Bankruptcy Basics

Bankruptcy in the United States seeks to benefit both debtors and creditors by granting debtors relief from debts that they can't pay and allowing creditors to more efficiently collect from whatever assets the Debtor does not need to live going forward.  Bankruptcy is governed by federal law primarily found in Title 11 of the United States Code (the "Bankruptcy Code").  As federal law, it supercedes any conflicting state law by reason of the Supremacy Clause of the Constitution.  There are four kinds of bankruptcy proceedings.  They are generally referred to by the chapter of the Bankruptcy Code that describes and defines them.

Chapter 7

Chapter 7 is the most common form of bankruptcy.  It is a liquidation proceeding in which the Debtor's non-exempt assets, if any, are marshaled and sold by a person known as a Chapter 7 Trustee and the proceeds are distributed to creditors according to the priorities established in the Bankruptcy Code.  At the conclusion of the proceeding (usually within 4-6 months), individual Debtors receive a discharge of all debts that are not excepted under the Code.  Chapter 7 is available to individuals, married couples, corporations and partnerships that qualify under the Bankruptcy Code. 

Chapter 11

Chapter 11 is a reorganization proceeding, typically for businesses.  Individuals, particularly those whose debts exceed the limits of Ch. 13, may also file Chapter 11.  In Chapter 11, the Debtor usually remains in possession of his assets and continues to operate, subject to the oversight of the Bankruptcy Court, the United States Trustee, and creditors committee.  The Debtor proposes a plan of reorganization which, upon acceptance by a majority of creditors and confirmation of the Court, binds both the Debtor and the creditors to the terms of repayment.  Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization.

Chapter 12

Chapter 12 is a simplified reorganization for family farmers, modeled after Chapter 13, where the Debtor retains his or her property and pays creditors out of future income.

Chapter 13

Chapter 13 is a repayment plan for individuals with regular income and unsecured debt less than $336,900.00 and secured debt less than $1,010,650.00.  The Debtor keeps his or her property and makes regular payments to the Chapter 13 Trustee out of income in order to pay creditors over time (3-5 years).  The amount of repayment varies based on the Debtor's income and the make up of the debt.  Certain debts that cannot be discharged in Chapter 7 can be discharged in Chapter 13.  Chapter 13 also provides a mechanism for individuals to prevent foreclosures and repossessions, while catching up on their secured debts.

The legal issues surround bankruptcy are frequently complex and individual in nature.  The information contained here is intended to be for educational purposes only.  It is not legal advice and does not create an attorney-client relationship between the viewer and the firm. You should consult with a bankruptcy attorney licensed to practice in your state for advice regarding your particular situation.  In West Virginia, you may contact the Kinder Law office at 304-760-5335 or through the contact portal of this website.

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