Bankruptcy law is the statutory procedure by which a person is relieved of some or most of his/her pre-bankruptcy debts. Bankruptcy is essentially a matter of federal law, governed by the United States Bankruptcy Code. Bankruptcy presents work for both debtors’ attorneys and creditors’ attorneys. On the debtors’ side, attorneys represent individuals and companies filing bankruptcy. On the creditors’ side, attorneys negotiate loan workouts and assist clients in collections, repossessions, foreclosures, and lien disputes.

 

Bankruptcy cases are often referred to by the specific provision under which they are brought; the provision under which a case is filed affects the relief available. Chapter 7 is a form of bankruptcy for individual consumer debtors as well as businesses resulting in liquidation. For a business, this generally involves selling all of its assets and distributing the proceeds to creditors. For an individual, this results in the discharge of some debts (although some debts cannot be discharged, such as child support), the sale of some assets to repay creditors, and the retention of certain exempt property. Most individual debtors filing for Chapter 7 must complete a “means test” form, comparing the debtor’s average income to median state incomes for similar households. If the debtor passes the test, a Chapter 7 filing is permitted. If not, the case is either dismissed or converted to Chapter 13, which is discussed below.

 

Chapter 11 is a form of bankruptcy which permits the reorganization of debts. Chapter 11 is used predominantly by corporations or partnerships. The company remains in business during the reorganization, pays creditors over time, and receives relief from some or all of its debts.

 

Chapter 13 is a way for individual consumer debtors to reorganize their debts, paying back creditors over a 3 – 5 year period. In order for a Chapter 13 plan to be confirmed (approved), it must commit all of the debtor’s disposable income to repayment, and unsecured creditors must receive meaningful repayment and at least as much as they would have in a Chapter 7 liquidation.

 

The most significant bankruptcy legislation in a generation was enacted in 2005. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, made sweeping changes to all aspects of bankruptcy law, especially those aspects of the Bankruptcy Code affecting consumer debtors. Among the most important changes are that it has now become harder for individuals to file under chapter 7; instead they must proceed under chapter 13 and repay a portion of their debts.