the most recent bill available for each and every creditor, even the ones you
want to continue to pay, last two years tax returns, if you file, recent bank
account statement, and last 60 days pay stubs.
Call the one who knows all the ins and outs of bankruptcy.
Toll Free 1-877-May- File 1-877- 629-3453
LAW IS A FEDERAL LAW and is affected by state law. THIS SITE GIVES
YOU GENERAL INFORMATION ABOUT WHAT HAPPENS IN A BANKRUPTCY
CASE. THE INFORMATION HERE IS NOT COMPLETE. YOU NEED
PERSONALIZED LEGAL ADVICE, TO KNOW WHAT ITEMS YOU MAY, OR WILL, LOSE IF YOU
You can choose the kind of bankruptcy that best meets
Some types of bankruptcy are:
A chapter 7 bankruptcy case does not involve the filing of a
plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers
and sells the debtor's nonexempt assets and uses the proceeds of such assets
to pay holders of claims (creditors) in accordance with the provisions of the
Bankruptcy Code. Part of the debtor's property may be subject to liens and
mortgages that pledge the property to other creditors. In addition, the
Bankruptcy Code will allow the debtor to keep certain "exempt"
property; but a trustee will liquidate the debtor's remaining assets.
Accordingly, potential debtors should realize that the filing of a petition
under chapter 7 may result in the loss of property. Ask the Lawyer.
chapter 7 case begins with the debtor filing a petition with the bankruptcy
court serving the area. (3) In addition to the petition, the debtor must
also file with the court: (1) schedules of assets and liabilities; (2) a
schedule of current income and expenditures; (3) a statement of financial
affairs; and (4) a schedule of executory contracts
and unexpired leases. Debtors must also provide the assigned case trustee
with a copy of the tax return or transcripts for the most recent tax year as
well as tax returns filed during the case including tax returns for prior
years that had not been filed when the case began. Individual debtors with
primarily consumer debts have additional document filing requirements. They
must file: a certificate of credit counseling and a copy of any debt
repayment plan developed through credit counseling; evidence of pay from
employers, if any, received for 60 days before filing; a statement of monthly
net income and any anticipated increase or decrease in income or expenses
after filing. A husband and wife may file a joint petition or individual
petitions. Even if filing jointly, a husband and wife are subject to all the
document filing requirements of individual debtors.
individuals must gather this information for their spouse regardless of
whether they are filing a joint petition, separate individual petitions, or
even if only one spouse is filing. In a situation where only one spouse
files, the income and expenses of the non-filing spouse is required so that
the court, the trustee and creditors can evaluate the household's financial
Between 20 and 40 days after the petition is filed, the case
trustee (described below) will hold a meeting of creditors.
discharge releases individual debtors from personal liability for most debts
and prevents the creditors owed those debts from taking any collection
actions against the debtor. Because a chapter 7 discharge is subject to many
exceptions, though, debtors should consult competent legal counsel before
filing to discuss the scope of the discharge.
Debtors should be aware that there are several alternatives to
chapter 7 relief. For example, debtors who are engaged in business, including
corporations, partnerships, and sole proprietorships, may prefer to remain in
business and avoid liquidation. Such debtors should consider filing a
petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the
debtor may seek an adjustment of debts, either by reducing the debt or by
extending the time for repayment, or may seek a more comprehensive
reorganization. Sole proprietorships may also be eligible for relief under
chapter 13 of the Bankruptcy Code.
In addition, individual debtors who have regular income may seek
an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular
advantage of chapter 13 is that it provides individual debtors with an opportunity
to save their homes from foreclosure by allowing them to "catch up"
past due payments through a payment plan
13 - You can usually keep your property, but you must earn wages or have some
other source of regular income, and you must agree to pay part of your income
to your creditors. The Court must approve your repayment plan and
your budget. A trustee is appointed and will collect the payments
from you, pay your creditors, and make sure you live up to the terms of your
Chapter 13 offers individuals a number of advantages over
liquidation under chapter 7. Perhaps most significantly, chapter 13 offers
individuals an opportunity to save their homes from foreclosure. By filing
under this chapter, individuals can stop foreclosure proceedings and may cure
delinquent mortgage payments over time. Nevertheless, they must still make
all mortgage payments that come due during the chapter 13 plan on time.
