According to the Administrative Office of the U.S. Courts, there were 617,660 personal and 597,965 business bankruptcy filings in the U.S. in 2006. That totals 1,215,625 filings in 2006 alone. An enormous number of people have had to file for bankruptcy in these economically difficult times. It’s a way for many families to make a new start while they sort out their financial situation. The federal government offers this opportunity to people that need a second chance after they have had a financial setback. There are four basic chapters for filing bankruptcy, Chapter 7, Chapter 11, Chapter 12, and Chapter 13.

Chapter 7, Liquidation under the Bankruptcy Code: An individual, partnership, corporation, or other business entity may qualify for chapter 7, regardless of the amount of their debt or whether they are solvent or insolvent. One of the most important reasons for filing bankruptcy is to discharge certain debts so that a debtor can make a new start. The debtor will have no liability for the discharged debts. However, in a chapter 7 a discharge of debt is only available to individual debtors. Discharge of debt is not an option for businesses, partnerships or corporations. Individual discharge of debt is not absolute, and some types of debts cannot be discharged. A bankruptcy discharge does not negate liens on property.

Chapter 11, Reorganization under the Bankruptcy Code: This chapter provides for general reorganization and it’s usually used by businesses, partnerships or corporations, though individuals can take advantage of this chapter as well. The idea is for the financially strapped entity to propose a plan of reorganization; this will keep the business in operation while a plan is conceived and implemented to pay off creditors over a period of time. This can take the form of a voluntary petition filled by the entity or individual, or it can be an involuntary petition filed by the creditors that have met certain stipulations. If the petitioners are husband and wife, they may file together in a joint petition or in separate petitions. As soon as the petition is filed, the debtor is considered, “debtor in possession.” That simply refers to the fact that the debtor is retaining control of his/her assets while the case is going through reorganization.

Chapter 12, Family Farmer or Family Fisherman Bankruptcy: This chapter provides for an adjustment of debts for farmers or fishermen. A married couple may file a joint petition or separate petitions. A married couple will have to gather the debt information for each spouse whether they are filing a joint petition, separate petitions, or if only one of them is filing. If only one spouse is filing, the income, expenses and debt information of the non-filing spouse is needed in order for the court, trustee, and creditors to assess the household’s financial situation. Upon filing, a trustee will be appointed to manage the case. The function of the trustee is to evaluate the case and to serve as a disbursing agent. The trustee will collect revenue from the debtor and make payments to the creditors.

Chapter 13, Individual Debt Adjustment: This chapter is designed to allow for debt adjustment to individuals with regular income. This permits an individual to keep his/her property while the debt is paid off. Married couples must present the revenue, expense and debt information for their spouse whether they are filing a joint petition, separate petitions, or if only one spouse is filing. If only one spouse is filing, the household’s financial information is needed for the court, trustee and creditors to assess the financial situation as a whole.

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