Guiding You Through Bankruptcy With Compassion And Professionalism

What is Bankruptcy?

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts, or to repay them under the protection of the bankruptcy court. It is in Article I, Section 8 of the United States Constitution, as a delegated power of Congress. Bankruptcy’s roots can be traced to the Bible. (Deuteronomy 15:1-2 “At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the Lord’s time for canceling debts has been proclaimed.”)

What Are The Different Kinds Of Bankruptcy?

Bankruptcies can generally be described as “liquidation” or “reorganization.” Liquidation bankruptcy is called Chapter 7. Under Chapter 7 bankruptcy, a consumer or business asks the bankruptcy court to eliminate (discharge) the debts owed. Certain debts cannot be discharged. In exchange for the discharge of debts, the business’s assets or the consumer’s non-exempt property is sold (or “liquidated”), and the proceeds are used to pay off creditors. However, it is rare that there is any “non-exempt” property, and most people are able to keep all their belongings.

There are several types of reorganization bankruptcy. Consumers, and individuals who operate as a sole proprietorship, who have debts below a certain dollar amount, can file a Chapter 13. Family farmers can file a Chapter 12. Businesses, and consumers with debts in excess of the Chapter 13 debt limits can file a Chapter 11. This is a complex, time-consuming and expensive process. In any reorganization bankruptcy, a “plan” is filed with the bankruptcy court proposing how creditors will be repaid. Some debts must be repaid in full; others can be paid only a percentage; some debts are not paid at all. Some debts may have to be repaid with interest.