Bankruptcy laws help people who can no longer pay their creditors get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.
Most cases are filed under the three main chapters of the bankruptcy code. They are Chapter 7, Chapter 11, and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.
Below is a high-level summary on each bankruptcy code:
Chapter 7 – Liquidation under the bankruptcy code:
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Virtually anyone can file for Chapter 11 bankruptcy, however many small businesses are ineligible to file for Chapter 13.
A big disadvantage to Chapter 11 is that the proceedings can be complex and expensive. However, there are special provisions, which streamline and expedite Chapter 11 cases involving “small business debtors.”
Almost anyone can file bankruptcy under Chapter 11. Individuals, corporations, partnerships, joint ventures, and limited liability companies are all eligible to be Chapter 11 debtors. There are no debt or income requirements or limitations for filing bankruptcy under Chapter 11.
When discussing bankruptcy and the possibility of discharging student loans are difficult, but not impossible, to discharge in bankruptcy. To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.” The courts have a process use different tests to evaluate whether a particular borrower has shown an undue hardship.
The most common test is the Brunner test which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Most, but not all, courts use this test.
Many courts look at the undue...