Bankruptcy law is designed to benefit both debtors and creditors by seeing that debtors get relief from debts they can’t pay, and that creditors get paid from whatever assets the debtor can spare and the debtor can obtain a fresh start. Bankruptcy is governed by the federal law found in Title 11 of the United States Code. As federal law, it supersedes any conflicting state law, so, with the exception of exemptions, bankruptcy law is the same from state to state.
- Chapter 7 – allows the bankrupt individual to retain essential property (the most common form of Bankruptcy, but not always the best.)
- Chapter 11 – aka Business Bankruptcy or Over-Limits for Chapter 13 (most expensive) – most large companies reorganize under Chapter 11.
- Chapter 12 – aka Farmers bankruptcy is a simplified reorganization for family farmers, where the debtor retains his property and pays creditors out of future income.
- Chapter 13 – a type of repayment plan where the bankrupt individual can keep some of their assets.
Chapter 7 Bankruptcy is the most common form of bankruptcy. It is a liquidation proceeding in which the debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors. Individual debtors typically get a discharge within 4-6 months of filing the case. Assets that are non-exempt are taken over by the trustee, who sells them and pays creditors as much as the proceeds permit. Any wages the debtor earns after the case is begun are the debtor’s, and the creditors have no claim on those earnings. A bankruptcy attorney can advise you regarding which of your assets will be exempt from liquidation, and what you can expect for the future.
Chapter 13 is a repayment plan for individuals with regular income, unsecured debt less than $336,900, and secured debt less than $1,010,650. The debtor keeps his property and makes regular payments to the Chapter 13 trustee out of their future income to pay off their creditors over time (typically 3-5 years). Repayment in Chapter 13 can range from 1% to 100% depending on the debtor’s income and the type of the debt. Chapter 13 also provides a way for bankrupt individuals to avoid foreclosures and repossessions. In certain circumstances, debtors can reduce the balance of loans on vehicles and discharge second mortgages or home equity lines of credit. It is not recommended that you file bankruptcy without the assistance of an attorney, as the bankruptcy process is complex. Based on the factual and legal complexity of your case, a qualified bankruptcy attorney will be able to offer you a customized solution to your situation.