Another advantage of chapter 13 is that it allows individuals to reschedule secured
debts (other than a mortgage for their primary residence) and extend them
over the life of the chapter 13 plan. Doing this may lower the payments.
Chapter 13 also has a special provision that protects third parties who are
liable with the debtor on "consumer debts." This provision may
protect co-signers. Finally, chapter 13 acts like a consolidation loan under
which the individual makes the plan payments to a chapter 13 trustee who then
distributes payments to creditors. Individuals will have no direct contact
with creditors while under chapter 13 protection.
11 - This is used mostly for businesses. In Chapter 11, you may
continue to operate your business, but your creditors and the Court must
approve a plan to repay your debts. There is no trustee unless the
Judge decides that one is necessary; if a trustee is appointed, the trustee
takes control of your business and property.
Your bankruptcy may be reported on
your credit record. It can affect your ability to receive credit in
The discharge only applies to debts that arose before the date
Also, if the Judge finds that you received money or property by
fraud, that debt may not be discharged.
It is important and required
to list all your property and debts in your bankruptcy
schedules. If you do not list a debt, it is possible the debt will
not be discharged.
The Judge can also deny your discharge if you do something
dishonest in connection with your bankruptcy case, such as destroy or hide
property, falsify records, or lie, or if you disobey a Court order.
You can only receive a Chapter 7 discharge once every 8
years. No one can make you pay a debt that has been discharged,
but you can voluntarily pay any debt you wish to pay. You do not
have to sign a reaffirmation agreement or any other kind of document to do
Some creditors hold a secured claim (for example, the bank that
holds the mortgage on your house or the loan company that has a lien on your
car). You do not have to pay a secured claim if the debt is
discharged, but the creditor can still take the property, by repossession or
foreclosure if you do not pay the loan.
If you reaffirm a debt and then fail to pay it, you owe the debt
the same as though there was no bankruptcy. The debt will not be
discharged and the creditor can take action to recover any property on which
it has a lien or mortgage. The creditor can also take legal action
to recover a judgement against you.
IF YOU WANT MORE
INFORMATION OR HAVE QUESTIONS ABOUT
Six basic types of bankruptcy cases are provided
for under the Bankruptcy Code, each of which is discussed in this publication.
The cases are traditionally given the names of the chapters that describe them.
Chapter 7, entitled Liquidation, contemplates an orderly,
court-supervised procedure by which a trustee takes over the assets of the
debtor's estate, reduces them to cash, and makes distributions to creditors,
subject to the debtor's right to retain certain exempt property and the rights
of secured creditors. Because there is usually little or no nonexempt property
in most chapter 7 cases, there may not be an actual liquidation of the debtor's
assets. These cases are called "no-asset cases." A creditor holding
an unsecured claim will get a distribution from the bankruptcy estate only if
the case is an asset case and the creditor files a proof of claim with the
bankruptcy court. In most chapter 7 cases, if the debtor is an individual, he
or she receives a discharge that releases him or her from personal liability
for certain dischargeable debts. The debtor normally receives a discharge just
a few months after the petition is filed. Amendments to the Bankruptcy Code
enacted in to the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005 require the application of a "means test" to determine whether
individual consumer debtors qualify for relief under chapter 7. If such a
debtor's income is in excess of certain thresholds, the debtor may not be
eligible for chapter 7 relief.
Chapter 13, entitled Adjustment of Debts of
an Individual With Regular Income, is designed for an
individual debtor who has a regular source of income. Chapter 13 is often
preferable to chapter 7 because it enables the debtor to keep a valuable asset,
such as a house, and because it allows the debtor to propose a "plan"
to repay creditors over time – usually three to five years. Chapter 13 is also
used by consumer debtors who do not qualify for chapter 7 relief under the
means test. At a confirmation hearing, the court either approves or disapproves
the debtor's repayment plan, depending on whether it meets the Bankruptcy
Code's requirements for confirmation. Chapter 13 is very different from chapter
7 since the chapter 13 debtor usually remains in possession of the property of
the estate and makes payments to creditors, through the trustee, based on the
debtor's anticipated income over the life of the plan. Unlike chapter 7, the
debtor does not receive an immediate discharge of debts. The debtor must
complete the payments required under the plan before the discharge is received.
