In a bankruptcy case, creditors are individuals and businesses a debtor owes money to. Different types of debts take different priorities in getting paid off. Secured debts have to be paid in full or the debtor will lose the collateral. Unsecured debts don’t have collateral like a house or car that can be taken by the creditor upon default. Examples of unsecured debts are credit cards, medical bills, cash advances, and personal loans.
Some debts are dischargeable. For instance, generally income taxes aren’t dischargeable and must be paid no matter whether a person files bankruptcy, unless the tax return was due over three years ago, and the IRS hasn’t issued any income tax assessment within 240 days before a bankruptcy filing. This is why it is not fraud on creditors to payoff taxes to get the savings in a bank account down to zero right before filing bankruptcy.
A New York bankruptcy judge is a judicial officer of the U.S. district court, appointed by the majority of judges of the U.S. court of appeals for 14-year terms. Congress decides the number of New York bankruptcy judges. A New York bankruptcy judge is a problem solver who decides on conflicts between creditors, trustees, and debtors.
The bankruptcy court appoints trustees to take over bankruptcy estate assets. Some trustees are also lawyers or accountants. For example, the trustee in the Bernard Madoff case is an attorney. The trustee obtains a percentage of the assets s/he recovers from a debtor for creditors, in addition to a flat fee for each case. The debtor’s bankruptcy estate pays the trustee’s fees though the trustee works for the creditors. After filing bankruptcy, a debtor receives the contact information for the trustee taking care of the case in a notice of filing from the bankruptcy court.
The trustee reviews the bankruptcy petition for errors or inconsistencies and makes sure creditors get paid as much as possible. The trustee is not a neutral party in a bankruptcy case. The trustee is interested in a debtor’s assets and income, and how much the trustee can distribute to creditors. After filing bankruptcy, a debtor appears for a 341 hearing. At this meeting, the trustee questions the debtor under oath about assets, liabilities, transfers, and income. If a debtor commits fraud, the court will not discharge the debts.
The U.S. Trustee is an officer of the U.S. Department of Justice responsible for overseeing the administration of bankruptcy cases and private trustees. Sometimes in a court hearing, the U.S. Trustee and the trustee may appear.
A debtor may file a petition by him/herself. If a debtor engages an attorney, the attorney will advise on bankruptcy alternatives, make sure a debtor files under the right Bankruptcy Code chapter, and apply exemptions so a debtor keeps as many assets as possible.
When contemplating bankruptcy, engage an experienced New York bankruptcy attorney to review financial documents and prepare court documents.