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Conner Dunn
Professor O’Brien
BUL3310
9/27/2020
Term Paper – Bankruptcy Law in the USA
Bankruptcy is a term that most would say has a negative connotation to it. Many believe
that filing for bankruptcy is a last resort that people take when they have no money. Well,
contrary to the reputation that bankruptcy carries, it is not a bad thing. Filing for bankruptcy can
help an individual, business or municipality relieve some or all of their debt, come up with a plan
to repay debts owed, or help with reorganization/restructuring of business. An individual has
options when filing for bankruptcy, the most common being chapter 7 or chapter 13 bankruptcy,
a business has two main options, chapter 7 and chapter 11 bankruptcy, and municipalities have
one main option, chapter 9 bankruptcy. Filing for bankruptcy is a viable option to help keep
companies from going under and individuals from racking up additional debts they will never be
able to pay back. Municipalities may file for bankruptcy to restructure/reorganize their debts, and
come up with a plan to pay back their creditors. All bankruptcy cases are heard in the federal
court system following the rules, regulations and policies put in place by the U.S. Bankruptcy
Code (“Bankruptcy”).
The first type of bankruptcy is individual bankruptcy. When filing for bankruptcy an
individual can choose between chapter 7 bankruptcy and chapter 11 bankruptcy. Chapter 7
bankruptcy is the better option for those not wanting to create a plan of repayment to their
creditors. Under this specific type of bankruptcy case, a debtor will have his or her possessions
sold at an auction and the proceeds gathered from the auction will be given the creditors to repay
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some of the debt owed. The type of possessions that may be collected and sold at auction are
called “nonexempt assets” and consist of cash and money in the individual’s bank accounts,
stocks and bonds in the individual’s name, valuable goods such as jewelry, clothing, and
artwork, as well as non-primary vehicles and dwellings (Anderson, 2020). In addition to the
liquidation of nonexempt assets, liens may be placed against the debtor’s property to regain some
money owed to the creditors. What is most associated with chapter 7 bankruptcy is a loss of
property. The liquidation of assets is not the only downside to filing for chapter 7 bankruptcy. A
debtor’s credit report will be impacted for 10 years after filing. The impact will resolve over
time, but the debtor will face difficulty with making purchases for the next 10 years. A debtor
who files for chapter 7 bankruptcy must meet the requirements of the “U.S. Bankruptcy Court’s
Chapter 7 Means Test”. The means test compares the debtor’s income for the past 6 months to