The debtor is protected from lawsuits, garnishments, and other creditor actions
while the plan is in effect. The discharge is also somewhat broader (i.e., more
debts are eliminated) under chapter 13 than the discharge under chapter 7.
Chapter 11, entitled Reorganization,
ordinarily is used by commercial enterprises that desire to continue operating
a business and repay creditors concurrently through a court-approved plan of
reorganization. The chapter 11 debtor usually has the exclusive right to file a
plan of reorganization for the first 120 days after it files the case and must
provide creditors with a disclosure statement containing information adequate
to enable creditors to evaluate the plan. The court ultimately approves
(confirms) or disapproves the plan of reorganization. Under the confirmed plan,
the debtor can reduce its debts by repaying a portion of its obligations and
discharging others. The debtor can also terminate burdensome contracts and
leases, recover assets, and rescale its operations in order to return to
profitability. Under chapter 11, the debtor normally goes through a period of
consolidation and emerges with a reduced debt load and a reorganized business.
Chapter 12, entitled Adjustment of Debts of
a Family Farmer or Fisherman with Regular Annual Income, provides debt relief
to family farmers and fishermen with regular income. The process under chapter
12 is very similar to that of chapter 13, under which the debtor proposes a
plan to repay debts over a period of time – no more than three years unless the
court approves a longer period, not exceeding five years. There is also a
trustee in every chapter 12 case whose duties are very similar to those of a
chapter 13 trustee. The chapter 12 trustee's disbursement of payments to
creditors under a confirmed plan parallels the procedure under chapter 13.
Chapter 12 allows a family farmer or fisherman to continue to operate the
business while the plan is being carried out.
Chapter 9, entitled Adjustment of Debts of a
Municipality, provides essentially for reorganization, much like a reorganization under chapter 11. Only a
"municipality" may file under chapter 9, which includes cities and
towns, as well as villages, counties, taxing districts, municipal utilities,
and school districts.
The purpose of Chapter 15, entitled Ancillary and Other
Cross-Border Cases, is to provide an effective mechanism for dealing with cases
of cross-border insolvency. This publication discusses the applicability of
Chapter 15 where a debtor or its property is subject to the laws of the
In addition to the basic types of bankruptcy
cases, Bankruptcy Basics provides an overview of the Servicemembers' Civil Relief Act, which, among other things,
provides protection to members of the military against the entry of default
judgments and gives the court the ability to stay proceedings against military
This publication also contains a description of
liquidation proceedings under the Securities Investor Protection Act ("SIPA"). Although the Bankruptcy Code provides for a
stockbroker liquidation proceeding, it is far more likely that a failing
brokerage firm will find itself involved in a SIPA
proceeding. The purpose of SIPA is to return to
investors securities and cash left with failed brokerages. Since being
established by Congress in 1970, the Securities Investor Protection Corporation
has protected investors who deposit stocks and bonds with brokerage firms by
ensuring that every customer's property is protected, up to $500,000 per
The bankruptcy process is complex and relies on legal concepts like the "automatic stay," "discharge," "exemptions," and "assume." Therefore, the final chapter of this publication is a glossary of Bankruptcy Terminology which explains, in layman's terms, most of the legal concepts that apply in cases filed under the Bankruptcy Code.
proceeding A lawsuit
arising in or related to a bankruptcy case that is commenced by filing a
complaint with the court. A nonexclusive list of adversary proceedings is set
forth in Fed. R. Bankr. P. 7001.
bankruptcy A legal procedure for dealing with debt
problems of individuals and businesses; specifically, a case filed under one of
the chapters of title 11 of the United States Code (the Bankruptcy Code).
bankruptcy administrator An officer of the judiciary serving in the judicial
districts of Alabama and North Carolina who, like the U.S. trustee, is
responsible for supervising the administration of bankruptcy cases, estates,
and trustees; monitoring plans and disclosure statements; monitoring creditors'
committees; monitoring fee applications; and performing other statutory duties.
