About Bankruptcy

What is Bankruptcy?

Bankruptcy is a term that is generally recognized but not always understood. It is, for all intents and purposes, the fact of being unable to pay your debts as they become due. A bankruptcy case is where consumers/debtors seek relief in a Federal Bankruptcy Court to eliminate their debt or repay creditors under a proposed repayment schedule.

A bankruptcy case begins when a debtor files a voluntary petition for relief under the Bankruptcy Code. Upon the commencement of a bankruptcy case, a bankruptcy estate is created and a stay (the “automatic stay”) arises, which prevents creditors from enforcing almost every type of pre-bankruptcy claim against the debtor. What happens next depends on many factors, including the type of bankruptcy case filed and the actions taken by the various parties involved in the case.

How a Case Starts

A bankruptcy case usually starts when a debtor files a voluntary petition for relief under the Bankruptcy Code with the clerk of the bankruptcy court. The most common types of consumer/individual bankruptcies are liquidations under Chapter 7 of the Bankruptcy Code or the adjustments of debts of individuals under Chapter 13 of the Bankruptcy Code. Individuals with larger amounts of debt may be eligible to file under Chapter 11.

What are the different types of bankruptcy cases?

The most common types of bankruptcy cases filed by individuals are cases under Chapter 7 and cases under Chapter 13.

Chapter 7

Chapter 7 of the Bankruptcy Code, commonly referred to as a “straight” bankruptcy, helps individuals with little to no income receiver a fresh start by eliminating almost all types of debts.

Learn more about Chapter 7

Chapter 13

Chapter 13 is the second most common type of bankruptcy case for individuals. It is an alternative for individuals with regular income and is utilized in most cases to permit the debtor to keep certain non-exempt assets (in particular, the debtor’s home or car).

Learn more about Chapter 13

Chapter 11

Chapter 11 is generally used by business entities to reorganize their debts, but it is also available to individuals (for example if the individual does not meet the debt limits imposed under Chapter 13).

Learn more about Chapter 11

The Section 341 Meeting of Creditors

After the bankruptcy petition is filed, the clerk of the bankruptcy court generates a notice of a meeting of creditors (often referred to as the 341 meeting). The 341 meeting in the case of an individual is conducted by the trustee appointed in the case. The individual debtor is required to appear at the 341 meeting. Most often, the trustee will go through the debtor’s schedules and statement of financial affairs and ask the debtor to clarify any issues or discrepancies contained in those documents. Unless an objection is raised, this is typically the only time an individual needs to appear in connection with his or her case.

See our blog re 341 meetings.

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