• Bankruptcy law provides for the reduction or elimination of certain debts, and can provide a timeline for the repayment of non-dischargeable debts over time.  It also permits individuals and organizations to repay secured debts - typically debts with real estate and vehicles pledged as collateral - often on more favorable terms to the borrower.

  • Bankruptcy proceedings are supervised by and litigated in the United States Bankruptcy Courts.  These courts are a part of the District Courts of The United States.  The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings.  Proceedings in bankruptcy courts are governed by the Bankruptcy Rules which were promulgated by the Supreme Court under the authority of Congress.

  • Bankruptcy comes in five varieties:

    • Chapter 7 - This provides for the cancelation of unsecured debts, such as credit cards and personal loans.  Secured debt is typically unaltered, meaning that the collateral remains in the borrower's possession as long as timely payments are being made.  Chapter 7 is always available to individuals with primarily business debts and corporations.  Otherwise, individuals cannot file a Chapter 7 petition unless they meet certain income requirements.

    • Chapter 9 - This chapter deals with the reorganization of municipalities and related local entities, like county-owned hospitals and school districts.  Individuals and corporations cannot file bankruptcy under Chapter 9.      

    • Chapter 11 - This is the most comprehensive chapter of the Bankruptcy Code.  It provides a myriad of options to reorganize debt, i.e., by repaying some debts, cancelling others and restructuring the remainder.  Although individuals can file for Chapter 11 relief, the relatively high filing fees and administrative costs lead most individuals to favor Chapter 7 or Chapter 13 bankruptcies.

    • Chapter 12 - This chapter provides for the restructuring of debts for family farmers.  Only family farmers are eligible and, though not analogous, it shares many characteristics with Chapter 13 bankruptcy.

    • Chapter 13 - Chapter 13 permits the discharge of some debts, as well as the repayment of others over a period of three to five years.  It may also permit a reduction in principal owed on secured debts, or the elimination of these debts altogether.  It can also be used to structure a repayment plan for debts that cannot be discharged in bankruptcy.  Only individuals are permitted to file under this chapter, and there are some, albeit limited, income and debt qualifications.

  • Typically, recent tax debts as well as child support, criminal restitution and student loans will not be discharged - i.e., eliminated - by a bankruptcy petition unless they are repaid in full by the borrower during the course of the bankruptcy.  At the same time, individuals are permitted to keep certain assets without regard to the type of bankruptcy that they file.  For example, Individual Retirement Accounts (IRA's) are protected under 11 U.S.C § 522(d) and thus cannot be involuntarily used to repay creditors in a bankruptcy.  Varying levels of home equity are also often protected, as often are motor vehicles in varying amounts.