What Is Bankruptcy Law?
Definition of Bankruptcy Law
Bankruptcy is a legal procedure initiated by an individual or a business that cannot pay their 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 earner's plans.
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.
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 his or her debts, so long as the debtor is earning a steady income
- Insolvent - Unable to pay one's debts as they come due
- Discharge - To release a debtor from his or her liability to pay a debt
For more legal definitions, visit the Findlaw Legal Dictionary.
Other Considerations When Hiring a Bankruptcy Lawyer
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, and 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 and protect your assets and minimize the negative effects.
If you are facing bankruptcy, contact a bankruptcy lawyer immediately to preserve your legal rights and explore your legal options.