Bankruptcy

Bankruptcy laws were formulated to give the “honest” debtor a “fresh” start. Bankruptcy is not intended to give debtors an unfair advantage over their creditors. This requirement comes from the United States Bankruptcy Code, Title 11 of the United States Code, and it is not intended to protect the debtor who has acted in bad faith in an attempt to defraud creditors.

The United States Bankruptcy Code is divided into Chapters:

Chapter 7 bankruptcy is referred to as a liquidation. A Chapter 7 debtor is an individual or entity whose expenses exceed its income.

Chapter 11, commonly referred to as a “business reorganization”, is commenced by the filing of a voluntary petition by the debtor, or the filing of an involuntary petition by creditors.

Chapter 12, a reorganization for family farmers and fisherman.

Chapter 13, commonly known as “individual debt adjustment”, “individual debt consolidation”, or “repayment plan”. A Chapter 13 bankruptcy can be filed only by individuals. A typical case generally involves people who have fallen behind in their mortgage payments, delinquent with their priority taxes, or have debts that are generally non-dischargeable in a Chapter 7 (student loans, child support arrears, and others). Filing a Chapter 13 plan of reorganization requires that the individual has a source of income. Such income must exceed the individual’s household expenses. In essence, the individual has disposable income to be able to fund the plan of reorganization.

Chapter 15 Cross Border Bankruptcy This chapter is new under the 2005 Reform Act.