What is Bankruptcy?

Bankruptcy originates in the U.S. Constitution, which was designed to protect the people from their government. Our Constitution put the people in first place. It instructs Congress "to establish … uniform Laws on the subject of bankruptcies throughout the United States." Article I, Section 8. Paragraph [4]. These Federal laws are located in Title 11 of the United States Code divided by Chapters.

Because Federal Law is supreme over local law, a person, business or any entity, even a farm or city, (the "debtor") can go to one Court and rehabilitate their finances. It is convenient for the people you owe as well (the "creditors"). All creditors file claims in one Court. We decide which Chapter of Title 11 of the United States Code you use.

A Chapter 7 bankruptcy petition, also known as a straight bankruptcy, is filed when you can
only pay living expenses; there is no money left over to pay toward debt. Some of your property may be sold or liquidated by a Trustee if the value of your property is higher than allowed by state law. Unsecured debt goes away immediately. Property with a lien can be given back to the creditor without further payment as well. Or you can keep property with a lien, such as a car,
and continue to make payments. If you can make a lump sum payment equal to the property's value, you can pay it off immediately.

A large corporation or partnership, in order to restructure finances, usually files a Chapter 11
petition. The company can continue to operate and work out payments to creditors. An individual sole proprietor with high debt may restructure under Chapter 11 as well. A smaller individual business with regular income, secured debt less than $871,550 and unsecured debt less than $290,525 may use the more economical Chapter 13 to reorganize.

A Chapter 13 bankruptcy petition, also known as a wage earner’s plan, is for an individual with regular income. It is filed when there is income left over at the end of the month, after paying
living expenses. Excess income is sent to the Chapter 13 Trustee to reduce your debt. A Chapter 13 plan gives you more time to make smaller payments. The plan is designed to allow debtors with income above their expenses to pay debt according to their ability. For some this means paying 100% of their debt over time. Others pay a percentage (i.e. 50%) of their debt according to their
ability to pay. Some can only pay 10%. Chapter 13 is the better choice because you are doing your best to pay as much as you can, according to your ability. If needed, a Chapter 13 plan can last up to 60 months.

You can take up to 60 months to pay back debt. Most of the time, no interest is paid on unsecured
debt. Some secured debt, such as a car, is reduced to its value, so payments are reduced as well. For example, if you owe $15,000 for a car worth $10,000, you make monthly payments including standard interest, to the Chapter 13 Trustee based upon $10,000. The remaining $5,000 becomes unsecured, receives no interest and is paid the same percentage as all other unsecured debt; from 1% to 100% depending upon your plan. This helps you pay off debt quicker.