In our consumer-driven society, many people, at one time or another, find themselves overextended in terms of the debt they’ve accumulated. In some cases, the person is completely insolvent, meaning the value of all their assets (property) is less than the total amount of their debts. When someone is completely buried by debt, sometimes bankruptcy is the best solution to erase or reduce that debt and allow that person to start fresh. Bankruptcy is not only an avenue for individuals to find relief from their debts, but it is an option for businesses as well.
Bankruptcy is exclusively a federal process handled through the United States Bankruptcy Court, although some portions of bankruptcy law will defer to state laws on some issues. Bankruptcy is divided into certain “chapters,” four of which pertain to individual and business debts – Chapter 7 Liquidation, or “straight bankruptcy” for individuals; Chapter 11 Reorganization, which applies to businesses; Chapter 13 Adjustments of Debts of an Individual with Regular Income; and Chapter 12 Adjustment of Debts of a Family Farmer or Family Fisherman With Regular Annual Income. Chapters 7, 13, and 11 are the most common forms of bankruptcy filed in the United States.
Bankruptcy is designed to protect the debtor from actions by their creditors, protect all of the debtor’s creditors, and afford the debtor relief from their debt and a “fresh start.” For an individual debtor, the decision over whether to file for Chapter 7 or 13 will depend heavily on the person’s income and the type of debts they are seeking relief from. Individuals with debt should note that some debts cannot be discharged in bankruptcy, most notably taxes or customs duties, governmental fines, penalties, and forfeitures, and student loans (unless it would impose an “undue hardship” on the debtor).
Some of these exemptions from discharge, along with other limitations found in bankruptcy law are the result of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act which came about due to what was viewed as certain abuses of the bankruptcy process. With these revisions came the requirments that debtors must first undergo credit counseling and financial management education before seeking relief under the code so that they can hopefully learn how to overcome the errors of their former ways and avoid suffocating under a blanket of debt in the future.
Our firm has represented both debtors and creditors in a wide variety of debt situations, a number of which have been resolved without having to dive into the depths of bankruptcy. However, there are some situations where bankruptcy is simply the only option for all parties to move forward. If you’re a debtor or a creditor facing a problem with a particular debt or multiple debts, our staff and attorneys are here to assist you in finding a satisfactory resolution to your problem. |
