A bankruptcy case normally begins by the debtor filing a petition with the bankruptcy court. A petition may be filed by an individual, by a husband and wife together, or by a corporation or other entity.
The petition will be filed in accordance with a chapter in the United States Bankruptcy Code. A determination of which chapters are possible and which are most appropriate or beneficial will depend on who or what is filing for bankruptcy and what type of relief is sought. Chapter 7 is most common, followed closely by chapters 11 and 13.
The debtor is also required to file statements listing assets, income, liabilities, and the names and addresses of all creditors and how much they are owed. The clerk will use this information to give notice to creditors of the case, among other things. It is important to be accurate and thorough in listing your creditors. If you forget or otherwise fail to list any creditors, a court may decide later not to discharge your debt to those creditors for that reason.
The Bankruptcy Stay
The filing of the petition automatically prevents, or “stays,” debt collection actions against the debtor and the debtor’s property. As long as the stay remains in effect, creditors cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment. Creditors who violate this prohibition may be held in civil contempt of court.
Creditors receive notice from the clerk of court that the debtor has filed a bankruptcy petition.
Types of Bankruptcy
Some bankruptcy cases are filed to allow a debtor to reorganize and establish a plan to repay creditors, while other cases involve liquidation of the debtor’s property.
In a chapter 7 bankruptcy case, assets of the debtor which are considered non-exempt are liquidated and sold for the benefits of creditors. Exempt assets are kept by the debtor.
In a chapter 11 case, the debtor reorganizes to repay debts over time.
In a chapter 13 case, debts of an individual with income are adjusted and repaid over time.
Different chapters under the United States Bankruptcy Code allow different results and are intended for use by different types of debtors, although there is overlap in the chapters. In many bankruptcy cases involving liquidation of the property of individual consumers, there is little or no money available from the debtor’s estate to pay creditors. As a result, in these cases there are few issues or disputes, and the debtor is normally granted a “discharge” of most debts without objection.