Individuals and businesses often become overextended in regard to their finances. They purchase items and services that go beyond their ability to pay. Some use various types of loan and credit, which exacerbates their financial situation. Once the point is reached where expenses exceed their ability to pay, the only option is to file bankruptcy.
Bankruptcy is the legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however, in the overwhelming majority of cases, the bankruptcy is initiated by the bankrupt individual or organization.
There two main types of bankruptcies – Chapter 7 and Chapter 13.
Under a Chapter 7, an individuals assets are turned over to a trustee. The assets are then sold off to repay creditors. Once you’ve filed, the creditors are not allowed to attempt to collect funds directly from you. Once everything is sold and the creditors have been paid, you are no longer responsible for the debts. There are some debts that cannot be discharged, such as alimony or child support, certain types of judgments and criminal fines, certain taxes, student loans, items of substantial value that were recently purchased, and properly executed contracts for land and automobiles.
The other popular type is Chapter 13. Under a Chapter 13, debts are reorganized into a more manageable schedule and amount. Similar to Chapter 7, certain debts cannot be discharged such as alimony and child support, criminal fines and judgments and student loans.
Determining which type is best is up to the individual. If you are considering filing, it is wise to consult both a Certified Public Accountant (CPA) and an attorney.
If you’d like to learn about other law-related terms, view other legal and law definitions in our Investigation Glossary. Also, if you need legal forms related to filing bankruptcy, view the full list of legal forms at Nolo.com.
Bankruptcy Resources, Tools and Websites
The following tools may be useful in conducting investigations related to bankruptcy cases. You’ll find information on bankruptcy filings, statistics and analysis, bankruptcy legislation information, and more.
- American Bankruptcy Institute – Comprehensive information about legislative news related to bankruptcy, statistics, judges’ opinions, code and analysis.
- Administrative Office of the U.S. Courts – Federal forms, resources, administrators and resources for learning about financial matters and the legal ramifications of declaring.
- American Board of Certification – Certifies attorneys as specialists in business and consumer bankruptcy and creditors’ rights law.
- Bankruptcy Yearbook & Almanac – Contains data about filings, corporate statistics and more. Some information in the publication is available on site.
- National Association of Bankruptcy Trustees – Contains news of upcoming seminars, links to legislative information about bankruptcy, and a listserv and library for members only.
- National Association of Consumer Bankruptcy Attorneys – Contains information about the association and cases of interest.
- US Bankruptcy Law – Bankruptcy code courtesy of the Legal Information Institute of Cornell Law School.