How much does a Bankruptcy Cost?

      This is a frequently asked question in the bankruptcy world.  How much does a bankruptcy cost, and how am I supposed to pay for it?

     

      Well first it depends on under which chapter you are filing bankruptcy.  Chapter 7 is the least expensive, but you must first qualify, and there are lots of restrictions.  Chapter 13 is next highest, but with relatively low risk if you have a job and can afford your repayment plan.  As for Chapter 11, if you have to ask, you cannot afford it.

 

      Currently in the Middle District of Tennessee, which consists of Nashville and surrounding counties, the filing fee for a Chapter 7 is $306, Chapter 13 is $281, and Chapter 11 is $1,213 but also with quarterly fees that depend on how much debt is owed. 

 

      For Chapter 7 and Chapter 13 debtors, the filing fee does not need to be immediately paid. For Chapter 13 debtors, the trustee will pay the fee for you out of your monthly payments.   For Chapter 7 debtors, they have up to 4 months to pay the filing fee; however, failure to do so will result in closing of the case without a discharge.  Thus we recommend paying the fee up front.

 

      The attorney fees for bankruptcy are set by the court.  Chapter 7 fees can range from $1,000 to $1,500 depending on how complicated the case is.  Some newer attorneys and high volume law firms will charge less, but like most things in life, you get what you paid for. 

 

      As for Chapter 13 cases, the fee can range from $2,500 to $4,000, but these fees are paid through the monthly plan payments and are disbursed by the Trustee of the case.  Also, chapter 13 fees are higher because the case lasts from 3 to 5 years. 

 

      Lastly, are the counseling courses.  The 2005 amendments to the bankruptcy code requires that debtors attend 2 budgeting courses.  The course holder must be a non-profit agency and approved by the Bankruptcy court.  The agencies that we recommend our clients to charge $25 for the first course and $15 for the second course.  In a chapter 13, however, the trustee will teach the second course for free. 

 

      At our firm, we do take pro-bono cases and will charge less fees for individuals who truly cannot afford the fee.

How to File Bankruptcy?

      The easiest answer is to call a local attorney, explain your situation, and then see what she advises. However, the point of this post is to explain what you need to do in order to file a bankruptcy petition.

1)      Collect and compile all of your debts.  Pull your credit report, for free with no strings at annualcreditreport.com.  Gather all bills, statements, and collection letters from your creditors to make sure you have all account numbers, balances, recent payments made, their names and addresses.  All of this information, except for the account numbers, must be included in your bankruptcy petition. So get all of this organized.

 

2)      File your taxes.  Bankruptcy law does not allow you to file a bankruptcy unless you have filed your taxes.  It does not matter if today is February 3 and you have until April 15.  Bankruptcy law will not grant you a discharge unless you have filed your taxes.

3)      Collect and organize your previous 6 months of paystubs or other proof of income.  The Bankruptcy court requires that you disclosure all income received and its source from the previous six months prior to filing the case.  The court also requires that the previous 2 months of income statements be submitted to the US Trustee’s office for review. 

4)      Organize and know all of your assets.  In your petition, you will have to list everything you own.  The underlying, extremely simplified premise behind bankruptcy is: that when you file a trustee is appointed to your case who has the ability to take and sell everything you own, use that money to pay your debts, and whatever debts still remain are discharged, or “wiped away.”  Well, having everything you own being sold does not really help with a “fresh start,” therefore, federal and state law allow you to keep certain items to a certain amount.  That is why you need to tell the court everything you own, so the trustee can calculate the value of your assets and determine which ones are exempt and which ones are not exempt from seizure. 

5)      Property Identification.  The Bankruptcy Court requires government photo-id and government issued social security number.  You cannot use a tax return, because you send that to the government. You need your SSN card, Medicare Card, W-2, or Tax Transcript because those are from the government.

       Filing bankruptcy is a completed process and we strongly urge that you hire an attorney to represent you in a bankruptcy case instead of trying this on your own, but having the above things taken care of will significantly help with a smooth process. 

 

 

What happens to my Chapter 13 Bankruptcy Payments if my case is dismissed?

