Bankruptcy is a court proceeding under a federal statute called the Bankruptcy Code. Bankruptcy allows an individual or business to either eliminate most of their debts or reorganize their debts. Qualified individuals are able to seek bankruptcy protection under either a Chapter 7 or Chapter 13. Bankruptcy is a powerful tool because it forces your creditors to eliminate dischargeable debts or accept to be repaid through a proposed Chapter 13.

Chapter 7 is a way to legally discharge your debts, giving you a fresh start by eliminating most unsecured debts. A person who files for a Chapter 7 is called a debtor. A debtor may only file a Chapter 7 once every 8 years and certain types of debts are not dischargeable. Chapter 7 is generally sought by truthful debtors who find themselves in positions of overwhelming debt. Those who file Chapter 7 are protected from collections and harassment from their creditors by the Bankruptcy Code.

Chapter 13 allows a qualified individual or business to reorganize their debts by following a court approved repayment plan. A person who files under Chapter 13 is called a debtor. Chapter 13 is generally sought by those looking to reorganize their debts, stop foreclosure proceedings, stop repossession or by those who do not qualify for a Chapter 7 because of their income or some other reason. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. The repayment plan must be completed within five (5) years and once completed the debtor will receive a discharge of those debts that are dischargeable.

In order to file a Chapter 7 or Chapter 13, you first must be qualified to file under the Bankruptcy Code. There are different qualifications, advantages and disadvantages for filing either type of bankruptcy. Such as in a Chapter 13, you will need to have a source of income. A bankruptcy attorney will help you decide if bankruptcy is right for you and whether or not you qualify for a Chapter 7 or Chapter 13.

Bankruptcy is still alive. The new bankruptcy laws did not eliminate bankruptcy, it has just changed. With the assistance of an experienced bankruptcy attorney you will still be able to accomplish most, if not all, of the same things you previously could under the “old” laws. The paperwork is more burdensome for most people and there are more requirements to file. It is harder to fill out the paperwork and if you don’t get it right there may be harsher consequences. Some of the “new” rules are the mandatory credit counseling that must be completed within 180 days prior to filing and there is a “means test” for Chapter 7 eligibility. When considering filing for bankruptcy, we suggest that you speak to a bankruptcy attorney who will help determine your best course of action.

The ‘automatic stay’ triggers an injunction against continuing action by any creditor against the debtor or the debtor’s property. The automatic stay prohibits or stops garnishments or levies, foreclosure sales, repossessions, collection calls or the beginning or continuing of lawsuits. The automatic stay does not stop criminal proceedings, certain IRS proceedings, actions for child support, alimony, maintenance, and/or child support from property that is not part of the bankruptcy estate. The automatic stay remains in effect until a judge lifts the stay at the request of a creditor, the property is no longer property of the estate or the debtor gets a discharge of his debts.

The role of a bankruptcy trustee is to oversee the case of a debtor who has filed for bankruptcy. In a Chapter 7 bankruptcy, the trustee’s role is to gather the debtor’s nonexempt property, liquidate it and distribute it to their creditors. In a Chapter 13, the trustee’s role is receiving the debtor’s monthly plan payments and distributing them to their creditors.