Bankruptcy Law - Chapter 7, 11, 13




What is Bankruptcy?

Bankruptcy allows individuals, couples, and businesses that cannot meet their financial obligations to be excused from repaying some or all of their debt. Bankruptcy has been in existence since ancient times. In the United States, the rules and procedures for filing bankruptcy are governed by federal law. States are prohibited from legislating in this area of the law.

Generally speaking, there are two types of bankruptcy. In a liquidation bankruptcy, debtors must surrender their property, which is sold, and the proceeds distributed to creditors. In return, all debts are permanently discharged. In a reorganization bankruptcy, debtors are allowed to keep their property. But the debtors must agree to an installment plan to repay creditors a portion of the amount they owe.

Filing for bankruptcy involves submitting a petition and fee to the bankruptcy court. The fee is close to $300 for most personal bankruptcies. The petition will contain sworn statements by the debtors concerning the amount of money they owe, their income and expenses, as well as a complete list of all of their assets. After filing, a court hearing is held to review the information in the petition.

Chapter 7 bankruptcies are by far the most common. These are liquidation bankruptcies in which the debtors must turn over all “non-exempt” property to a supervising officer known as the bankruptcy trustee. Property is exempt if it falls within specific categories of assets that debtors are allowed to keep, such as a certain amount of clothing, household items, tools for work, and in some instances, vehicles and the family home.

The Chapter 7 trustee will take the debtor’s non-exempt property (if there is any), and sell it. The money will be paid to the debtor’s creditors. This may result in creditors receiving a small fraction of their claims. The balance of the debtor’s loans and obligations are forgiven and can never be collected. Creditors who attempt to collect debts that have been discharged face severe penalties under federal law.

Keep Your Property

The fact that a liquidation bankruptcy wipes out debt completely is obviously attractive to anyone who cannot afford to pay their bills. But what about people who have non-exempt property that they do not want to give up? Chapter 13 is a reorganization bankruptcy. It allows debtors to keep their property by agreeing to make monthly payments toward their debt over the course of three to five years.

Chapter 13 bankruptcies offer a number of benefits besides allowing debtors to keep their property. For example, certain types of secured debt, like a car loan, can be restructured by reducing principal to the market value of the collateral, and lowering payments by extending the repayment period to 60 months. Other obligations, like mortgages, student loans, and tax liabilities can be modified as well. Creditors are given no choice in the matter.

Bankruptcy is not available to everyone. Those who have had their debts discharged in a Chapter 7 within the past eight years cannot re-file. For Chapter 13, the waiting period is six years. Too much disposable income is also a problem. Congress has established a “means test” for this purpose. Debtors who make enough money to repay their creditors will be barred from filing a liquidation bankruptcy, though reorganization may be an option.

Businesses that have become insolvent but want to stay in business may be able to file a Chapter 11 bankruptcy. Like a personal reorganization, Chapter 11 allows businesses to obtain protection from their creditors while they put together a repayment plan. Liabilities can be reduced and restructured to give the business another chance at achieving profitability.

Whether a debtor is considering filing under Chapter 7, 11, or 13, they must comply with a vast number of federal laws and regulations. An error at any step of the process can result in the court refusing to discharge the debtor’s liabilities. When the bankruptcy process ends this way, the consequences are disastrous. With so much at stake, hiring a licensed bankruptcy attorney at the outset is wise investment.

Know Your Rights!

Articles About Bankruptcy Law

  • Defaulted Federal Student Loans and Tax Offsets
    When a person stops making payments on student loans, the Department of Education may take action to collect on this debt. One method is to try to initiate a tax offset to recuperate some of the money owed.
  • Mortgage Companies Win in the Supreme Court
    Recently, on June 1, 2015, the United States Supreme Court decided the case of Bank of America v. Caulkett.
  • Things to Consider when Selling Assets before Filing Bankruptcy
    Many debtors try to sell off at least some off their assets in order to have money to pay their creditors and to live but there are risks in selling off assets too. This is because assets are supposed to be used to pay off your creditors and not favor one creditor over another unreasonably.
  • What Are the Laws Regarding Check Cashing and Payday Advances?
    Almost everyone has, at one time or another, come up just a little short when they needed to pay a bill or meet some other financial obligation. For many, services like check cashing and payday advances can be one way to deal with this dilemma, but they come with hefty fees and other considerations. So, what are the laws regarding check cashing and payday advances?
  • Car Repossession Laws
    Most people who own a car rely on it for getting virtually everywhere they need to go. That may include school, church, the store, or to pick up the kids; but for most, it primarily includes work. Thus, when you are late on your car payments, it may seem terribly ironic that the bank wants to deprive you of the means of getting to work to pay them back faster, but that is exactly what could happen.
  • How Do I Declare Bankruptcy?
    Let's face it, bankruptcy is a scary concept. It entails doing something that will erase portions of your debt, restructure other parts, and appear as a black mark on a credit report for seven to ten years. Still, there may be times when it is wisest to simply throw in the towel and get a fresh start. Thus, when it is necessary to do so, how do you declare bankruptcy?
  • New York Zombie Foreclosures On the Rise
    According to RealtyTrac, there were 16,700 zombie foreclosures in New York in 2014. That number has since risen by 54 percent. These homes are often the houses that bring a neighborhood's value down; the houses with unkempt lawns and boarded-up windows that are easy to ignore and forget.
  • Wage Garnishment Laws
    If a creditor knows that a debtor is working, one effective method for the creditor to collect on this debt is to have the debtor’s wages garnished. However, there are several laws that apply that can affect the garnishment process.
  • Alternatives to Foreclosure: Six Options
    What are the alternatives to foreclosure? Falling behind on your mortgage payments is extremely stressful. You toss and turn at night, imagining losing your house. But there is hope. Even if you've defaulted on your mortgage, you may be able to find an alternative foreclosure which will allow you to keep your home should you desire to do so.
  • 5 Common Debt Buyer Lawsuit Defenses
    In addition to each of the defenses available in an original creditor lawsuit, debt buyer lawsuit defenses include standing, limited admissibility of documents, conditions precedent, and additional damages under the FDCPA.
  • All Debtor and Creditor Law Articles

United States Bankruptcy Courts

Bankruptcy Law - US

Organizations Regarding Bankruptcy Law

Publications Regarding Bankruptcy Law


Find a Local Lawyer