A debtor is a person or entity that owes a debt or obligation to another. A creditor is a person or entity to whom a debt is owed. The United States Bankruptcy Code is a federal law that permits qualified debtors to: - discharge some or all of their debts in exchange for giving up all of their nonexempt assets, or
- reorganize their debts in an attempt to pay them back under relaxed terms.
A bankruptcy may be voluntary (initiated by the debtor) or involuntary (initiated by the creditors). To begin a voluntary bankruptcy, the debtor files a petition in the United States Bankruptcy Court. Upon filing the petition, the debtor receives an automatic "stay" which orders creditors to pause in their collection efforts during the bankruptcy process. The debtor must file detailed information with the bankruptcy court identifying all assets, debts and creditors. All creditors must be notified of the bankruptcy so that each creditor can file notice of its claim with the bankruptcy court. By filing the petition, the debtor permits the creation of the bankruptcy "estate" which includes all of the debtor's assets, except those assets that the debtor successfully claims as "exempt" (those that are necessary so that the debtor can live and work). The rules for determining what property becomes part of the bankruptcy estate are complex. A court-appointed bankruptcy trustee administers the estate. There are several different types of bankruptcy to choose from. Each type is referred to by the Chapter of the Federal Bankruptcy Code in which it appears. In general, a Chapter 7 bankruptcy results in a sale of all of the debtor's non-exempt assets, but most debts are then discharged. Note that a debtor cannot discharge its debts if the new petition is filed within 6 years of a prior bankruptcy petition. In a rehabilitation case filed under Chapters 11, 12, or 13, the debtor retains his assets and makes payments to the creditors, usually from the post-bankruptcy earnings, pursuant to a court-approved payment plan which is more relaxed than it had been before bankruptcy. Anyone who is interested in filing bankruptcy should consult a qualified attorney. However, the information in this worksheet should save you and your attorney time in the preparation of your bankruptcy materials. By saving your attorney time, you may be saving yourself money. |