What is Bankruptcy and Who Does it Help?

In short, the idea behind bankruptcy is to benefit both creditors and debtors; however, the process often favors debtors significantly. How beneficial bankruptcy may be for any given debtor, however, can only be accurately determined by a bankruptcy lawyer in light of the case-specific nature of every debtor’s debts, income, assets, and expenses. Debtors is a term generally associated with individuals, however, entities eligible to file bankruptcy include businesses, joint filers (married couples), municipalities (local governments), foreign companies with debts in the United States,  and occupation specific individuals (fishermen and anglers).

Types of Bankruptcy

The two most common forms of bankruptcy available to individual debtors, who make up the overwhelming bulk of bankruptcy filings, include Chapter 7 and Chapter 13 bankruptcy.

• Chapter 7: Type of bankruptcy reserved for individuals, businesses, and jointly filing couples, which generally entails a discharge of certain debt obligations, while also liquidating all non-exempt assets. In short, Chapter 7 benefits the debtor, through allowing discharge of certain debts, but also benefits creditors, who are protected from discharge in certain instances and can make claims against any value of liquidated assets.

• Chapter 13: Type of bankruptcy available to individuals, which involves reorganization and repayment of debt obligations over a period of three to five years under the supervision of the courts. This process benefits debtors, by providing security from creditor collection actions and allowing manageable repayments over time, but also, benefits creditors who receive repayment over time as well. Additionally, debtors may incur a discharge of certain debts in Chapter 13 as well.

Getting Legal Help with the Benefits of Bankruptcy

The question of whether or not to file bankruptcy can only be answered once a debtor understands the potential benefits of each type of bankruptcy (as well as the associated detriments, such as liquidation or prolonged adherence to repayment plans). For this reason, the bulk of the debtor’s work during bankruptcy will occur prior to filing bankruptcy, during which he or she gathers all requisite information on debts, assets, income, and expenses. With this information outlined, he or she must consult with a bankruptcy lawyer about all available options under and outside of bankruptcy law. When combined, the case-specific insight into the nature and amount of debts and assets alongside the expert understanding of bankruptcy law, a debtor and their legal counsel can make informed decisions on how, when, and where to petition the courts for bankruptcy relief.

For more information and insight into your specific options for debt relief under bankruptcy, it is imperative you consult with a bankruptcy lawyer prior to taking any action related to a pending or proposed bankruptcy filing.