Bankruptcy is a legal process that enables a debtor to have some types of debts discharged, which relieves the debtor of liability for the debts and prohibits creditor collection efforts. When a debtor files a petition for bankruptcy, federal laws and rules of procedure govern the bankruptcy process. The established process provides for debtors’ rights and responsibilities in a bankruptcy case.
The federal government has specific authority to adopt uniform laws on bankruptcy under Article I, Section 8 of the United States Constitution. Acting pursuant to that authority, Congress enacted the United States Bankruptcy Code, which is codified in Title 11 of the United States Code.
Bankruptcies are within the jurisdiction of the federal courts. Each federal judicial district has a United States Bankruptcy Court. Procedurally, the Federal Rules of Bankruptcy Procedure (or Bankruptcy Rules) govern the bankruptcy process. The Bankruptcy Code, Bankruptcy Rules, and local rules of the bankruptcy court handling the case establish the procedures that apply to bankruptcy petitions filed by individuals and businesses.
A United States bankruptcy judge, who is a judicial officer of the United States district court, has decision-making authority over a bankruptcy case. In bankruptcy cases under Chapters 7 and 13, much of the process is administrative and handled by a bankruptcy trustee appointed by the court to oversee the bankruptcy case. A debtor’s contact with the bankruptcy court or a bankruptcy judge is very limited, unless bankruptcy litigation arises in the case.
Court decisions recognize that the goal of federal bankruptcy laws is to give debtors a fresh start from burdensome debts, “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” The goal is achieved through a bankruptcy discharge, which releases a debtor from liability for specific debts and prohibits creditors from attempting to collect those debts.
The Bankruptcy Code provides for six different types of bankruptcy, usually identified by the Chapter of the Code that creates them. The types are:
In addition to the processes available under the Bankruptcy Code, the Servicemembers’ Civil Relief Act provides specific protection to military members. Chapters 7, 11, and 13 are the most common types of bankruptcy used by consumers and businesses.
Filing a petition in bankruptcy under any Chapter requires the debtor to provide detailed information about outstanding debts, liabilities, and assets. The documents supporting the petition must be thorough, accurate, and complete. Omissions or misrepresentations can jeopardize the debtor’s ability to get a discharge or have other negative consequences for the debtor.
The process for a bankruptcy case following filing of the petition depends on the Chapter under which the bankruptcy was filed. Regardless of what type of bankruptcy a debtor files, the bankruptcy process is complex. Throughout the process, special terminology is used to describe legal concepts that are unique to bankruptcy. In most cases, it is beneficial for a debtor to consult with an experienced bankruptcy lawyer before filing a bankruptcy petition. Legal counsel throughout the process will also ensure protection of debtors’ rights.
Debtors’ rights in a Chapter 7 or Chapter 13 bankruptcy case include an automatic stay against creditor collection efforts under Section 362 of the Bankruptcy Code. The automatic stay is in effect as soon as the bankruptcy petition is filed. Under the stay, a creditor cannot file a legal action, repossess property, demand repayment, or otherwise attempt to collect from the debtor.
The automatic stay is very broad. The purpose is to give the debtor the opportunity to be free of collection efforts and complete the bankruptcy process. Some types of debts and proceedings are exempted from the stay. Additionally, a creditor can ask the bankruptcy court to lift the stay in some circumstances. However, while the stay is in place, a creditor who violates it may be liable for damages and attorney’s fees.
You can learn more about the automatic stay in our article, What Is the Automatic Stay in Bankruptcy?
When the bankruptcy process is successfully completed, most types of bankruptcy ultimately end with a discharge of many of the debtor’s pre-existing debts. Bankruptcy discharge of a debt prevents a creditor from attempting to collect on the debt.
Although many types of debts are dischargeable in a bankruptcy case, there are exceptions and limitations. Excluded debts include taxes, domestic support obligations, certain types of personal injury liability, debts arising from willful and malicious injury by the debtor, court fines and criminal restitution, and other categories of debt as well. A discharge order does not affect creditor claims that arise after the bankruptcy petition was filed. Liens against the debtor’s property also may continue after a bankruptcy discharge.
A debtor does not have an absolute right to a discharge, simply by filing a bankruptcy petition. Creditors may object to discharge in some types of bankruptcies. Creditors also have other rights during a bankruptcy case. In addition, a bankruptcy judge has authority to deny or revoke a discharge in certain circumstances.
If you file for bankruptcy, having professional legal representation is the best way to ensure protection of your debtors’ rights. If you attempt to navigate through a bankruptcy on your own, you may have difficulty protecting your rights during the bankruptcy process. If an adversary proceeding or contested matter arises in your case, representation by a bankruptcy litigation attorney is essential to protecting your debtors’ rights.
At Dave Burns Law Office, bankruptcy litigation is a central part of my practice. Since filing and processing a bankruptcy petition is not litigation, I do not advise or represent debtors with regard to petitions for bankruptcy. However, I do represent debtors and creditors in contested matters and adversary proceedings in the United States Bankruptcy Courts in Minneapolis and St. Paul. If you encounter bankruptcy litigation as a bankruptcy petitioner or creditor, I welcome you to contact me at (612) 677-8351 or by sending an email to me at firstname.lastname@example.org.
I am available to meet with clients in both Minneapolis and St. Paul. Inquiries from clients and referring attorneys throughout the State of Minnesota are welcomed.
The Dave Burns Law Office hopes you find this article helpful. But please do not rely on it as legal advice. The law changes regularly and the outcome of any legal matter depends on its unique circumstances. View full disclaimer