Bankruptcy is a difficult decision for almost everyone.  It doesn’t take the hundreds of of bankruptcy cases, over three decades, in several jurisdictions that I have been involved in to know that.

The top three reasons for filing bankruptcy are:

(1) Layoff or other job problems;
(2) A medical crisis that is not fully covered by insurance; and,
(3) Divorce.

My experience is that the vast majority of the people who file for bankruptcy protection are honest, and are not trying to take advantage of anybody. They file for bankruptcy because they see no other feasible way out of their financial troubles.

Bankruptcy law is federal law that applies in all states. States may not regulate bankruptcy, although there are certain parts of the Bankruptcy Code that incorporate the law of the state in which the bankruptcy is filed. Bankruptcy proceedings occur in the United States Bankruptcy Courts. These courts are a part of the U.S. District Courts system.

The person or entity that files for bankruptcy is known as “the Debtor.” A person or entity to whom money is owed is known as a “Creditor.”

Once a person files for bankruptcy, a bankruptcy “stay” automatically goes into effect. This prevents most Creditors from taking actions to collect on the debts that they are owed.

No matter what type of entity is filing for bankruptcy (e.g., an individual, a partnership, or a corporation), there are essentially two types of bankruptcy – liquidation and reorganization. A liquidation is known as a Chapter 7 (Chapter simply refers to the chapter in the Bankruptcy Code). It is the most common type of bankruptcy proceeding. In a Chapter 7, the Debtor discloses the assets (that is, the property owned) and the debts that he or she has. Then, the Debtor applies his or her exemptions to the assets. Exemptions are what the Bankruptcy Code allows you to keep even though you are filing for bankruptcy. In most Chapter 7 cases, the Debtor keeps everything because the exemptions are broad enough to cover all of their assets. In the infrequent case where the Debtor has more property than the Bankruptcy Code allows the Debtor to keep, the Trustee (the person in charge of administering the bankruptcy estate) collects the non exempt property, sells it, and distributes the proceeds to the Creditors.

If the Debtor has debt that is secured, such as a mortgage on a house or a security interest in a car, then the Debtor has to make a choice; a.) the Debtor can give that property back and no longer be responsible for the debt; b.) the Debtor can pay the Creditor cash on the barrel for the present fair market value of the item; or, c.) the Debtor can reaffirm the debt. Reaffirming a debt means that between the Debtor and the Creditor with whom the Debtor reaffirms, it as if the Debtor never filed for bankruptcy. The Debtor gets to keep the item, and the Debtor still owes the money to the Creditor. While the Creditor is under no obligation to reaffirm, most Creditors are usually willing to reaffirm when the Debtor is not delinquent on payments prior to the bankruptcy. That is why it is generally very important if you are having financial problems to pay secured debts (for example, a mortgage) before general unsecured debts (for example, a credit card).

The type of reorganization that would apply to most individuals who choose to reorganize is a Chapter 13. In a Chapter 13, the Debtor pays the Creditors none, some, or all of what is owed over a period of three to five years. How much is paid, and over what course of time, is determined by what the law requires given their circumstances, and by the contents of a “plan” submitted by the Debtor. The contents of the plan, and the treatment of any specific Creditor, is determined by many factors, including the Debtor’s monthly cash flow, the secured status of a particular Creditor, and the amount of assets the Debtor has, among other things.

The goal of both Chapter 7 and Chapter 13 is for the Debtor to be discharged from his or her debts. When a debt is discharged, it means the Creditor can no longer pursue the Debtor for the debt even though it may have been a valid obligation. In a Chapter 7, the discharge generally occurs approximately five to six months after the case is filed. In a Chapter 13, the discharge occurs after the plan payments have been completed in three to five years.

Filing for bankruptcy typically has a devastating impact on the credit of the Debtor. The law states that a bankruptcy may stay on your credit record for up to 10 years. Generally speaking, a person filing for bankruptcy will have difficulty getting credit for a number of years.

Bankruptcy can be a complex topic. Each person’s circumstance will depend on the facts of his or her particular case. If you should have any questions about whether bankruptcy is a viable option, you should seek a lawyer competent in the field of bankruptcy. I have been involved in hundreds of bankruptcy cases, and have done this type of work for more than 25 years.  I invite you to call me to discuss your situation.

If you are a creditor seeking bankruptcy counsel, I have also represented many creditors through the bankruptcy process. I would also welcome a call from you.


Federal law requires the disclosure that we are a debt relief agency.  We help people file for bankruptcy relief under the Bankruptcy Code.

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