What Is Bankruptcy?
Bankruptcy protects individuals, families, family farmers and fisherman, small businesses and corporations from creditors and releases them from most debts. Some people or businesses will make payments to creditors in their bankruptcy cases while others will not.
The federal law which governs bankruptcy cases is found in the United States Bankruptcy Code. Violations of the Bankruptcy Code, usually involving fraud or nondisclosure, are treated as federal crimes and are punishable by time in federal prison and large fines.
Types of Bankruptcy
The Bankruptcy Code provides for different types of cases depending on a debtor’s situation.
Chapter 7, often called regular or straight bankruptcy, is the shortest type of case an individual can file and will release a debtor from paying most types of unsecured debt. Debtors can protect their property using exemption laws that are specific to the state of residence. Because any nonexempt property will be sold to pay creditors, debtors must be sure to give their attorney an accurate list of property and possessions, so that that in light of current exemption laws, the maximum amount can be protected. An average Chapter 7 case will last 3.5 to 4 months from the day of filing to the day the case in finished.
Chapter 13 – is for any individual, family, or small business with regular income. In Chapter 13, a plan is filed with the court that outlines how debts will be repaid to creditors. Chapter 13, like Chapter 7, allows for the discharge of some or all unsecured debts. Chapter 13 also allows debtors to make up back payments owing on secured debt (such as a home) so that the property can be retained. The length of a Chapter 13 plan can be for 36 to 60 months unless all creditors are paid in full in less than 36 months
Chapter 11, sometimes called business reorganization, is generally used by businesses to reorganize in order to remain in business and pay creditors out of future profits. Individuals whose debt level exceeds the amount allowed in a Chapter 13 may also qualify for a Chapter 11.
Chapter 12, reorganization for family farmers or fisherman, is similar to Chapter 13. This type of case recognizes the seasonal nature of these businesses, allowing payments to creditors on a schedule that makes sense for the particular business involved.