Everyone has heard of bankruptcy. Sounds like the solution to all our money problems! Unfortunately, it can be a little more complicated than it seems. In recent years, well over half a million Americans file for bankruptcy. However, many people do not realize that there is a separate court system to handle bankruptcy cases.
The U.S. Constitution authorizes laws regarding bankruptcy and Congress has duly passed and repeatedly amended those laws. Bankruptcy courts have been set up to help administer these bankruptcy laws. Bankruptcy courts are part of the federal court system.
There are nearly 100 federal districts across the United States. Each district maintains its own bankruptcy court. Bankruptcy court judges have the authority to decide any matter connected to a bankruptcy case. These can include a person’s eligibility to file bankruptcy and whether a debtor should be able to discharge their debts.
What Are the Different Types of Bankruptcy?
Filing for Bankruptcy can do more harm than good if not done correctly. Those bills you were hoping to be rid of may very well fall into an exception, depending on what type of bankruptcy you file. Most cases are filed under the three main chapters of the Bankruptcy Code, which are Chapter 7, Chapter 11 and Chapter 13.
However, there are also three other types of bankruptcy courts, all of which are listed below. As much as 65% of individual consumer bankruptcy filings are Chapter 7 cases. Federal courts are the only courts that can hear bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court. The different types of bankruptcy cases, and a brief description of each, are:
Common Types of Bankruptcy:
- Chapter 7 (Liquidation) – A court procedure where a trustee takes over the assets of your estate and pays your creditors. You may be able to keep certain exempt property. However, beware that certain exceptions apply where your debt will not be discharged. For example, your debts won't be discharged if you engage in fraudulent behavior such as concealing financial records. Also, your student loans, spousal support and child support, and some taxes will not be discharged.
- Chapter 13 – A program that allows an individual with a regular income to make a plan to pay back their debt. It allows the possibility to keep one’s home and repay their debts over a period of time.
- Chapter 11 (Reorganization) – A process that is usually used by commercial enterprises to pay their debts. It allows for reorganization of an entity to continue their business. They have the leeway to possibly withdraw from some contracts and obligations.
Less Common Types of Bankruptcy:
- Chapter 9 – A program that is similar to the reorganization in Chapter 11, but only applies to municipalities, which includes cities and towns.
- Chapter 12 – A program that helps farmers and fisherman who maintain a regular income to keep their business and repay their debts over a number of years.
- Chapter 15 – A program that helps with cross-border insolvency. Military personal who live abroad would qualify under Chapter 15.
Do I Need an Attorney?
As with any other court, it is a good idea to hire an attorney to represent you. Bankruptcy laws are detailed and confusing, and having an experienced bankruptcy lawyer increases your chances of success.