Bankruptcy FAQs -Basics You Need To Know

FAQ 01 - What is bankruptcy?

Bankruptcy is a legal proceeding that allows an individual or company, who are unable or partially unable to pay outstanding debts, to rid themselves of these debts and obtain a fresh start. Bankruptcy law allows a debtor to eliminate debt and to stop creditor harassment.

What are the different types of bankruptcy?

The Bankruptcy Code provides for six different types of bankruptcy, each known by the chapter in the Bankruptcy Code in which it is located. Although they differ in form and procedure, they all provide for permanent relief from certain debts. In bankruptcy terms, the debtor's dischargeable debts are discharged. Most debtors file for bankruptcy under Chapters 7, 11, and 13.

• Chapter 7 provides for liquidation of the debtor's non-exempt assets. Certain assets, such as a home or car, may be exempt from bankruptcy. A court-appointed trustee conducts the sale of debtor's non-exempt assets and distributes the proceeds to creditors. Both individuals and businesses may file for bankruptcy under Chapter 7.
• Chapter 9 provides for the reorganization of municipalities (which includes cities, towns, villages, taxing districts, municipal utilities, and school districts).
• Chapter 11 is usually relied upon by partnerships and corporations. It provides for a supervised reorganization of a business, and allows the debtor to maintain the business while implementing a payment plan confirmed by the court.
• Chapter 12 contains bankruptcy provisions applicable to family farmers and fisherman.
• Chapter 13 provides for bankruptcy of an individual with a regular income, which is used to make a payment plan to pay debts, usually within three to five years.
• Chapter 15 applies to cross-border bankruptcies. It adopts and implements the United Nations' Model Law on Cross Border Insolvency.

Is there a certain amount of debt to qualify for bankruptcy?

There is no minimum amount of debt to qualify for bankruptcy. However, certain debt limits apply to Chapter 13 bankruptcy. The maximum amount changes periodically, but is currently $1,149,525 in secured debt (such as a mortgage) and $383,175 in unsecured debt. It is also important to keep in mind that there are limits on how many times you can discharge your debts in bankruptcy. If your debt amount is relatively low, it may be a good idea to consider alternatives to bankruptcy now so that filing for bankruptcy remains an option for you in the future.

What is minimum age to file for bankruptcy?

There is no age limit for people who file for bankruptcy, though in some states debtors may have to be at least 18 years old.