Bankruptcy FAQ’s

What is bankruptcy?
Bankruptcy is a uniform, federal court supervised procedure to relieve individuals and businesses from debts, while protecting and preserving the rights of secured creditors and providing unsecured creditors with equal treatment of their claims.
There are four types of bankruptcy that individuals may select, depending upon their particular financial circumstances. Most individuals file under Chapter 7 of the Bankruptcy Code(the Code), sometimes known as "straight" or "liquidation" bankruptcy. Chapter 13, also referred to as a "wage-earner" or "debt-adjustment" plan, is available to individuals and unincorporated businesses that intend to use future income to pay some or all of one's debts according to a plan designed by the individual (within certain statutory limitations) to meet his or her needs.

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This pamphlet concentrates on the more frequently used procedures, Chapter 7 and Chapter 13.

Who may declare bankruptcy?
There are a few limitations on who can file bankruptcy. The decision of whether to file, and under what Chapter, is based upon each individual's need for relief from debts and their capacity and willingness to undertake a procedure that will have long-term consequences on their financial life. A competent debt-counselor or attorney can help you consider alternatives to bankruptcy.

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Who is involved in bankruptcy proceedings?
In general, bankruptcy proceedings under any Chapter involve:

• the debtor - the person who files bankruptcy, also known as "the petitioner"; 
• the creditors - any persons, firms or entities that claim the debtor owes them money; 
• the trustees - a court appointed person who administers the bankruptcy proceedings and any property available for distribution to creditors (called the bankruptcy estate). The trusted represents the interests of the unsecured creditors, and is required to liquidate nonexempt assets, to investigate the debtor's financial affairs, examine creditors' proofs of claim, provide information to parties in interest, file reports, estate tax returns and recommend, when appropriate, criminal or civil proceedings against the debtor who has committed fraud or other crimes in connection with the case. 
• the bankruptcy judge - who presides over any hearings on disputed matters in connection with the case.

What constitutes the bankruptcy estate?
In general, the bankruptcy estate consists of all property owned by the debtor or in which the debtor has an interest whether individually or as a co-owner with any other person. The estate includes property the debtor acquires by gift, devise, inheritance, divorce settlements and life insurance proceeds the right to which arises within 180 days after the filing of the case, and also includes property recovered by the trustee under certain provisions of the Code. The estate is reduced by exempt assets. The balance of any property remaining for administration by the trustee constitutes the final bankruptcy estate.

What is Chapter 7 bankruptcy?
The most commonly used form of bankruptcy, Chapter 7, provides honest debtors with a fresh start by eliminating many of a debtor's most common financial obligations through the discharge(which is generally granted at the end of the case). In return for the discharge, the debtor must turn over to the trustee certain nonexempt assets. These nonexempt assets are sold with the proceeds distributed to creditors according to priorities set forth in the Code. Generally, expenses of administering the estate, unpaid wages and related taxes are paid ahead of ordinary unsecured claims. If assets remain for distribution to unsecured creditors, those creditors who file formal proofs of claim within the time periods fixed by the court share proportionately in the remaining proceeds.

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