The truth is, bankruptcy is not limited merely to those people at the end of their rope. Bankruptcy protection is available all persons either living in or with some connection to the United States, either via doing business or owning property in the United States.
There are six chapters under the United States Bankruptcy Code:
- Chapter 7: Liquidation of assets and discharge of the vast majority of your debts. This chapter allows you to get a "fresh start" and begin a new life free of the debt that had plagued you prior to filing bankruptcy. Note that while this is a "liquidation" chapter, in the vast majority of cases that I have seen, debtors are able to retain most, if not all, of their personal and real property. This chapter is also available to small businesses that wish to dissolve and wipe out their remaining debts.
- Chapter 9: Reorganization of debts of a municipality. This chapter is reserved exclusively to municipalities that are insolvent (indeed, it is the only chapter in bankruptcy that requires insolvency).
- Chapter 11: Reorganization of business debts. This chapter allows a business to retain ownership while restructuring its debts in what is known as a Chapter 11 Plan, making payments to creditors over a period of time in an effort to keep the business open as a going concern.
- Chapter 12: Reorganization of debts of a family farmer or fisherman with regular income. This chapter allows a family farmer or fisherman to restructure his or her debts in what is known as a Chapter 12 Plan, making payments to creditors over a period of time while retaining possession of his assets.
- Chapter 13: Reorganization of debts of an individual with regular income. This chapter allows an individual to restructure his or her debts in what is known as a Chapter 13 Plan, making payments to creditors over a period of time while retaining possession of his assets.
- Chapter 15: This chapter relates to foreign insolvency proceedings where the debtor is based in another country but has assets or creditors in the United States.
As noted above, only one chapter in the United States Bankruptcy Code requires complete insolvency, and that chapter is not available to individuals or businesses. Simply put, you are not required to be completely broke and destitute to seek bankruptcy protection. While many people that I have met with have fallen on hard times, that is not to say that everybody seeking bankruptcy protection cannot make ends meet. Chapter 13 bankruptcy is a good example of this. I have seen Chapter 13 debtors who are doing quite well financially, but are dogged by previous debts or mortgage arrears that are causing them stress.
By far, I have noticed that many people only seek to pull the trigger on a bankruptcy filing once they have been sued, either for an outstanding debt or in foreclosure. Whether this is out of fear of the stigmas associated with bankruptcy or an unwillingness to accept the gravity of the situation, I cannot say for certain.
What I can say is that it is often beneficial to be proactive. If you see that things are going to start going downhill in the near future, it is to your benefit to know your rights. It is important to speak to an experienced bankruptcy attorney to determine what the best course of action is for you and your family, whether that is bankruptcy or some other arrangement.
Call my office today for a free consultation. We are here to help. 908-872-6590.