Bankruptcy

Bankruptcy provides options to individuals and businesses who are burdened by excessive debt and are no longer able to make payments on their debts. Bankruptcy is a process in which consumers and businesses can eliminate or repay some or all of their debts under the protection of the Federal bankruptcy court. The Federal bankruptcy laws seek to give debtors a "fresh start" to their financial future.

There are different types of bankruptcy options available under the bankruptcy code. Chapter 7 and Chapter 13 usually apply to consumer debtors under the bankruptcy code.

Chapter 7 bankruptcy is known as Liquidation. Under court supervision, the bankruptcy trustee may "liquidate" the assets of the debtor's estate by taking and selling some of the property to pay down some of the debt. In Chapter 7, a debtor individual may receive a discharge that releases them from personal liability for certain eligible dischargeable debts. However, if the debtor's disposable income is sufficient to fund a Chapter 13 repayment plan, the debtor may not be eligible to file for Chapter 7.

Chapter 13 is known as an adjustment of the debts of an individual with regular income. Chapter 13 is a reorganization form of bankruptcy for consumers. In a Chapter 13 bankruptcy, debtors must make monthly payments over three to five years to repay all or some of the debt, but by doing so the debtor may retain their property. To be eligible for a Chapter 13 bankruptcy, the debtor must have a reliable source of income sufficient to fund a repayment plan. All payments must be made under the repayment plan before the debtor is entitled to a discharge of debts. However, the debtor will be protected from lawsuits, garnishments, and other actions by creditors while the repayment plan is in effect.

Chapter 11 is generally used for business reorganization. Chapter 11 bankruptcy is generally used by businesses who would like to continue operations while repaying creditors through a court-approved reorganization plan.