennsylvania residents are fortunate in that they may choose between the federal and Pennsylvania state exemption schemes. Selecting the most advantageous set of exemptions and wisely applying available exemptions should be something that you discuss with your bankruptcy attorney before your case is filed. In most cases, debtors with experienced bankruptcy counsel find that they are able to keep all of the assets that they want to retain.[perfectpullquote align=”left” cite=”” link=”” color=”” class=”” size=””]You may be able to continue to make your car payment and retain your vehicle after bankruptcy[/perfectpullquote]

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If you have bankruptcy related questions, you may wish to discuss them with an experienced bankruptcy attorney. Our law firm offers free initial consultations.

(412) 925-8194

 

 

We are a debt relief agency.  We help people file for bankruptcy relief under the United States Bankruptcy Code.

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Pittsburgh Bankruptcy Lawyers