What You Need to Know about Bankruptcy, Part I

This article will give a basic outline of the meaning and purpose of bankruptcy and briefly define the three main types: Chapter 11, Chapter 13 and Chapter 7.

To most people the word “bankruptcy” causes feelings of stress, dread and confusion. People don’t know what it means or what is involved in declaring bankruptcy. They don’t know if bankruptcy is right for them, or what to do when someone with whom they have a business arrangement declares bankruptcy. This series of articles is designed to clear up some of the basic questions about bankruptcy. This article will give a basic outline of the meaning and purpose of bankruptcy and briefly define the three main types: Chapter 11, Chapter 13 and Chapter 7. Later articles in the series will go into more detail about each type and how it affects both the bankruptcy debtor and the creditor. Upcoming changes in the bankruptcy laws will also be addressed.

Once a petition for Chapter 11 bankruptcy is filed with the court, an automatic stay will be issued that will stop all efforts at collection or repossession of the debtor’s property. The purpose of the automatic stay is to allow breathing room from creditors and to allow the debtor to work on a reorganization plan. During this time the debtor will not be responsible for payments due or outstanding obligations. However any subcontractors or suppliers that have contracts with the debtor may, and probably will, still have to fulfill their contractual obligations regardless of the debtor’s ability to pay for those goods or services.