Bankruptcy Information Sheet
(© Office of the United States Trustee, Revised 08/11)
Did you know that Bankruptcy Law is a Federal Law? Or that the concept has been around since Biblical times from the Book of Deuteronomy?
Our office is here to help you step by step through ALL chapters of bankruptcy available to both individuals and businesses. These chapters are:
- Chapter 7
- Chapter 9
- Chapter 11 (including the new Subchapter V for Small Businesses)
- Chapter 12
- Chapter 13
After discussing your financial situation with your attorney, as a team, you will be able to choose which chapter is the best option for you. Here is a brief description of each Chapter.
Chapter 7: Either individuals or businesses can file this chapter. It can complete wipe away your personal obligations for the debts that can be discharged. This chapter is sometimes called the “Clean Slate” chapter.
Chapter 9: This is not a common chapter as it is ONLY for governmental agencies which can be city or county municipalities. Currently, we are the only firm in southern Idaho who has successfully completed one of these cases.
Chapter 11: This chapter can be used by either an individual or business. This is what most people know as the “reorganization” bankruptcy such as filed by General Motors, several airlines, real estate development firms, and even individuals engaged in operating a business. You often must continue to provide a source of income throughout the duration of this bankruptcy, but can strategically sell off some assets to reduce and help restructure debts. This chapter you make a “plan” to inform creditors how you desire to make payments on the debts owed to them. This is either approved or denied by the creditors and Court.
Chapter 11 subsection V:
Chapter 12: This chapter is used for family farmers or family fisherman. Like a Chapter 11, it is a reorganization of the debt over a period of time but only those who have been farming or fishing over the previous 2 years prior to filing a bankruptcy. This chapter also includes filing a “plan” to let creditors know how you desire to pay back the debts owed.
Chapter 13: Is used ONLY for individuals. This is a payback plan based on your monthly household income and expenses. There will also an evaluation made as to how much will need to be paid into the “plan” based on your debt being paid during the term of your plan payments.
What Is a Bankruptcy Discharge and How Does It Operate?
One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–
- most taxes;
- child support;
- most student loans;
- court fines and criminal restitution; and
- personal injury caused by driving drunk or under the influence of drugs.
The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.
It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.
You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.
What Is a Reaffirmation Agreement?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements–
- must be voluntary;
- must not place too heavy a burden on you or your family;
- must be in your best interest; and
- can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.
If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.
If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.
IF YOU WANT MORE INFORMATION OR HAVE ANY QUESTIONS ABOUT HOW THE BANKRUPTCY LAWS AFFECT YOU, YOU MAY NEED LEGAL ADVICE. THE TRUSTEE IN YOUR CASE IS NOT RESPONSIBLE FOR GIVING YOU LEGAL ADVICE.