Bankruptcy law gives a debtor who is overwhelmed by debt and unable to meet their financial obligations the opportunity to eliminate some or the entire financial burden. The debtor begins by filing a petition for bankruptcy with the bankruptcy court. Bankruptcy cases are filed in the United States Bankruptcy Court and are governed by federal law. The goal of people who file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay some or all of your debts. In order for a debt to be discharged it must be listed on your petition. The discharge only applies to debts that arose before the date you filed. This is why when you file your petition, it is important to accurately list all of your debts also known as your liabilities. You can’t be discharged of a debt that you did not list. Not all debts can be discharged. Below is a list of debts that cannot be discharged.
Examples of debts you cannot discharge:
- Child Support
- Student Loans
- Court Fines and Criminal Restitution
- Personal Injury caused by driving drunk or under the influence of drugs
Three commonly filed for bankruptcy petitions are Chapter 7, Chapter 13 and Chapter 11. Most individuals and businesses will be eligible for one of these three. A skilled bankruptcy attorney can help you navigate the decision making process in determining your individual eligibility. To facilitate the decision making process we have outlined below a general description of each type of bankruptcy.
A Chapter 7 is known as a liquidation bankruptcy. It is designed to erase unsecured debts such as credit cards, medical bills and utility bills. This is the most common form of bankruptcy. During a Chapter 7 bankruptcy, a court appointed trustee collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. The process moves quickly and is usually completed within months.
A Chapter 13 bankruptcy is a payment plan through which you pay back your creditors. This type of bankruptcy is called a reorganization bankruptcy. Consumers will choose to file this type of bankruptcy petition when they have substantial assets such as a house they would like to keep. A Chapter 13 bankruptcy spreads out the time you have to repay your creditors. The consumer who files a Chapter 13 will pay part of or all of their debts under a controlled budget that is overseen by a bankruptcy trustee. It can take three to five years to complete the bankruptcy process. After you have made all the payments under the plan, you receive a discharge of your debts.
A Chapter 11 bankruptcy is usually used by businesses. Under a Chapter 11 bankruptcy you are able to continue to operate your business but you follow a court approved plan to repay your creditors.