The Bankruptcy Code
The bankruptcy code is part of the United States Code, which is comprised of all of the statutes – or laws - passed by the United States Congress. The U.S. Code is divided into general categories called “Titles;” Title 11 of United States Code is the bankruptcy code. The bankruptcy code is then divided into “Chapters,” some of which deal with administration of bankruptcy cases and the duties and obligations of parties involved and some of the chapters relate to relief that debtors may obtain by filing bankruptcy.
Chapter 7
Most cases are filed under Chapter 7 of the bankruptcy code. Chapter 7 provides for the liquidation (the sale) of the debtor’s non-exempt assets. A “debtor” is a person who files for bankruptcy. “Non-exempt” assets are assets owned by the debtor which are not covered by the exemption laws. “Exemption laws” are state and federal laws which set forth what a debtor is permitted to keep when he/she files bankruptcy. In many cases, everything that the debtors own is an exempt asset, and therefore, is permitted to keep everything he/she owns in Chapter 7.
Chapter 13
Chapter 13 provides for a repayment plan. In general, a debtor who files for relief under Chapter 13 of the bankruptcy code agrees to make payments for a period of 3 to 5 years. The payments are made to the Chapter 13 Trustee who then disburses these funds to debtors’ creditors in accordance to the terms of the Chapter 13 plan. If the debtor owns a home that is in foreclosure, is ineligible to file Chapter 7, has substantial debt that cannot be discharged in Chapter 7, or simply prefers to pay as much as he/she can rather than seeking an immediate discharge, may consider Chapter 13 a better option than Chapter 7
Chapter 11
Chapter 11 also provides for a repayment plan but is designed for corporations, larger individuals and business entities. Filing Chapter 11 is substantially more expensive than filing under Chapter 7 or 13. There are debt caps for eligibility for filing Chapter 13 and if a debtor has debts that exceed those caps, he/she may have to file under Chapter 11 of the bankruptcy code. Corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships may not file under Chapter 13 of the bankruptcy code. If these entities wish to reorganize, they will also have to under Chapter 11.
The Means Test
In 2005, Congress passed sweeping changes to the bankruptcy code in relation to consumer bankruptcy filings. The most dramatic of these was the adoption of the “Means Test.” The means test requires consumer debtors to calculate their average monthly income in the 6 months preceding the filing of their case and determine whether it is above or below the “median state income” for a household of similar size. In general, debtors with income above the state median must file Chapter 13; Debtors who average monthly income is below the state median may still file Chapter 7. State median incomes are determined by the census bureau and can be found at the following website: http://www.census.gov/hhes/www/income/statemedfaminc.html
The Automatic Stay
With certain exceptions, the filing of the bankruptcy case causes that triggers the automatic imposition an injunction called the “automatic stay.” The automatic stay prevents creditors from attempting to collect a claim in any way. The automatic stay is effective nationwide, without notice, and immediately upon the filing of a case. With certain exceptions, the automatic stay remains in place throughout the life of the bankruptcy case, regardless of the chapter under which the case was filed. The automatic stay prevents creditors from suing the debtor, garnishing his/her wages, garnishing his/her bank accounts, levying upon debtors assets, disposing of any property owned by the debtor in the creditors possession, taking a lien against the debtor’s assets or otherwise attempting to enforce a claim.
7 Things Not To Do Before Filing Bankruptcy
Make sure you check out our list of the seven things you don't want to do before filing for bankruptcy.
Frequently Asked Questions about Filing Bankruptcy
We've covered an extensive list of bankruptcy questions. You're welcome to review our FAQs, or give us a call at 800-352-8225 and we'll be happy to answer all of your questions.
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