It was recently announced that Carmel, Indiana-based, for-profit college operator, ITT Educational Services Inc. will be unloading its assets, shutting down 130 campuses nationwide, and filing for Chapter 7 bankruptcy. The closure will displace more than 35,000 students and 8,000 employees.
ITT Educational Services Inc. Files for Chapter 7
Forms of Bankruptcy
Most people have heard of Chapter 7, Chapter 13, and Chapter 11 bankruptcy. We’ll focus on Chapter 7 here, as that is the most common form for individuals filing for bankruptcy.
Chapter 7 is the most common form of bankruptcy and is commonly referred to as “straight bankruptcy.” Under Chapter 7, assets are sold off so that the proceeds can go to paying debt. All proceeds from the sales of those assets are handed over to a trustee, who then pays down any and all creditors. After all creditors have been paid off they are no longer able to collect funds directly from you and your debts are cancelled, meaning you are no longer responsible for them. Chapter 7 is a good option for people dealing with the following:
- You unable to repay your debts
- You have debts that do not have co-signers
- You are going to be sued by creditors
Chapter 7 Bankruptcy Process
From start to finish the entire Chapter 7 bankruptcy process takes from four to six months, and rarely do cases go to court. It should be noted that the process does require just one mandatory non-court appearance before the trustee. At the end of the process debtors are able to discharge most or all of their debt.
Steps of a typical Chapter 7 bankruptcy
1** Pre-bankruptcy ****credit counseling.** For a person to be able to file Chapter 7 bankruptcy, they must first receive credit counseling from an approved agency. This needs to happen within the six months prior to filing.
2** Bankruptcy petition.** Filing consists filing out some paperwork, including: the bankruptcy petition, a schedule that details your financial information, and other forms that are there to help you calculate your income, expenses, and what can be considered exempt. This is where it is helpful to involved a bankruptcy attorney that can explain what needs to be included on these forms.
3** Automatic stay** When a debtor files a bankruptcy petition, an automatic stay goes into effect. This automatic stay prohibits creditors from continuing to collect from a debtor.
Assignment of a bankruptcy trustee. A court will assign a bankruptcy trustee to administer the case. This assigned trustee will attempt to maximize assets included in the bankruptcy estate so that the sales of the assets can be distributed to unsecured creditors. The trustee also reviews all the paperwork to check for inaccuracies and any possible fraud.
Meeting of creditors. Next, a debtor is required to attend a meeting of creditors hearing that is administered by the bankruptcy trustee. This is not a court hearing, but rather a meeting where a trustee will ask a debtor about his or her petition and finances. Creditors are allowed to appear, although most do not, and are also able to ask questions of the debtor.
Decision on Eligibility for Chapter 7. A court will next decide if the debtor is eligible for Chapter 7. A bankruptcy attorney will be able to assess this. One reason a court might deny eligibility of a debtor is because of the results of a means test that evaluates debts owed and income earned.
Decision on p****roperty If property is exempt, a debtor keep it. If there is nonexempt property, the trustee decides next steps. One option is that it is seized and sold to repay creditors. There are a number of exemption options for property, and you’ll want to consult a bankruptcy attorney to review what assets you might be able to exempt in your filing.
Determination on Secured debts. Secured are debts that have property that can be used as collateral associated with them. You can often surrender the secured debt to reaffirm the loan or do nothing. Doing nothing means you will need to keep paying back the debt owed.
9** Financial management course.** Before a debtor can receive a discharge, he or she must take a debtor’s education course.
Discharge. Between three and six months after a debtor file for bankruptcy, the court grants a bankruptcy discharge. At this point, the automatic stay is lifted.
Bankruptcy case closed. Once a discharge has been granted, a court closes the case. This usually happens a few days or weeks following the granting of the discharge.
Chapter 13 reorganizes debt so that you are able to pay back debts over the next three to five years. This pay-back plan is called a debt repayment schedule. Based on your income, and how much you owe, you’ll repay 10-100% of the debt you owe. Chapter 13 is a good option for people dealing with the following:
- You have already filed Chapter 7 within the past six years
- You have debts that have c-osigners
- You are able to re-pay your debts within three to five years
- Your income has disqualified you from filing for Chapter 7
- You need relief from impending collection proceedings or you want to pay your creditors back but are currently unable to
Chapter 11 bankruptcy is the most common form of bankruptcy filed by businesses. This form allows businesses to either reorganize or liquidate assets to repay creditors. Usually Chapter 11 filings lead to reorganizations where the business is allowed to continue operations while paying off creditors.
Individuals are allowed to file Chapter 11, but this is rare and usually reserved for individuals that have a large amount of money.
Businesses do not need to take a means test to qualify for Chapter 11 filing.
When you’re facing a large amount of debt, it can feel insurmountable. Should you file for bankruptcy? How does bankruptcy work? As always, it’s advised that you work with a phoenix chapter 7 bankruptcy lawyer or phoenix chapter 11 bankruptcy lawyer to help you determine if bankruptcy is the next step for you, or if there are other options for you.
Working with a Bankruptcy Attorney
Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix chapter 7 bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.
668 N. 44th St., Ste 320, Phoenix, AZ 85008