US Bankruptcy Court Explained

What is the US Bankruptcy Court? Within each of the 94 federal judicial districts, bankruptcy matters are handled and file in the bankruptcy court. Cases cannot be filed in state court, however.

Bankruptcy laws help people who can no longer pay their creditors and ultimately receive a new start in order to pay their debts by liquidating their assets or by a repayment plan. The bankruptcy laws also protect businesses and allow for appropriate distribution to their creditors through liquidation and reorganization.

There are three different types of bankruptcy chapters: Chapter 7, Chapter 11, and Chapter 13. Before we review each one, a note should be made that in 2005, the bankruptcy code was amended to require that "most individual debtors complete a special briefing from an approved credit counseling agency before filing a bankruptcy case. In most states, the United States trustee is responsible for approving the providers that offer this special pre-bankruptcy briefing; and in the six districts located in Alabama and North Carolina, the bankruptcy administrator assigned to those districts approve them. The United States trustee and the bankruptcy administrators maintain a list of approved providers."

Chapter 7: To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. Further, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing.

Chapter 11: This is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. In addition, no individual may be a debtor under chapter 11 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing

Chapter 13: A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

While there may be many reasons why you may want to file bankruptcy, the more practical solution would be to develop a re-payment plan with your creditors. Remember, once you file, this action remains on your credit report for ten years. After it is removed from the credit report, you will have to start all over again to become eligible as a credit card holder in good standing. Therefore, think very carefully and explore all other options before you choose bankruptcy as a final alternative.