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Common Bankruptcy Definitions
Bankruptcy - A legal proceeding in federal court in which an individual or company may be released (or "discharged") from all or a portion of their debts.
Debtor - The person or company filing bankruptcy.
Trustee - A person who administers a debtor's estate. A trustee is always appointed in a chapter 7, 13, or 12 bankruptcy. A trustee may be appointed in a chapter 11 case.
Creditor - The people or companies to whom a debtor owes money or property. Creditors have claims against the debtor.
Proof of Claim - A proof of claim is a written statement filed with the court describing the debt that a creditor claims the debtor may owe them.
What is the difference between Chapters 7, 11, 12, & 13?
Before you file for bankruptcy, you should decide which type (or chapter) is right for you. Here is a brief description of each of the different types of bankruptcies:
Chapter 7 - Liquidations
- The purpose of a chapter 7 is to allow a person to obtain a fresh start, free from creditors and free from the pressures of over-whelming debt. Under chapter 7, a trustee takes possession of non-exempt property assets, converts them to cash and distributes the funds to creditors. After filing for relief, an individual debtor may receive a discharge of debts.
- A discharge permanently prohibits creditors from attempting to collect those debts listed by the debtor on the bankruptcy schedules. However, some debts are non-dischargeable. They include certain taxes, student loans, alimony, and child support to name just a few.
- A corporate business that files chapter 7 is not eligible to receive a discharge.
Chapter 11 - Reorganizations
- The purpose of a chapter 11 bankruptcy is to allow an individual or business a limited amount of time free from creditors collection efforts to restructure its financial obligations so it may continue to operate in a normal fashion under a court approved plan of reorganization. Creditors of a business filing a chapter 11 vote on the repayment plan and the plan must be approved by the court.
- The advantage of chapter 11 is if a trustee is not appointed, the individual or business maintains control of its property during the bankruptcy and allow time to deal with creditors and to negotiate a plan of repayment.
- Chapter 11 is normally for corporations and businesses but individuals may also file chapter 11. Chapter 11 is complicated and there may be advantages to filing under a different chapter. An individual should consult with an attorney before making the decision to file chapter 11.
Chapter 12 - Family Farmer Debt Adjustment
- The chapter 12 bankruptcy law was created to help family farmers who need to reorganize their debts while keeping their land and farming business. Chapter 12 is meant to assist farmers who have potential to reorganize and to allow them relief from a heavy debt burden, while at the same time allow farmers to pay their creditors what is deemed reasonable under the terms of a court approved repayment plan.
- The rules of a chapter 12 bankruptcy are modeled closely after those of a chapter 13. A chapter 12 case may only be filed by certain family farmers and businesses. A trustee is appointed, but the farmer usually remains in possession of the farm while formulating a plan.
Chapter 13 - Individual Wage Earner
- The purpose of a chapter 13 bankruptcy is to allow an individual debtor with a regular income pay back debts using their income and enabling a debtor to keep certain assets. A person who operates a small business as a sole proprietor may also file under this chapter.
- Under a chapter 13 bankruptcy filing, the debtor must promptly file a repayment plan and obtain the court's approval of the plan. Any creditor may object to the plan. The debtor, along with the appointed trustee, must work out any objections to the plan before the court will approve it. The typical repayment period of a chapter 13 is 3 to 5 years. The debtor makes regular payments to the trustee and the trustee distributes these monies to creditors according to the terms of the plan.
After completion of the plan, the debtors debts are discharged (with some exceptions) and the debtor is no longer obligated to pay them.
How do I find an Attorney?
If you are in need of an attorney and do not have one, you may contact the following referral agency:
- Legal Aid of West Michigan : (616) 774-0672