Chapter 12 Bankruptcy

There is a tendency to throw all the varied kinds of bankruptcy into one pile when considering whether it may be appropriate to file for bankruptcy protection. This is a dangerous misconception because there are many important differences from one chapter of the United States Bankruptcy Code to the next. Moreover, certain forms of bankruptcy are reserved for individuals and others are reserved for businesses. The failure to properly choose the right form of bankruptcy protection for your specific situation can have an adverse effect on not only the approval or rejection of your claim.

It can also result in the unnecessary loss of assets and may require you to pay more to your creditors than you would if you had pursued the most fitting type of bankruptcy for your circumstances. For family farmers, ranchers, and fishing companies the best option in the face of serious financial distress is typically Chapter 12. Chapter 12 was introduced into the Bankruptcy Code in 1986 as it became increasingly apparent that economic circumstances had made the prospect of maintaining fiscal solvency increasingly grimmer for small family owned farming operations.

Features of Chapter 12 Bankruptcy

The primary distinguishing features of Chapter 12 bankruptcy are those that are designed to restrict its provisions to parties that are actively engaged in small scale agricultural endeavors. For example, the debts that are included in a proposed bankruptcy plan must have been at least 80 % attributable to the operation of the farm. Additionally, to establish that the farm is the primary source of a filing party's income, more than half of the income in the previous year must have been gained through revenue generated by the farm.

There are a number of reasons that you may prefer the specific provisions of Chapter 12 bankruptcy to the others for which your claim may be eligible. Some of these are:

• The lack of a means test (such as that required for Chapter 7 bankruptcy)
• No credit counseling is mandated for a filing party
• Assets are not compelled to be sold to satisfy debts outstanding to creditors
• Disclosure statements do not have to be filed

Buy Bankruptcy

Bankruptcy auctions are filled with terminology and procedures somewhat foreign to the average investor; however, with a basic knowledge of the industry, a first time buyer can not only reduce risk but also close a phenomenal deal.

In United States bankruptcy cases, a sale of an asset of a bankruptcy estate requires a court order. A trustee files an application with the Bankruptcy Court, asking the court to order the sale of the asset. When the judge signs the order, the noticing period-or period of time that the asset must remain accessible for public viewing prior to the sale-begins. The noticing period varies in length, but lasts on average 20-30 days.

As a buyer, the noticing period is an often under-utilized tool. This is the optimal time for buyers to perform their due diligence, by researching the asset on their own. Most bankruptcy assets are sold "as is, where is," and "with no warranties implied or stated." This means that the seller, trustee, and bankruptcy estate are not responsible to the buyer for the property in any way, except to provide a deed, bill of sale, or assignment. Because of this, trustees rarely order title searches on real property, and often go off of the "Schedules" (or list of debts and assets provided by debtor) to determine and disclose any liens against the property. The disclaimers can often deter more apprehensive buyers while creating the opportunities for epic deals.

Most bankruptcy asset auctions in the United States are in person auctions. However, it is possible to follow auctions on the Internet. Many in person auctions even have Internet or phone bidding. Some bidders find it helpful to watch online auctions and attend in person auctions in the beginning, to get comfortable with their surroundings before rushing into a bid.

When bidding, have a plan. Its easy to get carried away and outbid not only your competitors but also your budget. Know which assets interest you, what you are willing to pay, as well as the value of the asset before you bid. Make sure that you have the funds in hand, should you win the auction. An auctioneer acts as a middleman between the trustee and the buyer, so when the auction ends, stay in contact with your auctioneer. Occasionally, property transfer in bankruptcy can be a bit tricky, and open communication and cooperation with your auctioneer helps moves the process along.

Remember that your auctioneer knows what sales are coming up, even before the noticing period. Seasoned investors in bankruptcy assets know to register for auctioneer mailing lists, and check in from time to time to scoop their competition and get a head start on an upcoming auction.

Calculating Monthly

After the passage of bankruptcy reform in 2005, all debtors filing bankruptcy are required to calculate their average monthly income. The average monthly income is calculated using the income earned during the six months before filing bankruptcy. For example, if you filed bankruptcy in October, you would need to calculate your average monthly income for the period of April through September. For debtors who work as W-2 employees and receive regular paychecks, this can be achieved easily. But for the self-employed, calculating the average monthly income for bankruptcy will require a little more work. Here's how you can do it:

First, debtors considering bankruptcy need to gather their profit and loss statements and bank statements for the past six months. Unfortunately, many self-employed people do not create profit and loss statements each month, therefore they will need to create them using their bank account information, receipts or any other information that will help them. You can find many sites online that will give you example profit/loss statements.