Compare U.S. trustee.
Code The informal name
for title 11 of the United States Code (11 U.S.C. §§
101-1330), the federal bankruptcy law.
court The bankruptcy
judges in regular active service in each district; a unit of the district
estate All legal or
equitable interests of the debtor in property at the time of the bankruptcy filing.
(The estate includes all property in which the debtor has an interest, even if
it is owned or held by another person.)
judge A judicial officer
petition The document
filed by the debtor (in a voluntary case) or by creditors (in an involuntary
case) by which opens the bankruptcy case. (There are official forms for
7 The chapter of the
Bankruptcy Code providing for "liquidation,"(i.e., the sale of
a debtor's nonexempt property and the distribution of the proceeds to
9 The chapter of the Bankruptcy
Code providing for reorganization of municipalities (which includes cities and
towns, as well as villages, counties, taxing districts, municipal utilities,
and school districts).
11 The chapter of the
Bankruptcy Code providing (generally) for reorganization, usually involving a
corporation or partnership. (A chapter 11 debtor usually proposes a plan of
reorganization to keep its business alive and pay creditors over time. People
in business or individuals can also seek relief in chapter 11.)
12 The chapter of the
Bankruptcy Code providing for adjustment of debts of a "family
farmer," or a "family fisherman" as those terms are defined in
the Bankruptcy Code.
13 The chapter of the
Bankruptcy Code providing for adjustment of debts of an individual with regular
income. (Chapter 13 allows a debtor to keep property and pay debts over time,
usually three to five years.)
15 The chapter of the
Bankruptcy Code dealing with cases of cross-border insolvency.
claim A creditor's assertion of a right to
payment from the debtor or the debtor's property.
confirmation Bankruptcy judges's
approval of a plan of reorganization or liquidation in chapter 11, or payment
plan in chapter 12 or 13.
debtor A debtor whose
debts are primarily consumer debts.
incurred for personal, as opposed to business, needs.
matter Those matters,
other than objections to claims, that are disputed but are not within the
definition of adversary proceeding contained in Rule 7001.
claim A claim that may be
owed by the debtor under certain circumstances, e.g., where the debtor
is a cosigner on another person's loan and that person fails to pay.
creditor One to whom the debtor owes money or who
claims to be owed money by the debtor.
credit counseling Generally refers to two events in individual bankruptcy cases:
(1) the "individual or group briefing" from a nonprofit budget and
credit counseling agency that individual debtors must attend prior to filing
under any chapter of the Bankruptcy Code; and (2) the "instructional
course in personal financial management" in chapters 7 and 13 that an
individual debtor must complete before a discharge is entered. There are
exceptions to both requirements for certain categories of debtors, exigent
circumstances, or if the
creditors' meeting see 341 meeting
monthly income The
average monthly income received by the debtor over the six calendar months
before commencement of the bankruptcy case, including regular contributions to
household expenses from nondebtors and income from
the debtor's spouse if the petition is a joint petition, but not including
social security income and certain other payments made because the debtor is
the victim of certain crimes. 11 U.S.C. § 101(10A).
debtor A person who has filed a petition for
relief under the Bankruptcy Code.
see credit counseling
defendant An individual (or business) against whom
a lawsuit is filed.
discharge A release of a debtor from personal
liability for certain dischargeable debts set forth in the Bankruptcy Code. (A
discharge releases a debtor from personal liability for certain debts known as
dischargeable debts and prevents the creditors owed those debts from taking any
action against the debtor to collect the debts. The discharge also prohibits
creditors from communicating with the debtor regarding the debt, including telephone
calls, letters, and personal contact.)
debt A debt for which the
Bankruptcy Code allows the debtor's personal liability to be eliminated.
statement A written
document prepared by the chapter 11 debtor or other plan proponent that is
designed to provide "adequate information" to creditors to enable
them to evaluate the chapter 11 plan of reorganization.
equity The value of a debtor's interest in
property that remains after liens and other creditors' interests are considered.
(Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there
is $20,000 of equity.)
executory contract or lease Generally includes contracts or leases under which both parties
to the agreement have duties remaining to be performed. (If a contract or lease
is executory, a debtor may assume it or reject it.)
exemptions, exempt property Certain property owned by an individual
debtor that the Bankruptcy Code or applicable state law permits the debtor to
keep from unsecured creditors. For example, in some states the debtor may be
able to exempt all or a portion of the equity in the debtor's primary residence
(homestead exemption), or some or all "tools of the trade" used by
the debtor to make a living (i.e., auto tools for an auto mechanic or
dental tools for a dentist). The availability and amount of property the debtor
may exempt depends on the state the debtor lives in.
farmer or family fisherman
An individual, individual and spouse, corporation, or partnership engaged in a
farming or fishing operation that meets certain debt limits and other statutory
criteria for filing a petition under chapter 12.
transfer A transfer of a
debtor's property made with intent to defraud or for which the debtor receives
less than the transferred property's value.
characterization of a debtor's status after bankruptcy, i.e., free of
most debts. (Giving debtors a fresh start is one purpose of the Bankruptcy
(of individual debtor) Any
relative of the debtor or of a general partner of the debtor; partnership in
which the debtor is a general partner; general partner of the debtor; or a
corporation of which the debtor is a director, officer, or person in control.
(of corporate debtor) A
director, officer, or person in control of the debtor; a partnership in which
the debtor is a general partner; a general partner of the debtor; or a relative
of a general partner, director, officer, or person in control of the debtor.
court-approved mechanism under which two or more cases can be administered
together. (Assuming no conflicts of interest, these separate businesses or
individuals can pool their resources, hire the same professionals, etc.)
petition One bankruptcy
petition filed by a husband and wife together.
lien The right to take and hold or sell the
property of a debtor as security or payment for a debt or duty.
liquidation A sale of a debtor's property with the
proceeds to be used for the benefit of creditors.
claim A creditor's claim
for a fixed amount of money.
Section 707(b)(2) of the Bankruptcy Code applies a "means test" to
determine whether an individual debtor's chapter 7 filing is presumed to be an
abuse of the Bankruptcy Code requiring dismissal or conversion of the case
(generally to chapter 13). Abuse is presumed if the debtor's aggregate current
monthly income (see definition above) over 5 years, net of certain statutorily
allowed expenses is more than (i) $10,000, or (ii)
25% of the debtor's nonpriority unsecured debt, as
long as that amount is at least $6,000. The debtor may rebut a presumption of
abuse only by a showing of special circumstances that justify additional
expenses or adjustments of current monthly income.
to lift the automatic stay
A request by a creditor to allow the creditor to take action against the debtor
or the debtor's property that would otherwise be prohibited by the automatic
case A chapter 7 case
where there are no assets available to satisfy any portion of the creditors'
nondischargeable debt A debt that cannot be eliminated in bankruptcy. Examples
include a home mortgage, debts for alimony or child support, certain taxes,
debts for most government funded or guaranteed educational loans or benefit
overpayments, debts arising from death or personal injury caused by driving
while intoxicated or under the influence of drugs, and debts for restitution or
a criminal fine included in a sentence on the debtor's conviction of a crime.
