So What is Bankruptcy - Really?

Bankruptcy is a legal process created to help individuals and businesses find relief from overwhelming debt. Bankruptcy laws were enacted to give those in need a financial fresh start from burdensome obligations. As the U.S. Supreme Court explained, bankruptcy gives “the honest but unfortunate debtor… a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” (Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)).

How does Bankruptcy Help?

The fresh start you can receive through bankruptcy comes in the form of a bankruptcy discharge—a Court order that permanently eliminates the legal obligation to repay certain debts. Once a debt is discharged, creditors must stop all collection efforts. That means no more creditor calls, letters, lawsuits, garnishments, foreclosures, or other collection actions. And, if a creditor knowingly violates this discharge order, they can face serious legal consequences for their wrongdoing.

Bankruptcy Chapters: What do They Mean and How Do They Work?

When most people hear the word “bankruptcy,” they picture a single process—often associated with big corporations or celebrity bankruptcies. In reality, bankruptcy isn’t one-size-fits-all. There are several bankruptcy “chapters” under federal law, each designed for different situations:

• Chapter 7 (Also known as the Liquidation Chapter) – This is the most common type of bankruptcy filed by individuals or married couples. Chapter 7 allows you to quickly eliminate most unsecured debts, often without requiring repayment or losing essential assets.
• Chapter 13 (Also known as the Debt Adjustment Chapter) – This is for individuals and families with regular income who want to keep certain property or assets, save their home from foreclosure, or who may not qualify to file for Chapter 7. In a Chapter 13 Bankruptcy, you can restructure and repay a portion of your debts over time through a court-approved plan.
• Chapter 11 (Also known as the Reorganization Chapter) – This is typically filed by businesses or high-profile individuals to restructure and repay their debts while continuing business operations. 
• Chapter 11 Subchapter V (Also known as the Small Business Reorganization Subchapter Five) – This was added in the Small Business Reorganization Act of 2019, and can make the Chapter 11 process faster, simpler, and more affordable for small businesses. Subchapter V streamlines the Chapter 11 bankruptcy process by eliminating certain costly requirements and allows owners to stay in control while working toward a consensual plan with their creditors. This option is available to businesses with debts under a set limit and is designed to help small businesses reorganize without the heavy burden found in a traditional Chapter 11 Bankruptcy. 
• Chapter 12 (Also known as the Farmers and Fishermen Chapter) – This helps agricultural and fishing families reorganize debts while keeping their operations running. Originating during the 1980s farm crisis, Chapter 12 became a permanent part of the Bankruptcy Code in 2005. It is specifically tailored for those in agricultural or fishing industries because other bankruptcy chapters were either too complex, too costly, or didn’t fit the seasonal nature and scale of farming and family fishing operations.