Bankruptcy Basics - Free Pamphlet
Most debtors who file a bankruptcy petition, and many of their creditors, know very little about the filing bankruptcy process. Bankruptcy Basics is designed to provide debtors, creditors, judiciary employees, and the general public with a basic explanation of bankruptcy and how it works.
Bankruptcy Basics PDF (no enhancement)
Bankruptcy Basics PDF (enhanced version)
What follows are brief excerpts from the bankruptcy basics pamphlet:
Introduction to Bankruptcy Code
Bankruptcy Basics is designed to provide basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of the federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed and to answer some of the most commonly asked questions about the bankruptcy process.
The Discharge in Bankruptcy
The bankruptcy discharge varies depending on the type of case a debtor files: chapter 7, 11, 12, or 13. Bankruptcy Basics attempts to
answer some basic questions about the discharge available to individual debtors under all four chapters including:
What is a discharge in bankruptcy?
When does the discharge occur?
How does the debtor get a discharge?
Are all the debtor’s debts discharged or only some?
Does the debtor have a right to a discharge or can creditors object to the discharge?
Can the debtor receive a second discharge in a later case?
Can the discharge be revoked?
May the debtor pay a discharged debt after the bankruptcy case has been concluded?
What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
May an employer terminate a debtor’s employment solely because the person was a debtor or failed to repay a discharged debt?
Chapter 7. Liquidation Under the Bankruptcy Code
A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property.
Chapter 13. Individual Debt Adjustment
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time.
Chapter 11. Reorganization Under the Bankruptcy Code
A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a “reorganization” bankruptcy. A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile or residence.
A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements. Unless the court orders otherwise, the debtor also must file with the court:
schedules of assets and liabilities;
a schedule of current income and expenditures;
a schedule of executory contracts and unexpired leases; and
a statement of financial affairs.
Chapter 12. Family Farmer or Family Fisherman Bankruptcy
Chapter 12 is designed for “family farmers” or”family fishermen” with “regular annual income.” It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years.
Chapter 9. Municipality Bankruptcy
The purpose of chapter 9 is to provide a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. Reorganization of the debts of a municipality is typically accomplished either by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.
Chapter 15. Ancillary and Other Cross-Border Case
Chapter 15 is a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The purpose of Chapter 15, and the Model Law on which it is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants and other parties in interest involving more than one country.
Service Members’ Civil Relief Act (SCRA)
The purpose of the SCRA is strengthen and expedite national defense by giving servicemembers certain protections in civil actions. By providing for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect servicemembers during their military service, the SCRA enables servicemembers to focus their energy on the defense of the United States.
Among other things, the SCRA allows for forbearance and reduced interest on certain obligations incurred prior to military service, and it restricts default judgments against servicemembers and rental evictions of servicemembers and all their dependents.
The SCRA applies to all members of the United States military on active duty, and to U.S. citizens serving in the military of United States allies in the prosecution of a war or military action.
Securities Investor Protection Act (SIPA)
Typically, when a brokerage firm fails, the Securities Investor Protection Corporation (“SIPC”) arranges the transfer of the failed brokerage’s accounts to a different securities brokerage firm. If the SIPC is unable to arrange the accounts’ transfer, the failed firm is liquidated.
The essential difference between a liquidation under the Bankruptcy Code and one under the SIPA is that under the Bankruptcy Code the trustee is charged with converting securities to cash as quickly as possible and, with the exception of the delivery of customer name securities, making cash distributions to customers of the debtor in satisfaction of their claims.
This glossary of bankruptcy terminology explains, in layman’s terms, many of the legal terms that are used in cases filed under the Bankruptcy Code.
Here are just 12 of over 60 bankruptcy terms from the Bankruptcy Basics Pamphlet.
automatic stay: An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
claim: A creditor’s assertion of a right to payment from the debtor or the debtor’s property.
consumer debts: Debts incurred for personal, as opposed to business, needs.
current monthly income: The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor’s spouse if the petition is a joint petition, but not including social security
income and certain other payments made because the debtor is the victim of certain crimes.
debtor: A person who has filed a petition for relief under the Bankruptcy Code.
dischargeable debt: A debt for which the Bankruptcy Code allows the debtor’s personal liability to be eliminated.
fraudulent transfer: A transfer of a debtor’s property made with intent to defraud or for which the debtor receives less than the transferred property’s value.
no-asset case: A chapter 7 case where there are no assets available to satisfy any portion of the creditors’ unsecured claims.
plan: A debtor’s detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.
reaffirmation agreement: An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.
341 meeting: The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors’ meeting
unsecured claim: A claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely
upon the creditor’s assessment of the debtor’s future ability to pay.
Bankruptcy Pamphlet Disclaimer
The bankruptcy pamphlet, dated April 2010 (3rd Edition) is only applicable to cases filed on or after October 17, 2005. It’s produced by the Administrative Office of the United States Courts, Bankruptcy Judges Division.
While the information presented in the Bankruptcy Basics Pamphlet is accurate as of the date of publication, it should not be cited or relied upon as legal authority. It should not be used as a substitute for reference to the United States Bankruptcy Code (title 11, United States Code) and the Federal Rules of Bankruptcy Procedure, both of which may be reviewed at local law libraries, or to local rules of practice adopted by each bankruptcy court. Finally, this publication should not substitute for the advice of competent legal counsel.