To be bankrupt means, for a person or organization to be declared by law as being unable to pay his or its debts.
The founders of the United States thought it was important for an individual to be absolved of debts. They came from a England where people could be thrown into “debtor’s prison”. Debtor’s prison is great at condemning people but as an institution it is very bad at helping people pay their debts.
The founders allowed for bankruptcy in the constitution: “The Congress shall have Power To…establish…uniform Laws on the subject of Bankruptcies throughout the United States….”. United States Constitution, Article I, Section 8, Clause 4.
Bankruptcy petitions are heard in federal court under federal bankruptcy law. The most common types of bankruptcies are “Chapter 7” and “Chapter 13”. Each type is named after a chapter in the bankruptcy code. They each have their own requirements and outcomes. However, there are some similarities such as the “automatic stay” which protects bankruptcy debtors from their creditors.
Chapter 7 Bankruptcy
A Chapter 7 eliminates almost all of the types of consumer debts an individual or married couple or their business. It usually takes 2-4 months to complete following the filing of the petition. More information about Chapter 7 bankruptcy is available here.
Chapter 13 Bankruptcy
A Chapter 13 “re-organizes” and reduces your debts including, debts which you may not be able to discharge in a Chapter 7. A bankruptcy plan is created which requires regular monthly payments over a period of 3-5 years. More information about Chapter 13 bankruptcy is available here.
How do I know which type of bankruptcy may apply to me?
As experienced bankruptcy lawyers, we can advise you about the type of bankruptcy which would best meet your goals. Call today to set up a consultation.