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Bankruptcy law encompasses both business and personal bankruptcies. Bankruptcy proceedings are governed by the Unites State Bankruptcy Act and all bankruptcy matters are heard in federal bankruptcy court.

Bankruptcy proceedings

Bankruptcy proceedings can begin either involuntarily or voluntary. Typically a person or entity will voluntarily enter into bankruptcy proceedings in order to eliminate overwhelming debt. If a person or entity is in horrific debt and is not resolving their financial issues, creditors can initiate the bankruptcy proceedings. Once the proceeding is initiated, the Bankruptcy Act ensures creditors that they will all be treated equally and that a select creditor will not receive special preferential treatment.


During the proceeding, the court will liquidate the assets of the debtor to pay the amount owed to the creditors. Not all of the debtor's assets will be liquefied. A debtor is allowed to keep certain items that allow him to live and maintain an income. Furthermore, some debts are not discharged in bankruptcy court. These include payments owed for taxes and child support.

Chapter 7 Liquidations

A chapter 7 liquidation can be initiated when an individual or corporation does not foresee any financial recovery. In these situations, a trustee will collect all the assets of the debtor and liquidate them to pay the creditors for whatever amounts are owed. The creditors' claims are paid in order of priority. If it is a corporation that is going through liquidation, at the end of the proceeding it will no longer be in business.

<Chapter 11 Reorganizations

A chapter 11 reorganization can be initiated by an individual or corporation. Chapter 11 is ideal when it is believed that the debt can be reorganized and the person or entity can emerge from bankruptcy. The debtor is under the supervision of a trustee while he develops a plan for reorganization and payment. The plan must be approved by the creditors and the bankruptcy court.

Chapter 12 Family Farm

A chapter 12 family farm bankruptcy is handled in a similar way to chapter 11 reorganizations. In a chapter 12, the debtor will stay in business and operate the farm while the debts are reorganized in a way so that the debtor can repay them and emerge from bankruptcy. The reorganization plan must be approved by the court. Some assets will also be sold by the trustee to assist with the payment of debt.

Chapter 13 Consumer Debt Adjustments

A chapter 13 consumer debt adjustment is designed for individuals who voluntarily file bankruptcy. To qualify for this bankruptcy proceeding, an individual must have less than $270,000 in unsecured debts and income and less than $808,000 of secured debt. Similar to Chapter 11 proceedings, the individual is under the supervision of the court. The debtor creates a repayment plan which is subject to the court's approval. Once the plan is confirmed, the debtor is given between three to five years to repay his debt.

By Delinda Tamagni