Wednesday, December 24, 2014

So you want to file for bankruptcy?

Unlike other cases heard in civil or criminal cases, bankruptcy hearings are settled in their own courts established throughout the U.S. Each state has a bankruptcy court within its judicial district and there are 90 different courts all over the nation.

The purpose of the bankruptcy code is to relieve those individuals from severe debt and to give them a chance to start over. While there are several bankruptcy titles available for debt relief, each one falls under different circumstances to achieve a particular purpose:


Chapter 7: Under the bankruptcy code, this type of relief is commonly known as liquidation. Assets belonging to debtors are sold for cash to pay back creditors. Since 2005, when the code went through an overhaul due to the sheer number of claims, claimants had to pass a "means test" to qualify for Chapter 7. The purpose of this test is to ensure that debtors are genuinely unable to pay back their debts without bankruptcy coverage.

Chapter 13: Individuals who file under this code are financially able to pay their debts, but may require some additional time. A trustee is assigned to claimants to make payments to creditors. Repayment plan is drafted and depends on the individual's personal income over the period that a debtor is protected under the bankruptcy claim. Chapter 13 protects debtors from any attempt of creditors or businesses to garnish or otherwise collect their money.


Chapter 11: Similar to Chapter 13 for individuals, this code allows businesses to hold on to their assets and carry on with operations as the debt is paid. Known as "Reorganization", businesses have 120 days to file for this type of bankruptcy  and develop a plan for repayment. This gives creditors enough time to consider the plan and agree to its terms. Under Chapter 11, businesses are given much more flexibility. They can choose to sell off some of their assets and keep others until they become profitable again.

There are other protections geared to help other agencies as well. Chapter 9 helps cities and their agencies climb out of debt as well. It is set up like Chapter 11 and gives municipalities the flexibility to pay off their debt. Chapter 12 is available for family farmers and fishermen, where debtors agree to pay their debts within a period of time.

It's important to note that debtors are not discharged from all forms of debts. Garnishments, personal taxes must be paid back. For a list of those debts that debtors are responsible for, visit

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