Bankruptcy is a legal system designed to help people or businesses reduce, restructure or eliminate some or all of their debt. Bankruptcy cases filed in the United States are governed by the federal Bankruptcy Code, and are administered through federal bankruptcy courts. There are bankruptcy courts in every state.
When you file a bankruptcy, you are called a debtor. As a debtor you may use bankruptcy to eliminate or restructure your debts. Chapter 7 bankruptcy is the most popular form of bankruptcy because you can use it to eliminate debts. Chapter 13 bankruptcy is another popular form of bankruptcy that allows you to restructure your debts. Businesses may also be debtors although some different rules apply. Businesses may file Chapter 7 to wind down their affairs, or they may file Chapter 11 bankruptcy to reorganize.
Bankruptcy functions as a holistic solution if you cannot cope with your debt load. The bankruptcy courts serve as a forum in which your rights and the rights of your creditors are determined and disputes can be resolved. Personal bankruptcy is meant to provide you relief from debt if you are an “honest but unfortunate debtor.” If your bankruptcy is successful you will receive a discharge of some or all of your debt. If your bankruptcy concludes with a discharge, your creditors rights against you will be forever modified. Under penalty of law, your creditors may not come after you to collect discharged debts.
Your Financial Information Must be Disclosed in Writing
Similar to a divorce proceeding, when you file bankruptcy you will disclose in writing all of your financial affairs to be reviewed by the the bankruptcy trustee, the judge, and your creditors. In a typical case the written information you disclosed – in what are known as bankruptcy schedules – can amount to 75 pages. Your lawyer will use a sophisticated computer program to generate your schedules. As part of these schedules, you and your lawyer will propose either a liquidation process or a plan of reorganization under which you may keep some or all of your property, while your debts are either eliminated or restructured.
While you can file a bankruptcy case as a pro se (without a lawyer) debtor, our experience has been that these filings often result in multiple objections by bankruptcy trustees and creditors.
One of the misconceptions about bankruptcy has to do with property that you can keep. Most of the time you will not lose any property unless you choose to surrender that property. An experienced lawyer can advise you about how to use the bankruptcy process to eliminate debts while preserving your assets. He or she will explain to you about which debts can be discharged or not. You will know in advance who, if anyone, has a say (or even a vote) in your reorganization, and who will supervise the process.
While bankruptcy should always been seen as a last resort, you can use it as a powerful financial tool to eliminate or restructure debt, and to regain the peace of mind lost when you find yourself facing unmanageable debt.