Pub. 10 2021 Issue 3

Pub. 10 2021 Issue 3 21 The resul t of a successful bankruptcy is the ent ry of an order discharging the debtor f rom l iabi l i t y for cer tain debts. Whi le the discharge t iming var ies based on the t ype of case f i led, in al l cases, the discharge permanent ly bars credi tors f rom taking any act ion to enforce or collect discharged debts. trustee gathers and sells a debtor’s nonexempt assets and distributes proceeds to creditors. Where there are no nonexempt assets available for sale, unsecured creditors do not receive distributions. Secured creditors generally retain their valid liens and the ability to enforce them after a bankruptcy case concludes. Chapter 11 Chapter 11 is a “reorganization” bankruptcy. In these cases, the debtor, acting in a fiduciary capacity as a “debtor-in-possession,” typically maintains possession and control of its assets and continues to operate its business during the reorganization process. Often, a creditors’ committee is appointed to represent the interests of unsecured creditors. Creditors in a Chapter 11 bankruptcy have the opportunity to vote on and object to confirmation of a debtor’s proposed plan of reorganization. Because a debtor is highly motivated to confirm and effect such a plan, creditors often have substantial power to negotiate the treatment of their claims. Certain debtors may elect to proceed under subchapter V of Chapter 11, which simplifies and condenses the bankruptcy process to make reorganization less expensive for smaller debtors. After a Chapter 11 plan is confirmed (approved by the court), payments will be made to creditors pursuant to its terms. Chapter 12 Chapter 12 can be characterized as a hybrid of chapters 11 and 13 that provides a more streamlined bankruptcy process for “family farmers” or “family fishermen” who have regular annual income. Qualifying debtors can propose and implement a plan to pay all or part of their debts over the course of three to five years. Creditors do not vote on a Chapter 12 plan but may object to its confirmation. After a plan is confirmed, the Chapter 12 trustee will distribute funds per the plan’s terms. Chapter 13 Chapter 13 provides a way for individuals with regular income to propose and implement a plan to pay all or part of their debts over the course of three to five years. Creditors do not vote on a Chapter 13 plan but may object to its confirmation. After a plan is confirmed, the Chapter 13 trustee will distribute funds per the plan’s terms. Proofs of Claim In most bankruptcy cases, in order to receive a distribution under a confirmed plan, a creditor must file a proof of claim, including supporting documentation. The treatment of a creditor’s claim depends on whether it is secured or unsecured. Creditors should determine whether their debt is secured, confirm the status and location of any