What is Bankruptcy?

Chapter 7: Chapter 7 bankruptcy is a liquidation process that can relieve you of all your debt. Basically, it wipes out all unsecured debt you owe, like credit cards, medical bills, etc. It is the most common type of bankruptcy proceeding. All non-exempt property is surrendered to the trustee, who sells it for the benefits of your creditors. However, in most Chapter 7 situations, the debtor has no non-exempt assets to surrender and is able to make a fresh financial start quickly and keep all property.

The Bankruptcy Code allows an individual debtor to protect most property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor's home state. For example, a debtor may exempt up to $20,200 in their residence, $2,950 in one motor vehicle, $1,350 in jewelry, and $10,775 in household furnishings. In all cases, we analyze your situation to determine whether using state law or federal law will benefit your situation.

Chapter 11: A Chapter 11 bankruptcy is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. A case filed under chapter 11 is frequently referred to as a "reorganization" bankruptcy.

Chapter 13: A chapter 13 bankruptcy is also called a “wage earner's plan.” It enables individuals with regular income to develop a plan to repay all or part of their debts. You may end up paying back as little as 10% to unsecured creditors, depending on your income. Under this chapter, debtors propose a repayment plan to make installments to creditors over time. Chapter 13 offers individuals a number of advantages over liquidation under chapter 7.

Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure and/or save your car from repossession. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. In addition, cosigners are protected from collection activity.

Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.

Discharge of Debts:

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. That is to say, the debtor is no longer legally obligated to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

The timing of the discharge varies, depending on the chapter under which the case is filed. Unless there is litigation involving objections to the discharge, the debtor will usually receive a discharge.

Unfortunately, not all debts can be discharged. The debts that may be discharged vary under each chapter of the Bankruptcy Code. The most common types of debts that cannot generally be discharged are certain types of tax claims, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor's operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees. Your lawyer will explain this in more detail if it pertains to your specific situation.

Bankruptcy

Bankruptcy law is federal statutory law contained in Title 11 of the United States Code.  (http://www.law.cornell.edu/uscode/11/) Congress passed the Bankruptcy Code under its Constitutional grant of authority to "establish. . . uniform laws on the subject of Bankruptcy throughout the United States."  (http://www.law.cornell.edu/constitution/constitution.articlei.html#section8) States may not regulate bankruptcy though they may pass laws that govern other aspects of the debtor-creditor relationship.  (http://www.law.cornell.edu/topics/debtor_creditor.html)

Bankruptcy proceedings are supervised through the United States Bankruptcy Courts  (http://www.uscourts.gov/bankruptcycourts.html). These courts are a part of the District Courts of The United States.