Bankruptcy - General Information

Bankruptcy is a legal process under federal law by which a person and business may eliminate some debts and gain time to pay other debts. This website deals only with personal bankruptcy. The person or business who files bankruptcy are referred to and called "debtor" while the person or business who is owed money is referred to and called "creditor". All of the property and assets owned by the debtor is collectively called the debtor's "estate".

There are two types of personal bankruptcy and they are referred to by the Chapter number of Title 11 of the United States Code:

    - Chapter 7 - Liquidation

    - Chapter 13 - Adjustment Of Debts Of An Individual With Regular Income

Chapter 7 is called "liquidation" because a debtor's (the person filing bankruptcy) property that is not exempt is sold and the net proceeds are distributed to the debtor's creditors. In most cases, most of the debtor's property is exempt. At the end of the bankruptcy case, most unsecured debts such as credit cards are discharged, meaning that the debtor does not have to pay the debt(s).

Chapter 13 is often called a payment plan because the debtor (the person filing bankruptcy) is given time to pay his or her debts over a period of time, usually 3 to 5 years. The debtor's creditors may be paid all or a portion of the money the creditor is owed. With a Chapter 13, the debtor's property is not sold.

When filing bankruptcy, debtors are required to list (1) all of the property that they own or have a claim to regardless of the type or location of the property, (2) all of their debts regardless of the type, amount, or to whom the debt is owed, and (3) all income and expected income regardless of the source or nature of the income. Debtors have to make full disclosure and failure to make full disclosure is bankruptcy fraud. In other words, debtors cannot select and chose what property, debts, or income that they want to list.

When a bankruptcy is filed, most, but not all, civil actions against the debtor (the person filing bankruptcy) are automatically stayed which means that the legal actions are temporarily stopped. Criminal actions and certain civil actions are not stayed and may proceed. For example, a civil case for mortgage foreclosure will be stayed, but a criminal action for assault and battery will not be stayed. There are methods and legal procedures which creditors can use to have the automatic stay lifted or ended so that they can proceed with the legal action against the debtor.

There are bankruptcy alternatives. For example there are credit and debt counseling services which will work out a payment plan between the debtor and creditor. Another alternative may be to simply do nothing. If a debtor has little property, the debtor may be judgment proof, meaning that creditors probably will not be able to collect any money from the debtor.

People that are considering filing bankruptcy should talk with a lawyer licensed in their state and not try filing bankruptcy by themselves. Bankruptcy is very detailed and can be complicated. There are the United States Code, Bankruptcy Rules, and local Court Rules which must be followed. Therefore, it is best for a debtor to use a lawyer.