Bankruptcy is a legal procedure by which debtors (individuals or companies who owe money) who are in over their heads are able to obtain relief and protection from creditors (those to whom money is owed).
The bankruptcy procedure allows debtors a fresh start, free from past debts and at the same time, ensures that creditors are treated fairly.
Bankruptcy is governed by federal law and administered by the U.S. Bankruptcy Courts. The name of the federal law is the Bankruptcy Code. It is found in Volume 11 of the United States Code.
How do debtors file for bankruptcy? Debtors file a petition (application) for bankruptcy with the local district office of the Bankruptcy Court. The Hawaii office is located in downtown Honolulu.
The debtor must have lived in the district for more than 180 days (approximately 6 months) prior to filing. If the debtor has recently moved to a new district he or she must wait 180 days before filing in the new district.
What does bankruptcy Chapter 7, 11, or 13 mean? The word "Chapter" when used in reference to a bankruptcy means the chapter of the United States Bankruptcy Code which applies to the particular circumstance. You have probably heard about a Chapter 7 or Chapter 11 Bankruptcy in the news.
Chapter 7. Some people might refer to a chapter 7 bankruptcy as a total bankruptcy. A chapter 7 petition for liquidation is filed by an individual debtor or by a husband and wife as joint debtors. The chapter 7 petition may also be filed by a business debtor.
When an individual or business files a Chapter 7 petition it means that the debtor's assets are surrendered to the Bankruptcy Court so that the court can sell or "liquidate" the assets and pay off the creditors.
However, some of the debtor's property is exempt and need not be surrendered to the Court. The debtor is allowed to keep exempt property.
Some of the current exemptions allowed include: $16,150.00 in property used as a residence; a motor vehicle, not to exceed $2,575.00 in value; $8,625.00 in household furnishings and wearing apparel (not to exceed $400 in any one item); $1,075 in jewelry; $1,625.00 in professional books or tools of the trade of the debtor; an unmatured life insurance policy; $8,075.00 of the unused real property residence exemption "wild card" option; $850.00 in additional "wild card" option for all creditors; as well as other exemptions.
A husband and wife filing a joint petition may each claim exemptions, basically doubling the amount of value of exemptions allowed.
As you can see, many people might be able to keep more by declaring bankruptcy rather than having their wages garnished or their property sold at a sheriff's auction.
Chapter 11. Chapter 11 is normally a procedure used by businesses to continue the business operations under a "reorganization plan" while under the protection of the Bankruptcy Court. Although Chapter 11 may be used by individuals, it is most often used by corporations and partnerships.
Chapter 13. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income, generally over a three to five year period. Each Chapter 13 debtor writes a plan that must be approved by the bankruptcy court. The debtor must pay the Chapter 13 trustee the amounts set forth in their plan. Debtors receive a discharge after they complete their Chapter 13 repayment plan. Chapter 13 is only available to individuals with regular income whose debts do not exceed $250,000.00 in unsecured debt and $750,000.00 in secured debt.
Of course, the information in this article is general only. If you have more questions, I suggest you consult an attorney that practices bankruptcy.
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