Bankruptcy law is a set of rules that help people who can't pay their debts get a fresh start. Bankruptcy law allows individuals or businesses who are struggling with debts, like credit card balances or medical bills, to get debt relief. It's a legal process that may involve a bankruptcy attorney who provides legal advice to help navigate the complex rules and requirements.
This section provides a brief overview of bankruptcy law.
What Is Bankruptcy?
Bankruptcy is a legal procedure initiated by an individual or a business that cannot pay its debts and seeks to have the debts discharged or reorganized by the courts. The three most common types of bankruptcy proceedings are Chapter 7 individual petitions, Chapter 11 business reorganization and rehabilitation petitions, and Chapter 13 wage earners' plans.
Chapter 7 bankruptcy allows filers to wipe out unsecured debts like credit card debts. People must pass a means test to file for Chapter 7 bankruptcy. If you qualify, you may be able to keep some property through exemptions.
Unlike Chapter 7, Chapter 13 bankruptcy lets people make a repayment plan. This payment lasts for three to five years and involves monthly payments. Chapter 13 bankruptcy cases can help people catch up on payments like child support, or it can help people avoid foreclosure on their home.
Chapter 11 bankruptcy is a form of bankruptcy primarily for businesses. It allows them to reorganize and restructure their debts. This rehabilitation plan permits the company to continue operating during the process. In the meantime, negotiations happen with creditors to modify payment terms. This can potentially reduce obligations and enable the business to regain its financial footing.
Bankruptcy cases almost exclusively fall under federal law, though states may pass laws governing issues that federal law doesn't address. Special bankruptcy courts nationwide handle only debtor-creditor cases. Generally, any bankruptcy-related claim must be filed with the U.S. Bankruptcy Court.
Bankruptcy Terms To Know
- Bankruptcy Petition — The document filed with the U.S. Bankruptcy Court that initiates a bankruptcy proceeding; usually contains the debtor's assets, debts, and other liabilities
- Chapter 7 (Individual Bankruptcy) — A petition filed under Ch. 7 of the U.S. Bankruptcy Code for an individual debtor to liquidate his or her assets and settle or discharge debts
- Chapter 11 (Business Reorganization) — A petition filed under Ch. 11 of the U.S. Bankruptcy Code for a business to reorganize its liabilities and assets, as well as settle or discharge its debts
- Chapter 13 (Wage Earner's Plan) — A petition filed under Ch. 13 of the U.S. Bankruptcy Code where an insolvent debtor may ask the court to grant additional time for the debtor to pay off their debts, so long as the debtor is earning a steady income
- Discharge — To release a debtor from their liability to pay a debt
- Insolvent — Unable to pay one's debts as they come due
- Pro Se — Filing without legal help
- Unsecured Debts — These are debts without collateral
For more legal definitions, visit the FindLaw Legal Dictionary.
Why Do You File Bankruptcy?
Bankruptcy law is a way for you to get help with debts. It can help you find a new beginning. People often file bankruptcy when they find themselves in a financial situation where their debts have become overwhelming and unmanageable. Bankruptcy provides a legal way to seek relief from these burdensome debts. These debts include credit card bills, medical expenses, job loss, or other financial hardships. It offers a fresh start to rebuild and regain control over your financial life.
Bankruptcy can give you peace of mind by wiping out debts. However, it also affects your credit report and credit score. Some debts, like student loans, may not be erased.
The Bankruptcy Process: At a Glance
Understanding the bankruptcy process is essential for anyone considering this path. The process starts with determining your eligibility for bankruptcy. You will have to decide which bankruptcy filing plan fits with your goals. A bankruptcy attorney can help with this.
The bankruptcy process involves the following steps:
- Credit Counseling: Before you file, you typically need to attend credit counseling.
- Filing Fee: You must pay a filing fee with the court.
- Legal Services: A bankruptcy attorney can guide you through the legal process.
- Meeting of Creditors: This is a meeting where creditors can ask you questions.
- Repayment Plan: In Chapter 13, you'll make monthly payments.
At the end of the process, your debts will be discharged. In Chapter 7 bankruptcies, unsecured debts like credit cards and medical bills will be wiped out. In Chapter 13 bankruptcies, you'll receive a discharge after completing your repayment plan. It's important to monitor your credit report afterward. This is because bankruptcy will impact your credit score.
Throughout this complex process, a bankruptcy attorney can provide valuable legal services.
Finding a Good Bankruptcy Lawyer
To file for bankruptcy, you might need a good bankruptcy lawyer. Look for referrals from the state bar association or the National Association of Consumer Bankruptcy Attorneys (NACBA). An initial consultation with a bankruptcy attorney helps you understand your financial situation and decide the best path for you.
Although most lawyers are free to request permission to practice in U.S. Bankruptcy Court, effectively representing bankruptcy clients requires thorough knowledge of the U.S. Bankruptcy Code. Attorneys without the proper experience may not know all of the options available to a client facing bankruptcy. As a result, they may not be able to broker the most advantageous bankruptcy plans.
Bankruptcy proceedings can have long-term benefits and consequences for an individual's financial and family situations. This is another reason why finding an experienced lawyer is essential. A lawyer who has helped many clients through bankruptcy can better prepare you. They can help protect your assets and minimize the negative effects.
If you are facing bankruptcy, contact a bankruptcy lawyer to preserve your legal rights and explore your legal options.