Bankruptcy Basic Facts

Bankruptcy - A legal proceeding in federal court in which a person or company can be released or "discharged" from all or most of their debts

Debtor - The person or company filing bankruptcy

Trustee - A person who administers a debtor's estate. A trustee is always appointed in a chapter 7, 13, or 12 bankruptcy. A trustee may be appointed in a chapter 11 case.

Creditor - The people or companies to whom the debtor owes money or property. Creditors hold "claims" against the debtor.

Proof of Claim - A proof of claim is a written statement describing the debt that a creditor claims the debtor may owe them.

Frequently Asked Questions

Q. Will filing bankruptcy stop my wages from being garnished?

A. Yes, once you file bankruptcy, you are under protection of the court from most creditors. You should immediately notify the garnishing creditor and sheriff that you have filed a bankruptcy petition.

Q. Is my bankruptcy case public information?

A. Yes, bankruptcies are considered public record. Anyone may call the court and verify if you have filed bankruptcy or come into our offices and review the file.

Q. How long will my bankruptcy show on my credit record?

A. A completed bankruptcy may show on your record from 7 to 10 years depending on the reporting credit agency

Q. Should I file bankruptcy?

A. Whether or not you should file bankruptcy depends on your particular circumstances. It may be that after consultation with an accountant and attorney, you resolve your financial difficulties through other means. In some cases, declaring bankruptcy may be necessary. The decision to file for bankruptcy is a serious one.

Bankruptcy Types

Before you file for bankruptcy, you should decide which type (or chapter) is the right one for you. Here is a brief description of each of the different types of bankruptcies:

Chapter 7 - Liquidations

• The purpose of a chapter 7 is to allow a person to obtain a fresh start, free from creditors and free from the pressures of over-whelming debt. Under this chapter, a trustee takes possession of your non-exempt property and assets; converts them to cash and distributes the funds to creditors. After filing for relief under chapter 7, an individual debtor may receive a discharge.
• A discharge permanently prohibits creditors from attempting to collect those debts listed in a bankruptcy. However, some debts are non-dischargeable. They include certain taxes, student loans, alimony and child support to name a few.
• A business that files a chapter 7 bankruptcy will not receive a discharge.
• If you receive a discharge under a chapter 7, you may not receive another discharge under this type of bankruptcy for the next 6 years.

Chapter 11 - Reorganizations

• The purpose of a chapter 11 bankruptcy is to allow a business a limited amount of time free from creditors collection efforts to restructure its finances so it may continue to operate in a normal fashion under a court approved "plan".  Creditors of a business filing a chapter 11 vote on the plan, and the plan must be approved by the court. A business may choose to liquidate under this type of bankruptcy also.
• If a business obtains approval from the court for its plan, all pre-bankruptcy debts will be discharged. A business will not receive a discharge if it simply liquidates its assets under a plan.
• Advantages of a chapter 11 is that the business may retain control of its property during the bankruptcy and can deal with all of the debts.
• Individual debtors may also choose to file a chapter 11; however, this type of bankruptcy is complicated and there may be advantages to filing under a different chapter. An individual should consult with an attorney before making the decision to file a chapter 11.
• Generally, you may file a chapter 11 petition anytime after a previous bankruptcy filing.

Chapter 12 - Family Farmer's Debt Adjustment

• The chapter 12 bankruptcy law was created to help family farmers who need to reorganize their debts, while keeping their land. This type of bankruptcy is meant to assist farmers who have potential to reorganize and to allow them relief from a heavy debt burden, and at the same time allow farmers to pay their creditors what is deemed reasonable.
• The rules of a chapter 12 bankruptcy are modeled closely after those of a chapter 13. A chapter 12 case may only be filed by certain family farmers and businesses. A trustee is appointed, but the farmer usually remains in possession of the farm while formulating a plan. A chapter 12 case normally proceeds more quickly than a chapter 11 and may be less expensive.

Chapter 13 - Individual Debt Adjustment

• The purpose of a chapter 13 bankruptcy is to let an individual debtor with a regular income pay back debts using their income and enabling a debtor to keep any assets they have. A person who operates a small business as a sole proprietor may also file under this chapter.
• Under a chapter 13 bankruptcy filing, a debtor must promptly file a repayment plan and get the court's approval of the plan. Any creditor may object to the plan. The debtor, along with the appointed trustee, must work out any objections to the plan before the court will approve it. The typical repayment time of chapter 13 plan is 3 to 5 years. The debtor makes regular payments to the trustee and the trustee then distributes these monies to creditors according to the terms of the plan.
• After completion of a plan, the debts listed in the bankruptcy are discharged (again with some exceptions) and the debtor is no longer obligated to pay them.
• Generally, a chapter 13 may be filed at any time, even if a debtor has filed before under a different chapter.

	Did You Know?
	Chapter 13 bankruptcy law is frequently referred to as a “wage earner” chapter Although it is available to individuals with regular income from any source, not just wages. Once the court confirms the plan, it is the responsibility of the debtor to make the plan succeed. The debtor must make regular payments to the trustee, which will require adjustment to living on a fixed budget for a prolonged period.