       The answer to the above question used to depend on how far along a person was in their bankruptcy plan.  The law was well settled that if a case was dismissed prior to the Court issuing an order of a debtor's plan, then the plan payments held by the trustee would go back to the debtor subject to only administration costs.

       Prior to just a couple of weeks ago, here in Middle Tennessee, if a case was dismissed after the plan had been confirmed any funds held by the trustee at that time were sent to the creditors in accordance with the plan since those payments were received by the Trustee when the case, and therefore the plan, was still alive. However, that was the custom.  The Middle Tennessee Bankruptcy Court just recently issued an opinion stating that any funds being held by the trustee when the case is dismissed will go back to the debtor, subject to any objections after parties have been given notice to file applications for that money. 

       Now, any funds received by the Trustee after the case was dismissed, because funds were in the mail or sent prior to an employer receiving notice of the dismissal, are sent back to the debtor.  That stills holds true.  The change in the disbursement of funds was limited only to funds received prior to dismissal, but not yet disbursed.  Good news for debtors, bad for creditors.

Can I Discharge my Traffic Tickets in Bankruptcy?

One of the questions we receive quite often is whether or not traffic tickets and other court costs are dischargeable in bankruptcy?  Many debts are not dischargeable such as some income taxes, child support, and most student loans.  For traffic tickets we have to look at the Bankruptcy in detail.

 

Section 523(a)(7) of the bankruptcy code states:

 

"a discharge under section 727, 1141, 1228(a), or 1328(b) of this title does not discharge an individual from any debt – to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty."

 

In a Chapter 7 case, government fines are not dischargeable, including criminal fines.  A Chapter 13 debtor, however, who completes his case and receives a discharge may be able to discharge certain non-criminal government fines.  Section 1328(a)(3) of the bankruptcy code states that a Chapter 13 debtor who completes all payments under the Plan receives a discharge "of all debts provided for by the plan or disallowed under section 502 of this title, except any debt – for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime."

 

Therefore, if your fine is for a criminal act determined by state law, it is not dischargeable in Chapter 7 or Chapter 13. If the fine is considered a civil penalty, it is not dischargeable in Chapter 7, but  it is dischargeable in your Chapter 13 case.

 

 

What is a Chapter 20 Bankruptcy?

       A Chapter 20 Bankruptcy is the situation where a debtor files for Chapter 7, and then immediately refiles another case under Chapter 13.  The purpose are a few reasons why a debtor would want to take this strategy.  The first purpose is to reduce the monthly payments that will be required in a Chapter 13 plan.  If a person has $50,000 of general unsecured consumer debt (such as medical bills and credit cards) and also has $50,000 of student loans, which is not dischargeable, then chapter 13 payments to pay everyone in full would be $1,666.67 per month for 60 months.  However, if the debtor first files Chapter 7 bankruptcy, then $50,000 of the consumer debt would be discharged. After the case is closed the debtor can immediately refile under Chapter 13 in order to pay the nondischarged student loans.  That monthly payment would be $833.33 for 60 months. 

       Another reason to file a chapter 20 is because the debtor exceeds the Chapter 13 debt limits.  Currently, a debtor cannot file a Chapter 13 bankruptcy if the unsecured debt exceeds $360,475.  Chapter 7 has no debt limits.  Thus, a debtor may have $400,000 in unsecured debt, which is mixed with dischargeable and nondischargeable debt, as well as secured debt of a house and car.  The debtor (if he qualifies for a chapter 7) file the chapter 7 first reduce the overall debt to be under the debt limit.  Then the debtor could file a Chapter 13 bankruptcy in order to cram-down the car loan or strip off a second mortgage on a house.

       Now, one thing to remember is that by filing a Chapter 7 first, the debtor will not be eligible for a second discharge in the Chapter 13 bankruptcy.  All of the consumer debt would've already been discharged in the Chapter 7, but the debtor would be liable for any deficiency if he later choose to surrender the house or car in the chapter 13 bankruptcy.  

Student Loans and Hardship Test

Recent Case Updated from the 9th Circuit:
In re Jorgensen 2012 WL 3963339

       Under the Brunner “undue hardship” test, a debtor seeking discharge of student loan debt must prove that (1) she cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if required to repay the loans, (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period, and (3) the debtor has made good faith efforts to repay the loans.

