Bankruptcy is a difficult process both financially and emotionally. As a foreclosure lawyer from The Law Offices of Neil Crane can explain, understanding bankruptcy laws is crucial to making it through filing for bankruptcy. If you are considering filing for bankruptcy, continue reading the information below.
The Bankruptcy Code is a federal code governing general bankruptcy practices by which all states must abide. Each judicial district in the country has its own bankruptcy court. Every state has at least one judicial district and therefore at least one bankruptcy court. Bankruptcy Rules are governed at the federal level. States or local jurisdictions may have more stringent bankruptcy procedures. Both Bankruptcy Code and Bankruptcy Rules must be followed in all bankruptcy proceedings within the country.
The purpose of bankruptcy law is to give debtors relief from from the burdens of certain debts. Specifically, bankruptcy prevents creditors from attempting to collect debts covered in a bankruptcy case. The Bankruptcy Code provides for six types of bankruptcy cases.
Types of Bankruptcy
- Chapter 7 (Liquidation) bankruptcy involves a procedure in which a trustee supervises the debtor’s assets and liquidates them. The trustee then distributes the cash to creditors, minus any property that is exempt which remains with the debtor. In many cases, all property is considered exempt so liquidation of assets is impossible.
- Chapter 9 (Adjustment of Debts of a Municipality) deals with the debts of a municipality such as a city or town. This chapter allows for reorganization of the municipality’s debts.
- Chapter 11 (Reorganization) is for commercial entities that intend to continue business operations after their bankruptcy case. The business filing for bankruptcy repays creditors as outlined in the plan approved by the court.
- Chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) allows the debtor to propose a repayment over a certain period of time. This time period usually cannot exceed three years. A trustee becomes involved and the farmer or fisherman can normally continue business operations while repayment occurs.
- Chapter 13 (Adjustment of Debts of an Individual with Regular Income) is for individuals who have accumulated debt and have a consistent income source. This chapter allows debtors to keep some valuable assets such as a house. It allows debtors to propose plans to repay creditors over three to five years.
- Chapter 15 (Ancillary and Other Cross-Border Cases) deals with bankruptcy cases in which the debtor is subject to the laws of more than one country.
Call a bankruptcy lawyer today if you are considering filing for any one of the six chapters.