Legal Note – Bankruptcy / General Overview

In light of the frequency of calls we now receive inquiring as to the benefits of bankruptcy, the next few legal notes explain some of the costs and benefits of the bankruptcy option. This month we provide some general background.

The federal bankruptcy process generally provides a means of discharging indebtedness owned by an insolvent debtor. The assets of the debtor become the property of the “bankruptcy estate” paid to creditors based on rules of preference.

Generally three types of bankruptcy are utilized by individuals and businesses to discharge indebtedness. Chapter 7 contemplates a “snapshot” liquidation on the date of filing. Non-exempt assets are therefore compiled for the benefit of creditors whose debts are discharged. Money earned by the debtor after filing bankruptcy (i.e., after the snapshot) is not included in the bankruptcy estate available to creditors at the time of filing. The debtor is generally discharged from most all indebtedness within ninety (90) days of filing and provides a “fresh start”.

Chapter 13 affords individual debtors the ability to establish a repayment plan. Only individuals with unsecured debts less than $336,900 and secured debts of less than $1,010,650 are eligible for Chapter 13 bankruptcy. If a debtor is able to repay the restructured debt, the debtor may keep his or her assets.

Chapter 11 is generally only available to business entities and individuals with significant assets who owe debts exceeding the Chapter 13 limits. Under Chapter 11, the debtor remains “in possession” of its assets and proposes a debt payment plan. Under certain circumstances, the debtor may alternatively force the creditor(s) to accept (or “cram down”) a payment plan. At the end of the payment plan, if the debtor has complied with the plan, the debtor retains its assets.

Gary Forster is a Florida native practicing in all areas of business transactions, personal planning and tax matters, both domestic and international. Gary handles a variety of corporate, personal and tax planning matters, ranging from wealth protection and corporate structuring to complex business reorganizations. Mr. Forster has designed and drafted hundreds of asset protection plans involving domestic and foreign corporate and trust structures. Gary is a member of both the Florida Bar (admitted October 8, 1993) and District of Columbia Bars (admitted February 6, 1995), including bar sections for international and tax law. Gary is also a member of the U.S. Tax Court. Gary earned an undergraduate degree from Tufts University in 1990, graduating cum laude, with majors in Spanish Literature and Economics. Gary graduated from law school at the University of Florida in 1993 with honors. Gary earned the Masters in Taxation degree in 1994 from the University of Florida where he was a graduate fellow. Mr. Forster writes and lectures frequently on international tax, corporate law and asset protection issues. Gary speaks Spanish fluently.

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