The United States Bankruptcy Code offers several types of debt relief to help individuals and businesses to eliminate debt, reorganize assets and liabilities or set up a repayment plan. The goal of every bankruptcy case is to give the Debtor a “fresh start.” The different bankruptcy options include, Chapter 7, Chapter 11, Chapter 12, and Chapter 13. A Chapter 12 bankruptcy only applies to family farmers or fishermen.

Individuals can obtain relief in Chapters 7, 11 or 13; businesses and other entities find relief in Chapter 7 or Chapter 11. Generally, Chapter 11 and Chapter 13 allow for repayment plans to creditors and the reorganization of assets and liabilities. Sometimes referred to as “Straight Bankruptcy,” Chapter 7 cases discharge personal liability for individuals, and for businesses stop operations and liquidate assets.

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) to curb perceived abuses of the Bankruptcy Code. The law placed substantial new requirements on individual consumers filing for bankruptcy. These requirements apply to individuals filing either a Chapter 7, 13 or 11 cases, and include the following:

• Take an approved credit counseling [link to hummingbird] course prior to filing.
• Provide bankruptcy abuse disclosures.
• Provide proof of income for the 60 days prior to filing.
• Provide income tax returns and proof that the returns have been filed.
• Take a financial management and education course after filing.
• Determine income during commitment period (6 months prior to filing.)
• Complete a means test [link to IRS site] if their income exceeds the median income.
• Cases may be subject to an audit.

For individuals and businesses, filing bankruptcy is the first step towards relief. Once a bankruptcy case is filed, the automatic stay becomes effective and prevents creditors from taking any further collection actions. The automatic stay applies to all creditor actions, including, but not limited to:

• Repossessions
• Mortgage foreclosures
• Garnishments
• Wage assignments
• Lawsuits
• Evictions
• IRS actions
• Harassing phone calls
• Collection notices
• Wage garnishments