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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