       The Court of Appeals held that the lower Bankruptcy court did not abuse its discretion by refusing to discharge $8,045.02 of Chapter 7 debtor's approximately $36,285 in student loan debt; the court refused to discharge $6,050 because debtor would not be paying rent during the five and one-half months that she was teaching abroad and she did not satisfactorily explain why the excess $6,050 was necessary to maintain a minimal standard of living, and the court refused to discharge $1,995.02 because debtor purchased a new vehicle prior to her trip and her car payment while abroad was not necessary to maintain a minimal standard of living.

Voided Mortgages in Bankruptcy

      Currently the hottest issue in Bankruptcy law, at least here in Nashville, TN, is stripping mortgages from a person's home. In order for any creditor to be paid in a Chapter 13 bankruptcy, the creditor must file a Proof of Claim. For unsecured creditors, such as credit cards and medical bills, the creditor merely has to file a Proof of Claim form and they are entitled to payment, and it is the burden of the debtor to rebut the presumption that he owes that debt. However, for creditors with collateral securing their loan, such as mortgages and car liens, the creditor must attach with their Proof of Claim, documentation that proves the claim is in fact secured. So for a mortgage, the bank with the mortgage must attach the Deed of Trust and the Promissory Note.

       Now, the collapse of the housing market for the past five years has unveiled many “mistakes” and “errors” of the banking mortgage industry. Once a homeowner signed a mortgage with a local bank or even a national/global bank, many of those mortgages were bundled, sold, and traded multiple times. However, the actual physical documents that were signed cannot be found because many of these transactions were done electronically. Therefore, in Bankruptcy Court, when the Proof of Claim for a mortgage is filed and the documents are not attached, or the documents attached have the name of a different bank on them, then the claim gets disallowed. Subsequently, section 506(d) of the Bankruptcy Code provides that to the extent that a secured claim is not allowed the lien securing that claim on the property is void. Thus, if the Bank cannot prove that they own the mortgage with a Deed of Trust and Promissory Note then the claim is disallowed, and then the lien may be stripped.

       Now, for a Bankruptcy attorney, I am going to discuss some strategies when this issue arises. First, the bankruptcy attorney must follow the Proof of Claims Deadline. When we receive the Notice of the Meeting of Creditors, on it is published the Deadline for Creditors to file Proof of Claims. We mark our calendars for these deadlines. According to our Local Rules, here in Middle Tennessee, the debtor has 30 days beyond this deadline to file a proof of claim on behalf of the creditor. So once this deadline approaches, we check to see if the secured creditors of a case filed their Proof of Claim. If they didn't we file one on their behalf. Obviously, we do not have the Deed of Trust or the Promissory Note, so shortly thereafter the Trustee of the case files a Motion to Disallow that claim. Next, we file with the Trustee an agreed order to hold the funds provided in the plan meant for the mortgagee, that way if the documents arise during litigation, the trustee has been holding those funds so the debtor doesn't fall behind in her payments.

       Now is when we file our adversary proceeding against the alleged mortgagee with the lien to strip the lien pursuant to section 506(d). Also, an attorney must be sure to properly serve the complaint on the bank pursuant to Rule 7004. Another good strategy, is when/if the bank responds with an answer, is to request discovery, production of documents, or subpoena the bank to produce the Note and Deed of Trust. Thus, if the bank cannot provide the documents, then the lien is stripped, or if the bank refuses to supply them, as a strategy to avoid saying the documents cannot be found, then you can ask for sanctions.

Property Taxes in Bankruptcy

      I wrote a post a few months ago on Property taxes is bankruptcy because we argued the case and the decision had yet to come down. Well, a couple of weeks after that post was written we the judge issued his opinion and the decision was split, partially granted and partially denied. 

