Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.
Federal Bankruptcy Courts
Most cases are filed under the three main chapters of the Bankruptcy Code – Chapter 7, Chapter 11, and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.
Each of the 94 federal judicial districts handles bankruptcy matters, and in almost all districts, bankruptcy cases are filed in the bankruptcy court. Bankruptcy cases cannot be filed in state court. Bankruptcy laws help people who can no longer pay their creditors get a fresh start by liquidating their assets to pay their debts or by creating a repayment plan.
Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation. These procedures are covered under Title 11 of the United States Code (the Bankruptcy Code). The vast majority of cases are filed under the three main chapters of the Bankruptcy Code, which are Chapter 7, Chapter 11, and Chapter 13.
In addition to Chapter 7, Chapter 11, and Chapter 13, there are less commonly filed Chapters. Chapter 9, Chapter 12, and Chapter 15 of the Bankruptcy Code also allow for bankruptcy filings of certain individuals or organizations.
A Closer Look at Each U.S. Bankruptcy Code Chapter
Chapter 7 bankruptcy proceedings allow for either an individual or a business to give up all nonexempt assets to be sold to repay creditors. The remaining dischargeable debt is washed away.
Chapter 9 bankruptcy proceedings allow municipalities and other similar government entities to restructure and agree to a plan adjusting their debts to creditors.
Chapter 11 bankruptcy proceedings allow corporations to reorganize in order to repay debts without liquidating and closing doors. The debts will be repaid under a new and different plan.
Chapter 12 allows family farmers and family fishermen with continuing income to come up with a new plan to repay all or part of their debt in accordance with their means.
Chapter 13 allows individuals with regular income also to come up with a plan to repay all or part of their debt in accordance with their means.
Chapter 15 provides an avenue for bankruptcy where more than one country is involved.
It is important to determine not only which type of bankruptcy is best for you, but also which types you are permitted to file. For instance, Chapter 7 may sound like the best option for you, but you may make too much money and be forced to file under Chapter 13 instead. Mistakes in filings can be costly, so be sure you know what you are doing before you file.
