When debtors have lost the ability to pay outstanding debts, they can file a petition with the courts to seek relief from pressure from creditors. Less often, the creditors themselves will recognize the poor financial state of a debtor and file a bankruptcy petition against the debtor. According to the U.S. Constitution, in the United States, bankruptcy is handled in federal courts.
Kinds of Bankruptcy.
Traditionally, bankruptcy is recognized as an organized way of getting around an impossible financial situation without resorting to debtor's prisons or other punitive measures. Bankruptcy provides some relief for both creditors and debtors. There are various kinds of bankruptcy in the federal legal Bankruptcy Code (also called Title 11), named by the chapter in the code that describes each.
- Chapter 7 bankruptcy: Liquidation, is the most common form of bankruptcy. The court appoints a trustee to collect the debtor's non-exempt assets and selling these assets to be distributed to creditors in order of preference. Under Chapter 7, the bankrupt business ceases to exist.
- Chapter 9 bankruptcy refers to municipalities. Municipalities have to allowed to be bankrupt under state law. Only 12 states allow that to happen. Another 12 states have a set of strict criteria that municipalities must meet to declare themselves bankrupt.
- Chapters 11, 12, and 13 bankruptcy: Reorganization, is available to business, sole proprietorships, partnerships, and corporations. Individuals rarely apply for Chapter 11 bankruptcy. The debtor may keep some or all of its assets and use them to negotiate payment to creditors under the supervision of the court. Chapter 12 bankruptcy is available to the agriculture sector, farmers, and fishers. Chapter 13 provides a reorganization plan for individuals who wish to avoid Chapter 7 bankruptcy.
- Chapter 15 bankruptcy: Cross-border Insolvency allows for a cooperative arrangement between United States courts and foreign courts as well as other authorities who are stakeholders in the insolvency.
The Role of the Lawyer in Bankruptcy.
Bankruptcy is a complex business procedure that requires one to make a host of critical decisions under pressure. An experienced attorney is very helpful to guide the business through the decision-making, the paperwork, and the procedures for formulating the filing. The initial decision about whether a bankruptcy filing is really the right option requires a thorough study of alternatives. How much of the company do you want to lose in order to settle your affairs? If you file for a reorganization, a lawyer can help the business work out the details of a payment solution that will retain a functional business. The attorney can help you optimize the details of your arrangements with co-signers, lenders, and others who would be impacted by the bankruptcy. The attorney with a thorough understanding of the subtleties of bankruptcy law can be a valuable guide to your decision-making.
Bankruptcy requires court appearances, hearings, and meetings with creditors. In those situations, legal representation is important to make sure your rights and your perspective are represented fairly. Minnesota can have its own set of local procedures and customs that only local legal professionals know. Competent representation can be essential in situations where a creditor may challenge the filing out of his or her own self-interest. Anyone involved in a legal procedure as complex as a bankruptcy will need regular legal advice and help in understanding the law and the customs that will lead to an equitable settlement. Bankruptcy need not be ruinous, but you must make sure that some small financial or legal matter doesn't cost you more than you need to pay.
James C. Shields offices deal with bankruptcy every day. We see it for what it is: a very common personal decision that allows people who are overwhelmed with debt a chance at a fresh start. If you are dealing with a difficult financial situation, our South Bay bankruptcy attorneys are here to help. Please contact us to learn more.