      First, we won on the issue that "penalities" are not "fees, costs, or charges" that could be allowed for the secured creditor.  Therefore, a debtor's delinquent property taxes would be charged a 12% interest rate and not an 18% interest rate; moreover, the secured claim would only grow at 12% and not 18%.  One part of the decision the judge added in, and it was not argued by us nor the Metro Trustee's office, but was argued in the Chapter 13 Trustee's brief.  That issue was the fact that since, in this case, the debtor was solvent the Metro Trustee's office should be allowed an unsecured claim of the 6% penalty, but only from the date of filing to the date of the confirmation order. 

When Can Someone File Bankruptcy Again?

       A common question we receive is: "I filed bankruptcy [x] years ago, does that affect me?"   Section 727 of the Bankruptcy Code lists the amount of time that a person must wait if he has received a bankruptcy discharge.  The following are the amounts of years that must be between the filing dates of the bankruptcy cases and their respective Chapters:

                                     Between Chapter 7 and Chapter 7:   8 Years
                                     Between Chapter 7 and Chapter 13:  4 Years
                                     Between Chapter 13 and Chapter 7:  6 Years
                                     Between Chapter 13 and Chapter 13: 2 Years

       The six year requirement between a Chapter 13 and a Chapter 7 has two exceptions: (1) the debtor paid all "allowed unsecured" claims in the earlier case in full, or (2) the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor's plan was proposed in good faith and the payments represented the debtor's best effort.

The Automatic Stay and Creditor Harassment on Surrendered Property

       One of the most important and influential aspects of Bankruptcy is the Automatic Stay.  The Automatic Stay is just that, automatic.  As soon as the bankruptcy petition is filed, all of a debtor’s creditors are stayed (prohibited) from making any attempts whatsoever to take any property, money, income, etc., from the debtor.  This means that all lawsuits, phone calls, repossessions, foreclosure proceedings, EVERYTHING must immediately stop otherwise the debtor can receive money damages from the creditor for a stay violation. 

        Now just focusing only on Chapter 13 cases, a creditor does have the right to ask the court for permission to be relieved from the stay (Motion for Relief from Stay), for instance, in order to repossess a car that the debtor is not paying for or is uninsured.  Furthermore, many times in a bankruptcy a debtor will voluntarily surrender a car or home to the creditor. When this happens, the creditor usually does not need permission from the court to recover the collateral, as such permission is typically included in a confirmation order.  Here is an example from an actual order:  “The plan surrenders the debtors interest in collateral to the creditors listed below. The automatic stay has been lifted to allow these creditors to repossess the collateral upon which they have liens.”  Well when the stay is lifted, does that mean the creditor can begin harassing the debtor again?  As counsel for debtors, we say no; however, there are creditors who say yes!  While in my research I have yet to find a case that addresses this particular issue, I found many cases that are analogous. 

       For example, a reaffirmation agreement is a voluntary agreement between a debtor and creditor that allows a debt to be exempt from discharge and remain in effect after the bankruptcy (This is done for debtors who wish to keep cars or houses).  It has been held by many bankruptcy courts that a creditor can contact debtors about such an agreement since both parties have this right. However, litigation soon followed because the creditor was trying to harass the debtor into such an agreement.  Courts have held that while a creditor is allowed to contact the debtor for this purpose, the creditor cannot do so through harassment, threats, or coercion, as this defeats the purpose of the Bankruptcy Code protections.

       Usually, when property is being surrendered, the discourse between the creditor and debtor is tranquil and they arrange a time for the surrendered car to be picked up or a time limit for the debtor to move out of a house.  There is currently a case going on right now where the debtors moved out of their house, which was surrendered, two years prior but are still getting harassing and threatening phone calls about transferring the property.  Though the stay had been lifted, the debtors are contending that like reaffirmation agreements, surrenders cannot be coercive.  It will be interesting to see how the case turns out.

Pitfalls of Bank's Pilot Mortgage Forgiveness Program

       Recently a large national bank has announced that it is launching a pilot program that will allow some homeowners facing foreclosure stay in their homes. The program would allow homeowners, who are behind in their mortgage, deed the property back to the bank and then have their mortgage debt forgiven. At this point the former homeowner would then lease the property from the bank at a lower rent than the monthly mortgage payment. The tenant would also not be responsible for the property taxes or insurance.

