Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.
Main Types of Bankruptcy Filings
Most cases are filed under the three main chapters of the Bankruptcy Code – Chapter 7, Chapter 11, and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.
Bankruptcy Courts and Filings
Each of the 94 federal judicial districts handles bankruptcy matters, and in almost all districts, bankruptcy cases are filed in the bankruptcy court. Bankruptcy cases cannot be filed in state court. Bankruptcy laws help people who can no longer pay their creditors get a fresh start by liquidating their assets to pay their debts, or by creating a repayment plan.
Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation. These procedures are covered under Title 11 of the United States Code (the Bankruptcy Code). The vast majority of cases are filed under the three main chapters of the Bankruptcy Code, which are Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 Bankruptcy Cases
Chapter 7 bankruptcy filings are also often referred to as liquidation proceedings. The bankruptcy trustee is given the authority to take the nonexempt assets of the debtor and liquidate, or sell, those assets.
Many assets of a debtor are exempt from liquidation. For example, a certain amount of equity in a residence, a certain amount of household furnishings and appliances, a vehicle under a certain value, a certain amount of jewelry, certain business tools, and certain benefits such as social security or disability are exempt from liquidation by the bankruptcy trustee. These are just a few examples of exempt property.
There are also both federal and state exemption lists, which have important differences. Many Minnesotans will qualify to elect which list they wish to use in order to determine their exemptions.
Chapter 11 Bankruptcy Cases
Chapter 11 bankruptcy filings allow reorganization, generally for a corporation or partnership. The purpose behind Chapter 11 is to allow the company to continue to exist, to conduct business, and pay its debts over time.
Chapter 13 Bankruptcy Cases
Chapter 13 bankruptcy filings are often known as the wager earner’s plan. Chapter 13 allows individuals with regular income to adjust debts in order to establish a feasible plan for the repayment of all or some debts.