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What is Bankruptcy?
Bankruptcy is a court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses who can’t pay their bills and decide whether to discharge those debts so they are no longer legally required to pay them.
Filing bankruptcy can help a person by discarding debt or making a plan to repay debts. A bankruptcy case normally begins when the debtor files a petition with the bankruptcy court. A petition may be filed by an individual, by spouses together, or by a corporation or other entity.
Bankruptcy laws were written to give people whose finances collapsed, a chance to start over. Whether it was bad decision-making or bad luck, lawmakers could see that in a capitalistic economy, consumers and businesses who failed, need a second chance.
The Forms of Bankruptcy
There are six different types of bankruptcy in the U.S. Each form is designed for a specific purpose and has its own advantages and disadvantages. In Chapter 7, for example, most of the debtor’s property is sold off in order to repay creditors. In Chapter 13, on the other hand, the debtor retains his or her property and instead pay off his or her debts according to a repayment plan. Finally, Chapter 11 bankruptcy is typically used by businesses who wish to shed debt and cut costs through reorganization. The type of bankruptcy you file depends on your assets, earning capacity, debt burden, and a number of other factors.
There are different types of bankruptcies, which are usually referred to by their chapter in the U.S. Bankruptcy Code.
- Individuals may file Chapter 7 or Chapter 13 bankruptcy, depending on the specifics of their situation.
- Municipalities—cities, towns, villages, taxing districts, municipal utilities, and school districts may file under Chapter 9 to reorganize.
- Businesses may file bankruptcy under Chapter 7 to liquidate or Chapter 11 to reorganize.
- Chapter 12 provides debt relief to family farmers and fishermen.
- Bankruptcy filings that involve parties from more than one country are filed under Chapter 15.
Bankruptcy lawyer “musts”
- Get what you pay for
- A true bankruptcy ‘expert’
- Up to date on code changes
- Don’t get run through a mill
- Comfortable relationship
Who Declares Bankruptcy
The individuals and business who file for bankruptcy have far more debts than money to cover them and don’t see that changing anytime soon. In 2015, bankruptcy filers owed $113 billion and had assets of $77 billion, most of that being real estate holdings, whose real value is debatable.
What is surprising is that people – not businesses – are the ones most often seeking help. They have taken on financial obligations like a mortgage, auto loan or student loan – or perhaps all three! – and don’t have the income to pay for it. There were 844,495 bankruptcy cases filed in 2015, and 97% of them (819,760) were filed by individuals.
Only 24,375 bankruptcy cases were filed by businesses in 2015.
Most of the people filing bankruptcy were not particularly wealthy. The median income for the 819,760 individuals who filed, was just $34,392 and expenses were just $30,972.