In 1978, Congress enacted the United States Bankruptcy Code, allowing consumers to file for bankruptcy protection. Since that time, millions of Americans have filed for bankruptcy, all across the country and across all walks of life. Despite how common filing a bankruptcy case has become, many people don’t really understand what bankruptcy is, how it works, or what it can achieve. The following is some brief information about bankruptcy laws. To discuss your specific circumstances, call our Minnesota bankruptcy attorneys today.
The Purpose of Bankruptcy
The main purpose of bankruptcy is to help people get out from under their debts and make a fresh start. Bankruptcy achieves this by halting creditor’s efforts to collect their debts while the bankruptcy case is ongoing. If they qualify and meet all the requirements of the bankruptcy court, the consumer is then relieved of their personal obligation of any debt that came due prior to the date they filed for bankruptcy.
The Legal Framework
The Bankruptcy Code is a federal law. This means that you will be filing for bankruptcy in federal court in the federal judicial district where you live. Each state has at least one bankruptcy court. In addition, the bankruptcy laws are administered by a dedicated network of bankruptcy courts presided over by judges who only hear bankruptcy cases. Even though bankruptcy is a federal proceeding, the bankruptcy court may occasionally apply state law in particular circumstances.
The United States Supreme Court has promulgated the Federal Rules of Bankruptcy Procedure that govern the actual bankruptcy process. In addition, each court has its own local rules that create further specifics as to how to proceed in their jurisdiction.
Attorneys who want to represent consumers in bankruptcy proceedings must be admitted to practice by the court. Because bankruptcy is a highly technical area of the law that requires extensive knowledge of the law and procedure, Minnesota bankruptcy attorneys who handle these cases often focus on bankruptcy law and devote their practices almost entirely to handling bankruptcy cases.
Types of Bankruptcy
For most people, there is just “bankruptcy.” As a result, you may be surprised to learn that there are different types of bankruptcy, and each has specific advantages and downsides. An experienced bankruptcy attorney can help you determine what type of bankruptcy is your best option.
For consumers, there are two main types of bankruptcy: Chapter 7 and Chapter 13. There are other types - Chapter 11 and Chapter 12 - but these are far less common and apply only in specific situations.
Chapter 7 bankruptcy. This is often referred to as a “total liquidation.” In a Chapter 7 bankruptcy case, you will surrender all of your non-exempt assets to the bankruptcy trustee, that is, real or personal property not protected by bankruptcy exemption laws. Non-exempt assets are sold to pay creditors’ claims. Once this process is completed, you will receive your discharge and your bankruptcy case is closed. However, the vast majority of Chapter 7 cases are classified as “no asset” cases, meaning that the consumer does not have any non-exempt assets that can be sold for an amount sufficient to pay their creditors. The entire process takes approximately four to six months.
Chapter 13 bankruptcy. This is a form of bankruptcy where you enter into a court-approved payment plan in order to repay your debts. The payment plan can take up to five years and may pay all of your debts or only a portion of what you owe. While the bankruptcy case is active, you are responsible for paying your disposable income to the chapter 13 trustee in order to be distributed to your creditors. You will also be responsible for paying any debts that you incur or come due after the date you filed for bankruptcy. Most people who file for Chapter 13 and successfully complete their plan are able to keep their major assets such as their home and their car.
Chapter 11 bankruptcy. Referred to as “reorganization,” Chapter 11 is most often used by businesses. Similar to Chapter 13 bankruptcy, the debtor must submit a repayment plan, but it is voted on by the creditors rather than approved by the court. Although used primarily by businesses, Chapter 11 bankruptcy may be a good option for debtors in very specific circumstances.
Chapter 12 bankruptcy. This form of bankruptcy was specifically created for family farmers and fisherman. It operates similar to a Chapter 13 bankruptcy, with the consumer entering into a payment plan approved by the court, but only for three years (they can ask permission for a plan that lasts up to five years). The bankruptcy allows the farmer or fisherman to continue business operations throughout the bankruptcy proceedings.
Contact a Minnesota Bankruptcy Law Firm if You are Considering Filing for Bankruptcy
As mentioned above, bankruptcy law is highly technical and extremely challenging for non-lawyers. An experienced Minnesota bankruptcy lawyer can help get you on the path to a brighter future. At Kain & Scott, we work with our clients to make sure they understand all of their options so that they can make an informed decision. Responsive and compassionate, our bankruptcy attorneys are with you every step of the way. If you’re wondering if you should file for bankruptcy, contact Kain & Scott. Call us at 800-551-3292 or contact us online to schedule a free initial consultation.
