The available chapters for bankruptcy are
- Chapter 7 (Liquidation)
- Chapter 9 (Municipalities)
- Chapter 11 (Reorganization)
- Chapter 12 (Family Farmer)
- Chapter 13 (Wage Earner)
The majority of bankruptcies in Wilmington are Chapter 13 bankruptcies.
Chapter 7 bankruptcy is designed for debtors in financial difficulty who do not have the ability to pay their existing debts over a period of time.Under Chapter 7 bankruptcy, a trustee takes possession of the debtor's property.A debtor may claim certain property as exempt.The trustee then liquidates the non-exempt property and uses the proceeds to pay the debtor's creditors according to the priorities of the Bankruptcy Code.The bankruptcy court then discharges all of the debtor's dischargeable debts.
Chapter 11 bankruptcy is designed primarily for the reorganization of a business.
Chapter 13 bankruptcy is designed for debtors with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time.
Under Chapter 13 bankruptcy, the debtor must file a plan with the bankruptcy court to repay his creditors all or part of the money that he owes them, using his future earnings.
The debtor may claim certain property as exempt and retains
possession of all of his property.
The plan can last from three to five years and must be approved by the bankruptcy court before it takes effect.
After completion of the plan, the bankruptcy court then discharges all of the debtor's dischargeable debts.
Filing bankruptcy may affect a debtor's ability to buy, sell or refinance property. A debtor's principal residence is usually scheduled as exempt in a bankruptcy. If a realtor is representing a debtor who is considering filing bankruptcy or who has already filed bankruptcy they should consider the following:
SELLER'S AGENT (Chapter 7 bankruptcy). If an agent is representing a debtor who has filed Chapter 7 bankruptcy, the transaction can not close without a court order until the following steps in the Chapter 7 bankruptcy are completed:
1) The debtor files Chapter 7 bankruptcy and schedules the property as exempt
2) the creditors' meeting has been held
3) no objections were filed by the creditors within 30 days of the creditor's meeting. If a property is scheduled as nonexempt, the debtor must obtain a court order to sell subject property.
SELLER'S AGENT (Chapter 13 bankruptcy). If an agent is representing a debtor who has filed Chapter 13 Bankruptcy, the transaction can not close without a court order until the following steps in the Chapter 13 bankruptcy are completed:
1) The debtor files Chapter 13 bankruptcy and schedules the property as exempt
2) the debtor files a Chapter 13 plan and the bankruptcy court confirms the plan
3) no objections are filed by the creditors within 30 days of the confirmation of the plan. If a property is scheduled as nonexempt, it must be sold by the debtors with
(a) a court order
(b) pursuant to the terms of the plan.
A court order will not be necessary if the plan revests the bankruptcy estate back to the debtor and the sale of the property is consistent with the terms of the plan.
BUYER'S AGENT. A buyer who is in bankruptcy may purchase subject property without a court order if there is no new indebtedness involved.If the buyer is incurring new indebtedness, then the buyer must file a motion and obtain a court order to incur new indebtedness.
LENDER - REFINANCE. If a property has been properly exempted, the debtor may refinance the property without a court order. If a property has not been properly exempted, the debtor must obtain a court order authorizing him to refinance the property.
FORECLOSURE. When a debtor files bankruptcy an automatic stay goes into effect and prevents lienholders from foreclosing on a property under a deed of trust.A lienholder may foreclose on a property under a deed of trust if the lienholder obtains a lift of stay from the bankruptcy court.A bankruptcy court will typically grant a lift of stay if the debtor does not make the payments required by a deed of trust.
REPRESENTATION AGREEMENT. A debtor or the trustee has the right to reject an executory contract in a bankruptcy. An executory contract is a contract that has not been fully completed or performed.If an agent has a representation agreement, which is an executory contract until the earnest money contract is executed, with a debtor who has filed bankruptcy, the debtor or the trustee has the right to reject the representation agreement and terminate it.
SELLER'S AGENT CHECKLIST: 1. Is your seller in bankruptcy?
2. If so, what type of bankruptcy (ch. 7, ch. 11, or ch. 13)?
3. Is subject property scheduled as exempt?
4. Has the creditor's meeting been held?
5. If it is a chapter 11 or 13 bankruptcy, has the plan been confirmed?
6. Does the seller need a court order to sell subject property?
BUYER'S AGENT CHECKLIST
1. Is your buyer in bankruptcy?
2. Will there be new indebtedness?
3. Does the buyer need a court order to purchase subject property?