       This program benefits the bank for a few reasons. The bank saves the expenses it costs them to do a foreclosure (The average foreclosure takes nearly two years to complete, according to Florida-based Lender Processing Services, and costs nearly $78,000, according to a Congressional estimate.). However, the bank will face some additional costs/ responsibilities. The bank will bear the costs of property taxes, insurance, maintenance, land scaping, repairs, security, waste disposal, and other property management requirements. Furthermore, the bank would need to employ an attorney to oversee any evictions that would occur.

       For the property owner this may seem like a good way to remain in his home, however there would be some negative consequences. For instance, forgiveness on a debt is considered by the IRS as taxable income, so the homeowner could be left with a very large tax bill after a $150,000 mortgage is forgiven. Moreover, the former homeowner could be removed from the property a lot faster than if he owned the home. If the property were being foreclosed, the procedure could a couple of months and the homeowner has the protection of the Bankruptcy Code, where filing bankruptcy would cease the foreclosure and allow the debtor to make up any missed payments. However, with the former homeowner now renting his house, he can be evicted from the house in about two to three weeks if he were to miss a rent payment. Also, the Bankruptcy Code is very favorable to landlords. Remaining in the house during a bankruptcy does not alleviate the tenant's responsibilities from paying rent, while a homeowner can remain in the home a lot longer without making a mortgage payment; the post-petition rent that comes due during the bankruptcy will also not be discharged, and the tenant can later be sued for it, unlike a homeowner.

       Though it seems like this program could help the bank and homeowner, it may also be just substituting one problem with another.

Property Taxes in Bankruptcy

       As I write this article, the issue of property taxes is still unsettled in the Federal Districts of Tennessee, the 6^th Circuit, and in Bankruptcy law all over the country. Nevin Law Firm was fortunate enough to be the ones with the case to settle this newly arisen issue.

       This issue involves the treatment of property taxes in a Chapter 13 plan. Tennessee statute states that late paying property taxes are subject to 1% per month (12% per year) interest rate and a .5% per month (6% per year) penalty for a total of 18% rate. Section 506 of the Bankruptcy Code determines what post-petition interests and “fees, costs, and charges” are allowed. We are arguing that the additional 6% penalty is not a fee, cost, or charge and therefore should not be allowed. Metro Trustee, obviously is arguing they are entitled to the additional 6%.

       Now, for a Chapter 13 debtor every dollar counts. Debtors are placed on a very tight budget to pay as much as they can afford to their creditors so an additional 6% payment can break a budget, even if its only a few dollars extra per month. Additionally, after combining all these cases, the 6% penalty can mean hundreds of thousands of dollars to the counties of Tennessee and even more when addressing the entire 6^th Circuit. Another implication of this is that if a “penalty” is found to be a “fee, cost, or charge” other secured creditors will be able to collect post-petition penalties that accrue in the case. This will surely equal millions of dollars.

       We argued the issue two weeks ago and submitted supplemental briefs last week. Currently, the Judge is researching and writing his own opinion to decide whether we or the Metro Trustee is correct in interpreting the Bankruptcy Code, and I am eagerly awaiting his decision. It is very likely this case will go to the 6^th Circuit Court of Appeals and possibly the Supreme Court (which would be such an honor as a venue to argue the issue). Thus no matter the current decision, the issue will continue to be contested for the next couple of years. Again, we are very excited at the Nevin Law Firm to have the honor and responsibility to be handling this case and will post an update as soon as we receive the decision.

Cars in Bankruptcy: The Cram Down “910 Car Claim”

       One of the luxuries of the Bankruptcy Code is the ability to Cram Down the amount you pay on your vehicle. The Bankruptcy Code allows you to (1) lower your interest rate to as low as 3.25% instead of keeping it at that 18% interest rate at which you bought your car; and (2) lower the overall payment of your car to its value instead of the balance on the loan. (This also includes Title Loans on your car) There is only 1 caveat. The loan on the car must have been acquired more than 910 days before the filing of the Bankruptcy case. If the loan on your car is less than 910 days, then you will have to pay the full balance on the loan but not the contractual interest rate. Here is an example to illustrate.