Some debts, such as debts for money or property obtained by false pretenses and
debts for fraud or defalcation while acting in a fiduciary capacity may be
declared nondischargeable only if a creditor timely
files and prevails in a nondischargeability action.
to dischargeability A trustee's or creditor's objection to the debtor being
released from personal liability for certain dischargeable debts. Common
reasons include allegations that the debt to be discharged was incurred by
false pretenses or that debt arose because of the debtor's fraud while acting
as a fiduciary.
to exemptions A trustee's
or creditor's objection to the debtor's attempt to claim certain property as
exempt from liquidation by the trustee to creditors.
in interest A party who
has standing to be heard by the court in a matter to be decided in the
bankruptcy case. The debtor, the
preparer A business not
authorized to practice law that prepares bankruptcy petitions.
plan A debtor's detailed description of how
the debtor proposes to pay creditors' claims over a fixed period of time.
plaintiff A person or business that files a formal
complaint with the court.
postpetition transfer A transfer of the debtor's property made after the commencement
of the case.
prebankruptcy planning The arrangement (or rearrangement) of a debtor's property to allow
the debtor to take maximum advantage of exemptions. (Prebankruptcy
planning typically includes converting nonexempt assets into exempt assets.)
or preferential debt payment A debt payment made to a creditor in the 90-day period before a
debtor files bankruptcy (or within one year if the creditor was an insider)
that gives the creditor more than the creditor would receive in the debtor's
chapter 7 case.
presumption of abuse see
priority The Bankruptcy Code's statutory ranking
of unsecured claims that determines the order in which unsecured claims will be
paid if there is not enough money to pay all unsecured claims in full. For
example, under the Bankruptcy Code's priority scheme, money owed to the case
trustee or for prepetition alimony and/or child
support must be paid in full before any general unsecured debt (i.e.
trade debt or credit card debt) is paid.
claim An unsecured claim
that is entitled to be paid ahead of other unsecured claims that are not
entitled to priority status. Priority refers to the order in which these
unsecured claims are to be paid.
of claim A written
statement and verifying documentation filed by a creditor that describes the
reason the debtor owes the creditor money. (There is an official form for this
of the estate All legal
or equitable interests of the debtor in property as of the commencement of the
agreement An agreement by
a chapter 7 debtor to continue paying a dischargeable debt (such as an auto
loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e.
the car) that would otherwise be subject to repossession.
creditor A creditor
holding a claim against the debtor who has the right to take and hold or sell
certain property of the debtor in satisfaction of some or all of the claim.
backed by a mortgage, pledge of collateral, or other lien; debt for which the
creditor has the right to pursue specific pledged property upon default.
Examples include home mortgages, auto loans and tax liens.
schedules Detailed lists filed by the debtor along
with (or shortly after filing) the petition showing the debtor's assets,
liabilities, and other financial information. (There are official forms a
debtor must use.)
business case A special
type of chapter 11 case in which there is no creditors' committee (or the
creditors' committee is deemed inactive by the court) and in which the debtor
is subject to more oversight by the U.S. trustee than other chapter 11 debtors.
The Bankruptcy Code contains certain provisions designed to reduce the time a
small business debtor is in bankruptcy.
of financial affairs A
series of questions the debtor must answer in writing concerning sources of
income, transfers of property, lawsuits by creditors, etc. (There is an
official form a debtor must use.)
of intention A
declaration made by a chapter 7 debtor concerning plans for dealing with
consumer debts that are secured by property of the estate.
consolidation Putting the
assets and liabilities of two or more related debtors into a single pool to pay
creditors. (Courts are reluctant to allow substantive consolidation since the
action must not only justify the benefit that one set of creditors receives,
but also the harm that other creditors suffer as a result.)
The meeting of creditors required by section 341 of the Bankruptcy Code at
which the debtor is questioned under oath by creditors, a trustee, examiner, or
transfer Any mode or means by which a debtor
disposes of or parts with his/her property.
trustee The representative of the bankruptcy
estate who exercises statutory powers, principally for the benefit of the
unsecured creditors, under the general supervision of the court and the direct
supervision of the
A debt secured by property that is worth less than the full amount of the debt.
A claim for which a specific value has not been determined.
debt A debt that should
have been listed by the debtor in the schedules filed with the court but was
not. (Depending on the circumstances, an unscheduled debt may or may not be
claim A claim or debt for
which a creditor holds no special assurance of payment, such as a mortgage or lien;
a debt for which credit was extended based solely upon the creditor's
assessment of the debtor's future ability to pay.
transfer A transfer of a
debtor's property with the debtor's consent.