Bankruptcy Law

When a person is no longer able to meet financial obligations but is being vigorously pursued by creditors, he or she may seek protection in bankruptcy. Similarly, a business that has fallen under deep fiscal duress may file for bankruptcy. Bankruptcy law exists to assist those who, often under no fault of their own, find themselves overburdened with debt. Under bankruptcy, assets may be liquidated, but debts may also be discharged.

Bankruptcy is under federal jurisdiction, and bankruptcy matters are heard in federal court. A trustee is usually appointed to manage affairs. The debtor may hire a bankruptcy lawyer to represent his or her interests during the proceedings.


Bankruptcy Information Center


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Consumer Bankruptcy

Consumer bankruptcy, also called debtor bankruptcy or personal bankruptcy, is when an individual debtor can no longer meet his or her financial obligations and seeks legal protection from creditors. In a bankruptcy proceeding, debts might be discharged and property may be liquidated to pay off debts. The debtor may hire a consumer bankruptcy attorney to represent his or her interests in the proceedings.

Most consumer bankruptcies fall under Chapter 7 or Chapter 13 of the Bankruptcy Code.

  • Chapter 7: A Chapter 7 bankruptcy is the simplest and most common form of bankruptcy. In a Chapter 7 bankruptcy, the court appoints a trustee. The debtor may keep certain exempt property, which is determined by both state and federal law. The trustee then sells or "liquidates" the remaining property and pays off debts in order of legal priority. Most debts that remain after nonexempt property is liquidated are discharged, meaning the debtor no longer owes them and the creditors must cease collection efforts. To be eligible for Chapter 7 bankruptcy, the debtor must pass a "means test" to prove he or she makes under a certain median income, which varies by state.

    Find a Chapter 7 bankruptcy lawyer.

  • Chapter 13: Chapter 13 bankruptcy is for debtors who do not wish to liquidate their assets and have the means to pay off debts over time, but are currently unable to meet financial obligations and are seeking protection from foreclosure, levy, garnishment or other tactics to collect. A Chapter 13 bankruptcy serves as a reorganization of the debtor's finances. The court will set a payment plan for the debtor in which the debtor pays the trustee, who then pays creditors.

    Find a Chapter 13 bankruptcy lawyer.


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Business Bankruptcy

When a business files for bankruptcy, it usually does so under Chapter 7 or Chapter 11. Farms and fisherman may file under Chapter 12. Under a Chapter 7 bankruptcy, the business's assets and portions of the business itself are liquidated to pay off debts. The court appoints a trustee, who effectively takes over the company and determines what to be sold. Unlike a Chapter 7 consumer bankruptcy, a business entity's debts are not discharged at the end of the proceeding. Instead, the business entity is dissolved if debts remain.

Most businesses, therefore, prefer to file for Chapter 11 bankruptcy. The appointed trustee takes over operations of the company. However, unlike Chapter 7, the trustee does not liquidate assets. Instead, the trustee creates a reorganization plan, which the judge may approve. A business bankruptcy attorney may represent the business's interests during the proceedings.


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Bankruptcy Law Certification

Bankruptcies are filed and heard in a special federal court. While any attorney licensed to practice in front of the court may do so, some attorneys seek certification from an independent organization. Certified attorneys have shown that they meet certain experience, educational and knowledge requirements.

There are both national and state-specific certifications:


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Hiring a Bankruptcy Lawyer

Bankruptcy is a complicated process, requiring intense focus to detail and an in-depth knowledge of the law in order to achieve the best result. Board certification is an indicator that the attorney has met independent standards for quality. Fees for bankruptcy attorneys vary. Many bankruptcy attorneys offer free intial consultations, or low-cost consultations where the potential client can gain an understanding of how much the bankruptcy is likely to cost.


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Bankruptcy Resources

American Bankruptcy Institute: The ABI is a Alexandria-based think tank that studies bankruptcy and makes recommendations to U.S. Congress on bankruptcy law.

Center for Bankruptcy Studies: This think tank researches bankruptcy. It is affiliated with St. John's University School of Law.