       Assume you bought your car 2 and a half years ago for $25,000 at an interest rate of 15%. Your remaining balance on the loan is $12,500, but the value of your car is now $6,000. Well, in the bankruptcy, you are allowed to “Cram Down” the loan to the value of the car and reduce the interest rate to as low as 3.25%. Therefore, you are now paying only $6,000 at 3.25%. Moreover, we can assume that you only had 2 years left to pay on balance of the loan according to its terms, but through bankruptcy you also get to extend the loan to another 3 or 5 years which would make your payments considerably lower. Under the original terms, the monthly payments would be $695.77. But under the Cram Down, the payments would be $108.48 if extended out by 5 years.

       It must also be noted that the 3.25% is a general rate that has been established for the Middle District of Tennessee, other districts and circuits may have different standards.

Bankruptcy Procedure: Conversion v. Dismissal

       A debtor in a Chapter 13 plan is allowed to dismiss her case at any time (Code §1307(b)) and allowed to convert her case to a Chapter 7 Bankruptcy at any time (Code §1307(a).  However, even though the Code states that one cannot be forced to remain in a Chapter 13 Bankruptcy and can either dismiss or convert the Chapter 13 Case, the procedure for each is quite different. 
      
      Rule 1017(f)(2) states that if a Debtor wishes to convert or dismiss her case under 1307(b) then it shall be by a motion governed by Rule 9013, which requires Notice, Motion, and a Hearing.  However, Rule 1017(f)(3) states that if a Debtor wishes to convert or dismiss her case under 1307(a), then all the Debtor has to do is file a notice of conversion; No motion, no hearing.  

       A closer look at this procedural process reveals an oddity in the requirements. The Bankruptcy Code specifically allows a debtor to voluntarily dismiss her case whenever she wants, and this right to dismiss is quite strong because the Code precludes any attempt to waive the right, yet the debtor must file a motion and have a hearing asking the Bankruptcy Court to dismiss the case; however, to convert the Chapter 13 case, the only requirement is Notice to the Court and parties, even though the right to convert is watered down.  For example, to convert a case to Chapter 7 from Chapter 13, the debtor must qualify to file Bankruptcy, must qualify for Chapter 7 under the Means Test, and must be in good faith (The Bankruptcy Code does not ask for good faith; this qualification was read into law by the Supreme Court 5-4 in Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007)).   Therefore it seems backwards that the unconditional right (dismissal) of the debtor requires more procedural process than the watered-down right (conversion) of the debtor.

Tax Debt Relief: Offer in Compromise

      The Bankruptcy Code specifically states that tax debts are nondischargeable in a Bankruptcy. Therefore, filing a Chapter 7 bankruptcy will not help you with your taxes. The only way to get rid of your tax debt in a Bankruptcy is through a Chapter 13 plan. I do not know the policy of the IRS attorneys throughout the rest of the country, however, here in the Middle District of Tennessee, the IRS attorneys will object to the confirmation of a Debtor's plan unless the IRS claim is paid in full. Other unsecured creditors have no choice. If the debtor wants to pay 100% or 0% to the other unsecured creditors, they are forced to accept pennies on the dollar. The IRS, instead of accepting a percentage of the claim and going after the deficiency post-bankruptcy, will object and the case will be dismissed.

       There is, however, one way to reduce your tax debt. That is through an Offer in Compromise.  An Offer in Compromise is basically a debt negotiation with the IRS, where the taxpayer offers the IRS a settlement. There are 3 options: 1) a lump sum payment; 2) a reduced balance to be paid off in 5 months or less; or 3) a reduced balance to be paid off in over 5 months. When completing an Offer in Compromise you must also submit a budget and explanation of your circumstances.

       Additionally, once an Offer in Compromise has been accepted by the IRS, the taxpayer can then file for Chapter 13 bankruptcy and incorporate the Offer in Compromise into their plan. So long as the debt treatment remains the same, the IRS will not object.

       Forms necessary to complete an Offer in Compromise: F656; F433a (Individual); F433b (Business)

Can Stockbrokers file for Bankruptcy?

