Bankruptcy is a process in which both debtors and businesses can eliminate or repay some or all of their debts under the protection of the Federal Bankruptcy Court. Bankruptcy in the United States seeks to benefit both the debtor and creditor by seeing that debtor's receive relief from their debts and creditors get paid from whatever assets the debtor does not need moving forward.
Bankruptcy is governed by the federal law found in Title 11 of the United States Code. As federal law, it supersedes any conflicting state law by reason of the Supremacy Clause of the Constitution. With the exception of exemptions, it is the same from state to state.
Filing for bankruptcy may be your best option if you are have been forced into financial hardship due to medical expenses, job loss or high credit card debts. In many instances, filing for bankruptcy can:
Chapter 7 bankruptcy is the most common form of bankruptcy. It is often filed by individuals and married couples, however this bankruptcy protection is also available to corporations, partnerships, and limited liability companies.
In a Chapter 7 bankruptcy, the United States Federal Bankruptcy Court appoints a Trustee to liquidate the debtor's non-exempt assets, sell them and distribute the proceeds equally among creditors. All remaining debts are then discharged. The typical individual debtor will receive a discharge within 4 – 6 months of filing for bankruptcy.
Chapter 13 Bankruptcy deals with restructuring of debts and allows the debtors to create an affordable repayment plan. It is typically used by individuals and sole proprietorships that do not qualify for, or desire to, file a Chapter 7 bankruptcy. This form of bankruptcy also allows debtors to retain all of their personal property.
The United States Federal Bankruptcy Court will appoint a Trustee to collect a plan of reorganization payment from money earned by the debtor after filing the bankruptcy petition. This means that a debtor will make monthly payments to the Trustee for a period of three to five years. This payment is determined by assessing the income and expenses of the debtor. The Trustee then distributes the funds to creditors according to the plan that has been confirmed by the Court. Following successful completion of your customized, three or five-year plan, your remaining unsecured debt will be discharged.