A debtor declares bankruptcy to obtain relief from certain types of debt—and at the Tull Law Firm, PLLC, we can assist you through the bankruptcy process whether you’re an individual or a business of any size.
This is accomplished either through a discharge (debtor does not have to pay the debt) or through a restructuring (debtor pays all or a portion of the debt through a trustee over a protracted period of time) of the debt. Generally, when a debtor files a voluntary petition, his or her bankruptcy case commences immediately and all collection activity against the debtor must cease immediately (this is known as an automatic stay). Bankruptcy cases are required to be held in United States Bankruptcy Court, a specialized division of each local federal district court.
Types of Bankruptcy
There are six types (known as Chapters) of bankruptcy under the Bankruptcy Code, but only 4 have any real importance to individuals and most businesses.
- Chapter 7 is basic liquidation for individuals and businesses and is also known as straight bankruptcy. Chapter 7 is the simplest and quickest form of bankruptcy available.
- Chapter 11 involves rehabilitation or reorganization. This chapter is typically used by businesses and allows them to continue to function while they follow debt repayment plans.
- Chapter 12 involves rehabilitation for family farmers and fishermen.
- Chapter 13 allows individuals with regular income to develop a plan to repay all or part of their debts, and is often referred to as Wage Earner Bankruptcy.
The most common types of personal bankruptcy for individuals are Chapters 7 and 13. As many as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases. Corporations and other business forms usually file under Chapters 7 or 11.
One of the benefits of bankruptcy is that you receive the protection of the automatic stay from all collection activities during the bankruptcy process. This includes creditor harassment, repossession, foreclosure and wage garnishment.
Chapter 7 Bankruptcy
Many of your debts will be discharged (eliminated) under Chapter 7 bankruptcy. Unsecured debts, including credit cards, medical debt and unsecured loans, are typically discharged. However, you cannot discharge debts for spousal support, child support, some taxes or student loans.
If you have secured debt, such as a mortgage or car loan, the home or vehicle may be sold. The money from the sale will go to your creditors. You may be able to keep your house and car if you reaffirm your loans with the lenders and can continue to make the loan payments. In many cases, Chapter 13 is a better choice if you wish to keep your house and other assets. Our attorneys can help you determine which chapter is right for you.
Chapter 11 Bankruptcy
Chapter 11 bankruptcies give individuals, partnerships and corporations time to reorganize themselves, while allowing them to renegotiate debt with uncooperative creditors, and get out of burdensome leases and contracts. For individuals who have assets that would be at risk in a Chapter 7 bankruptcy and who need more flexibility or have more debt than is allowed in a Chapter 13 bankruptcy, Chapter 11 bankruptcy provides an alternative.
Chapter 11 bankruptcy is a good option when there are too many creditors for debt settlement and your business has sufficient prospects to continue operations if it is provided with debt relief or restructure. Businesses are typically allowed to continue to operate while in Chapter 11 bankruptcy, though they must do so under the supervision of the bankruptcy court. In addition, in Chapter 11 bankruptcy, the bankruptcy court can force settlement terms on creditors even when they oppose this treatment.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy is a special area of bankruptcy that is reserved for family fishermen or family farmers with regular annual income. Although very similar to Chapter 13, Chapter 12 bankruptcy was developed to specifically allow family farmers or fishermen to continue to operate their business while carrying out a plan to repay creditors.
Under Chapter 12, family farmers and fishermen are allowed the opportunity to keep the farm or fishing enterprise, are able to continue operating the business and are granted a repayment schedule more conducive to cash flow cycle of a farm or the fishing industry. If you are a family farmer or fisherman struggling to make payments to your creditors, Chapter 12 Bankruptcy may be an option for you.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is available for people whose income is above the median income in Tennessee for a household of their size. Many people who have assets they wish to keep choose Chapter 13. If you are behind on your mortgage or car loan but could catch up if you had enough time, Chapter 13 may offer you an advantage.
After you complete the reorganization plan, remaining eligible debts will be discharged. Some debts are not dischargeable under any chapter of bankruptcy, including spousal and child support, certain taxes or student loans.