After you have created a profit and loss statement for each of the previous six months before filing bankruptcy, you will need to attach a corresponding bank statement. The bank statement and profit and loss statement must be reconciled. Once you put together all of your necessary information, you can work with your bankruptcy attorney to calculate the average monthly income. Remember, if you fail to calculate your average monthly income or fail to provide supporting documentation (P&L and bank statements), your bankruptcy case may be dismissed.

Filing Bankruptcy

No one wants to have to file for bankruptcy. It can be a depressing and humiliating experience. But it does not mean that you are beaten. Sometimes bankruptcy is just the best option to eventually help you get back on your feet and you shouldn't feel bad about having the courage to take the steps to repair your financial standing. Here are a few guideline to help you when filing for bankruptcy.

Filing bankruptcy first starts off with gathering information. This is not meant to be exhaustive or ridiculous, it is just meant to make the whole process easier either for you or your lawyer. First of all you should document all of your income for the past nine months. This would include any tax refunds, dividends, paychecks, gifts, annuities, and interest. This is meant to help calculate the reasons why you are filing bankruptcy. Your amount of income will help to determine what chapter of bankruptcy that you can file for.

Next you need to gather a list of your possessions and assets. This would include any mortgages, cars, jewelry, valuable household goods, clothing, stocks or bonds, bank accounts, checking, savings, cash, CD's, annuities, retirement accounts, and anything else that might have value. This helps the state determine what can be saved and sold at auctions to help pay off your debt. Many times however the items hold no real value on the market and you are able to keep them and do what you will with them.

Bankruptcy in Texas?

The burning question in most potential bankruptcy debtors' minds is "What can I keep?" You're understandably worried about losing everything, but let me just put your mind at ease. You're definitely not going to lose everything. In fact, most people keep everything. Bankruptcy was created specifically to help consumers sinking under the waves of financial overburden, and both state and federal law provide for property exemptions. In other words, the law sets out a list of items that you can keep even after the bankruptcy process ends.

Texas allows consumers to choose to use either the federal exemption guidelines or the Texas exemptions. The federal exemptions allow you to keep:

• Your home up to $20,200
• Life insurance payments for individuals you depend upon for support
• Life insurance policy with loan value up to $10,775
• Unmatured life insurance contract, excluding credit insurance policy
• Alimony and child support used for support
• Pensions and Retirement Benefits, ERISA-qualified benefits needed for support
• $525 per item in household goods for a total value of up to $10,775
• Health aids
• Jewelry up to $1,350
• Lost earnings payments
• Your motor vehicle up to $3,225
• Personal injury compensation payments up to $20,200, wrongful death payments, crime victims' compensation, public assistance, social security, unemployment compensation, and veterans' benefits
• Tools of trade up to $20,200
• Wild Card - $1,075 of any property plus up to $10,125 of any amount of unused homestead exemption

The Texas exemptions allow you to keep:

• Your home, if not more than 10 acres in town or 100 acres out of town (200 acres for families)
• $30,000 worth of personal property ($60,000 for head of family), including one two-, three- or four-wheeled vehicle; two horses, mules or donkeys and a saddle, blanket and bridle for each; 12 head of cattle,; 60 head of other livestock; 120 fowl; pets. Athletic and sporting equipment, home furnishing, family heirlooms; food and clothing; jewelry (but not to exceed 25 per cent of total exemptions); tools of your trade
• Burial plots
• Health aids
• Unemployment, disability, veterans', workers' compensation and social security benefits
• Alimony and child support
• Retirement plan and life insurance proceeds
• Business partnership property
• Farming or ranching vehicles and implements

Also, as long as you keep up the payments on mortgages and deeds of trust, you'll be able to keep all your property that you're still paying on. And with bankruptcy to help give you the financial breathing room you need, that shouldn't be a problem. Lenders use foreclosure as a last resort, so they want you to make your payments just as much as you do.