            One issue in practicing bankruptcy that has come up time and time again is the rumor that stockbrokers are not allowed to file bankruptcy.  Most of the public, and many bankruptcy lawyers for that matter, are under the impression that the Bankruptcy Code precludes stockbrokers and commodity brokers from filing bankruptcy.  Well, like most rumors, this one is partially true. 

            To answer the question simply: stockbrokers and commodity brokers are allowed to file for bankruptcy under Chapter 7 of the code, but not under 11 or 13.  The relevant provisions belong in 11 U.S.C. 109, titled Who may be a Debtor.  Under section 109, subsection (b) deals with Chapter 7 filers, subsection (c) with Chapter 9 (municipalities), subsection (d) with Chapter 11, subsection (e) with chapter 13, and subsection (f) with farmers.  Thus the relevant subsections for our discussion are (b), (d), and (e).

             Subsection (b) is an expansive list that enumerates all those who may NOT file for bankruptcy under Chapter 7 of the code. Nowhere in this list are stockbrokers or commodity brokers mentioned.  Read for yourself:

(b) A person may be a debtor under chapter 7 of this title only if such person is not - (1) a railroad; (2) a domestic insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, a New Markets Venture Capital company as defined in section 351 of the Small Business Investment Act of 1958, a small business investment company licensed by the Small Business Administration under subsection (c) or (d) (!1) of section 301 of the Small Business Investment Act of 1958, credit union, or industrial bank or similar institution which is an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act, except that an uninsured State member bank, or a corporation organized under section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor if a petition is filed at the direction of the Board of Governors of the Federal Reserve System; or (3) a foreign insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, or credit union, engaged in such business in the United States.

            Therefore, the fact that they are not included in the prohibitive section indicates the intent of the legislature to allow stockbrokers and commodity brokers to file for relief under Chapter 7.  But our analysis does not stop here.

            Next let's look at subsection (d), which deals with filing under Chapter 11.  Read the following section and notice the language dealing with stockbrokers and commodity brokers.

Only a railroad, a person that may be a debtor under chapter 7 of this title (except a stockbroker or a commodity broker), and an uninsured State member bank, or a corporation organized under section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor under chapter 11 of this title. (emphasis added)

            This section delineates who may file under Chapter 11, unlike Chapter 7, which lists who may not. This section allows railroads (who were excluded from protection of a Chapter 7 in subsection (b)) and all of those who are able to file under a Chapter 7 “except a stockbroker and a commodity broker.”  By implication, a stockbroker and a commodity broker must be able to file for protection under Chapter 7, otherwise that language is (1) superfluous and (2) inconsistent. 

             The drafters specifically excluded brokers from filing under Chapter 11.  They did so by allowing all those who qualify for  a Chapter 7 file a Chapter 11 with the exception of brokers.  Therefore, the writers are telling us that brokers do qualify for a 7 but are specifically exempted out of filing for an 11.  Furthermore, brokers are specifically precluded from filing an 11 in subsection (d), yet not specifically excluded in subsection (b).  This word choice demonstrates that in order to remain consistent with delineations and exclusions, and with the implication of the specific exclusion from qualifying 7 debtors, brokers are allowed to file bankruptcy under Chapter 7, but not Chapter 11.

            Finally is subsection (e), which deals with those allowed to file bankruptcy under Chapter 13.  This section reads as follows:

(e) Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.  (emphasis added)

Subsection (e) makes it easy.  The Code here specifically says that a stockbroker and a commodity broker are not allowed to file a Chapter 13 bankruptcy case. No “ifs,” “ands,” or “buts” about it.

             To remain consistent with the rest of the language used in the other subsections a broker must be allowed to file for bankruptcy under Chapter 7.  Subsections (d) and (e) specifically exclude brokers from their filing bankruptcy under those respective chapters, while the one section, subsection (b), that delineates specifically who may note file under its respective chapter does not list brokers.  Therefore, the exclusion of brokers in subsection (b), coupled with the specific exclusions in (d) and (e), along with the implication created in (d)'s language of allowing all qualifying 7 filers, except brokers, to file an 11, lead to the conclusion that a stockbroker and a commodity broker are allowed to filed for bankruptcy under Chapter 7 of the Code, but not 11 or 13.