The laws surrounding bankruptcy are intended to provide a debtor an opportunity to begin again, start over without existing debt, or reorganize the repayment schedule to find a workable payment plan.
Federal Courts
A bankruptcy case normally begins by the debtor filing a petition with the bankruptcy court. Federal courts, and not state courts, hear bankruptcy cases. Bankruptcy cases cannot be filed in state court. Federal courts are the sole courts that make decisions in bankruptcy cases.
Filing the Bankruptcy Petition
A petition may be filed by an individual, by a husband and wife together, or by a corporation or other entity.
There are several chapters of the bankruptcy code under which a bankruptcy may be filed in federal court. The three main chapters are chapter 7, chapter 11, and chapter 13. While there are other chapters, most bankruptcy filings are filed under chapter 7, chapter 11, and chapter 13. Whether a bankruptcy is filed under one of these three chapters or another chapter under the United States Bankruptcy Code, each bankruptcy chapter is either intended for use by a certain type of debtor, or provides for a different ultimate result.
Listing Assets, Income, Liabilities and Creditors
When filing for bankruptcy, the debtor is required to file statements listing assets, income, liabilities, and the names and addresses of all creditors and how much they are owed.
The filing of the petition automatically prevents, or “stays,” debt collection actions against the debtor and the debtor’s property. As long as the stay remains in effect, creditors cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment. Creditors receive notice from the clerk of court that the debtor has filed a bankruptcy petition.
Disputed and Undisputed Cases
Some bankruptcy cases are filed to allow a debtor to reorganize and establish a plan to repay creditors, while other cases involve liquidation of the debtor’s property.
In many bankruptcy cases involving liquidation of the property of individual consumers, there is little or no money available from the debtor’s estate to pay creditors. As a result, in these cases there are few issues or disputes, and the debtor is normally granted a “discharge” of most debts without objection. This means that the debtor will no longer be personally liable for repaying the debts.
Not all bankruptcy cases resolve without objection, however. At times, bankruptcy matters will have to be litigated fully in the bankruptcy court. This litigation will include arguments over the owner of a particular property, the value of a particular property, the amount of debt that is actually owed, whether a debt is dischargeable in bankruptcy or whether it is a nondischargeable debt, and what certain professionals involved in the process should be paid.