Bankruptcy Overview

 

 

Bankruptcy is a legal process that provides relief to individuals and businesses in serious financial trouble and protects their creditors to the extent possible. Generally, the bankruptcy process assesses the debtor's assets and liabilities and provides a structure within which the debtor is allowed to keep some, and in most cases, all property and ordered to satisfy as many eligible debts as possible, according to an order of priority established by law. Remaining debts are discharged, except those of certain types, like domestic support orders, debt obtained by fraud and most tax debt.

When an individual falls desperately behind in his or her debt payments, one option may be to declare bankruptcy. Bankruptcy is a legal proceeding in a federal bankruptcy court that relieves the debtor of some or all of his or her debts. While bankruptcy may not be the best option for everyone, in the right situations, it can provide people with a fresh start. A lawyer experienced in bankruptcy law can advise you as to whether bankruptcy may be the right move for you.

Chapter 13 Bankruptcy

 

Chapter 13 bankruptcy is also known as a reorganization bankruptcy. Chapter 13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. A chapter 13 can be filed if you are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. A chapter 13 can be filed for individuals who make too much to qualify for chapter 7 or are ineligible for chapter 7 because of a previous filing. A chapter 13 is a 3 to five years case it is generally more expensive than chapter 7. However most of the attorney fees can be included in the repayment plan.

Chapter 7 Bankruptcy

 

 

Chapter 7 bankruptcy, called "liquidation bankruptcy," is the most common type chosen by consumers. The Chapter 7 proceedings begin with the debtor's filing of a petition with the bankruptcy court, which triggers the automatic stay — bankruptcy terminology for the cessation of debt-collection activity. The court appoints a trustee who oversees the case and liquidates the debtor's nonexempt assets to pay off eligible debts to the extent possible.

 

Not all of the debtor's assets will be sold in a Chapter 7 bankruptcy case because the law specifies that certain property is exempt from liquidation. For many typical consumers, all of their property is exempt or already subject to valid liens, so eligible debts will be discharged without the loss of any property. This situation is commonly called a no-asset case.

 

Once the trustee has collected any nonexempt assets and paid creditors from the proceeds, any remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, however, are nondischargeable and remain valid, such as taxes, domestic support obligations and damages resulting from a debtor's willful or malicious acts.

 

Any remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, however, are nondischargeable and remain valid, such as taxes, domestic support obligations and damages resulting from a debtor's willful or malicious acts.

Chapter 11 Bankruptcy

 

 

A Chapter 11 reorganization is available to individuals and businesses. Due to the higher court fees, reporting requirements and legal fees involved in a Chapter 11, it is generally used only by individuals with combined debts of over $1,000,000.00. However, it may provide individuals and businesses with an opportunity to reorganize their debts and make arrangements to pay all or a portion of the debts, or sell the business, while obtaining protection from creditors. A Chapter 11 generally provides more flexibility than a Chapter 13 reorganization for individuals.