How Do You File Bankruptcy?

April 21, 2016

Introduction to the Different Chapters of Bankruptcy

There are some common misconceptions about bankruptcy that seem to be shared by the general public.  For the most part, people seem to think that one has to give up all property in return for the elimination of all debts.  While it is true that debts are discharged in bankruptcy, the options available to bankruptcy filers are in fact more diverse than simply giving up all of one’s property.  The choices are best illustrated by looking at the different chapters of bankruptcy. 

 The chapter that probably best reflects the common conception of bankruptcy is Chapter 7.  This Chapter is utilized when an individual is burdened by debts, and he or she does not possess the means to repay them.  Chapter 7 can also be used when a business has become insolvent and the owners no longer wish to operate it.  Chapter 7 is considered a “liquidation” bankruptcy because a trustee is appointed to gather and sell property of the debtor to satisfy creditors.  More often than not, there is no property available for this purpose, and the case is deemed a “no-asset” case. 

 Another chapter available to individuals is Chapter 13.  Chapter 13 bankruptcies are those cases in which the individuals involved possess the means to repay at least some portion of the debts that are owed and/or they are seeking to retain and protect certain property from liquidation.  Because the Chapter 13 debtors are required to show a regular income, these cases are often referred to a “wage earner plans.”  The debtors make monthly payments to a Chapter 13 trustee, and those payments are used to pay secured debts on properties retained by the debtor, priority debts such as child support and certain taxes, and a percentage (usually rather small) of unsecured debts such as credit cards and personal loans. 

Chapter 11 is a “reorganization” bankruptcy that is utilized either by a business, or by an individual who has significant property holdings or high income, but is having trouble paying debts.  Chapter 11 allows the debtor to restructure its liabilities, which can be done in a number of ways, including the surrender or sale of property, the forced modification of debts, and the elimination or replacement of certain liens.  The remedies available in Chapter 11 are numerous, and the bankruptcy itself is actually controlled and directed by the Debtor, who is termed the “Debtor-in-Possession,” but is subject to court oversight. 

 Additionally, there are Chapter 9 and Chapter 12 bankruptcies.  The former addresses the debts of municipalities and local governments.  The latter is available to family farmers and commercial fishermen who run significant operations. 

Regardless of which chapter applies, each bankruptcy case is unique and determined by the debtor’s specific financial conditions.  However, in all bankruptcies in which the debtor is an individual (as opposed to a business entity), the debtor is allowed to designate property which he or she wants to retain as exempt from the claims of creditors, per state and federal law.  Depending on the ways in which the debtors’ property is titled and the ways in which their debts are structured, it is often possible to go through a bankruptcy without losing one’s property and without having to make burdensome payments to creditors.  For those experiencing financial difficulties, it is important to consult with an attorney who is skilled and experienced in this area prior to taking any actions which may impact his or her eligibility for the best bankruptcy alternative available.  Out office can help you if you live in Morehead City, Beaufort and/or New Bern, North Carolina or other surrounding areas.    

Let's Talk Legal
See How Our Team Can Help You