1. Bankruptcy
Economics
Ms. McRoy

2. “Aim”
What are the effects of filing for bankruptcy?

3. Bankruptcy
What is it?
A legal process in which the debtor petitions the courts to obtain relief from debt
This is accomplished either through a discharge of the debt or through a restructuring of the debt
Debtor – the borrower
Creditor – the lender

4. Types of Bankruptcy Chapter 7
aka “a straight bankruptcy” or “liquidation bankruptcy”
Typically most of the debtor’s assets are sold to pay off creditors
Many, but not all, debts are forgiven
The release from debt does not forgive:
certain debts arising from educational loans
certain taxes/fines
alimony payments
child support payments
Certain assets receive protection:
Social Security payments
Unemployment compensation

5. Types of Bankruptcy (cont’d)
Chapter 13
aka “a wage-earner plan bankruptcy”
A debtor (i.e. individual) with a regular income proposes a plan to the court for using future earnings or assets to eliminate his/her debts over a specified period of time.
The debtor normally keeps all or most of his/her property.
Payments are made to a Chapter 13 trustee.

6. Types of Bankruptcy (cont’d)
Chapter 11
Available to all businesses
Permits reorganization
Similar to a Chapter 13 filing for individuals, where arrangements are made for re-payment.
In Chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business.

7. Types of Bankruptcy (cont’d)
Chapter 12
Similar to Chapter 13 in structure, but it offers additional benefits to farmers and fishermen in certain circumstances, beyond those available to ordinary wage earners.

8. Historical Bankruptcy Filings
Total Bankruptcy Filings by Bankruptcy Chapter Years Ended March 31,
Chapter
Year 7 11 12 13
2012
958,757
11,339
606
396,175
2011
1,118, 481
13,051
743
438,788
2010
1,100,032
15,251
605
415,966
 2009
819,304
11,774
367
370,836
2008
560,015
6,971
343
334,551
Source:

9. Effects of Bankruptcy
Easier to obtain credit if file for Chapter 13 versus Chapter 7.
Bankruptcy reports are kept on file with credit agencies for 7-10 years.

10. “Aim”
What are the effects of filing for bankruptcy?