Dimitri Karapelou has substantial experience in personal and business bankruptcy cases filed under Chapters 7, 11 and 13 of the United States Bankruptcy Code. He has navigated many companies through Chapter 11 to a successful exit with a reorganization plan that improves the company’s balance sheet and brings a fresh start to its operations. He has also successfully used the bankruptcy process to discharge and eliminate countless debts through Chapters 7, 11 and 13 for individuals while also protecting key assets from creditors and trustees.
Bankruptcy, however, is not the only option, and a company/individual may often consider other roads. Dimitri Karapelou begins each representation with a new perspective, staying away from the cookie cutter driven model used by so many firms today. He makes sure to know everything he can about your situation and works with you to craft a specific strategy to meet your objectives.
This page provides a general overview of the bankruptcy process from the perspective of a debtor who wants to file and seek protection under the Bankruptcy Code. Most debtors commence bankruptcy to seek a discharge, or elimination of debts. But there can be other strategic advantages to filing for bankruptcy, including: curing of mortgage arrears; sale of burdensome assets; rejection of real property and equipment leases; elimination of certain debts such as income taxes not otherwise possible; resolving disputed claims of creditors; and filing lawsuits against others to collect money owed to your business.
What is the difference between Chapter 7, 13 and 11?
Chapter 7 is considered a liquidation of the debtor’s non-exempt assets and distributions of proceeds to creditors. The debtor seeks a discharge of most debts that are included in the bankruptcy and does not offer any repayments to creditors. In most individual chapter 7 cases, debtors do not have any assets that are liquidated. In Chapter 7, an independent trustee is selected from a panel of eligible trustees. This trustee is appointed to oversee the case for its duration. The trustee administers the debtor's estate, which includes all assets owned by the debtor at the time of the filing of the case. The trustee can sell or transfer assets, subject to court permission and, if required, consent of creditors. Trustees are required to work in conjunction with the Office of the United States Trustee. Trustees are considered fiduciaries responsible for executing their duties in conformity with the Bankruptcy Code and related rules, guidelines, and procedures. Trustees may not sell assets that are exempt from the bankruptcy estate. Trustees use their discretion to not sell any assets encumbered by liens such as mortgages, taxes, and judgments, and for which there is no available equity to pay unsecured creditors. Trustees also use their discretion to not sell assets which are of insignificant value, have no re-sale market, or are essential personal belongings of the debtor and not otherwise exempt. Chapter 13 is considered a reorganization of the debtor’s financial affairs. In Chapter 13, the debtor proposes a plan of reorganization for the benefit of creditors. The plan allows the debtor to retain control and ownership of assets while proposing to repay creditors over time which can range in duration but is often set for 60 months. Chapter 13 is typically filed by individuals with consumer debts (mortgage, credit cards, medical bills), but can also include sole proprietors of businesses and individuals who own incorporated businesses and have a mix of personal and business debts. Chapter 11 is a reorganization of business and/or personal debts. Chapter 11 can be initiated by corporations and individuals who have business debts or whose debts are above the threshold for chapter 13. Chapter 11 is considered the most complicated, expensive, and time-consuming process in the Bankruptcy Code requiring both client and counsel to devote substantial attention and resources to the case.
What happens after bankruptcy is filed under Chapters 7, 13 and 11 and how does it help an individual or business?
The filing of a bankruptcy will automatically stay most collection activity against a debtor (11 U.S.C. Section 362). The debtor is required (in all chapters) to file schedules and statements of financial affairs which disclose assets, liabilities, and income/expenses along with certain detailed questions about the debtor’s financial affairs that preceded the bankruptcy. In each Chapter, a meeting of creditors is held and conducted by a Chapter 7 trustee or Chapter 11 United States Trustee. This meeting is very important because the debtor’s schedules/statement of financial affairs are examined carefully to ensure that the debtor has been honest and disclosed all crucial information required to understand the debtor’s financial condition. The filing of the case provides the opportunity for a debtor to make the financial disclosures required to allow it to seek a discharge of debts, whether through a liquidation or reorganization.
Who oversees the case?
The Office of the United States Trustee is an arm of the United States Department of Justice and oversees each bankruptcy case that is filed in this country. The United States Trustee assigns one staff attorney to each Chapter 7 and 13 case and an attorney and financial analyst to certain cases under Chapter 11.
Each bankruptcy case is assigned to a specific judge in the federal court district where the case is filed. The judge is randomly assigned unless the Client has been a debtor in a prior bankruptcy case, in which event, the judge from the prior case will be assigned to any new filing.
How does the case end?
In Chapter 7, the trustee will issue a report shortly after the meeting of creditors. If the trustee has reported that the meeting of creditors is concluded, there are no assets to administer and the trustee recommends a discharge of debts, the case proceeds. Creditors and other interested parties including the Office of the United States Trustee have 60 days (about 2 months) after conclusion of the meeting of creditors to contest the discharge. If no parties contest the discharge, the court will issue an order of discharge. Certain debts do not qualify for and are excepted from discharge and these typically include taxes of a certain kind and age, debts arising from liabilities for willful and malicious acts and others. These debts are specifically stated in the Bankruptcy Code.
In Chapter 13, there will a confirmation of the plan hearing scheduled before the judge. The Chapter 13 trustee and creditors can object to the plan, and all objections must be resolved consensually or overruled by the judge before or at the confirmation hearing. The plan can be confirmed if it complies with the Chapter 13 bankruptcy code requirements, of which there are many. Chapter 13 debtors’ main concerns are to ensure that they can afford to make the payments proposed to creditors and the plan is filed in good faith and treats all creditors fairly. Counsel is responsible for ensuring that the plan is otherwise compliant with Chapter 13 procedures.
In Chapter 11, there is also a confirmation hearing scheduled before the judge; however, it differs from Chapter 13 in many ways. Chapter 11 plan process is an intricate multi-step process which may require a debtor to file a disclosure statement giving creditors adequate information to understand the bankruptcy plan, obtain court permission to send the plan to creditors who are eligible to cast a vote accepting or rejecting (or not voting - remaining silent) and appear before the judge at a confirmation hearing to testify in support of confirmation of the plan. In 2020, Congress passed a new Sub-Chapter V of Chapter 11 which allows for a more streamlined process to achieve a business reorganization for small businesses having debt under a certain threshold amount.