Automatic stay. The automatic stay is a feature of bankruptcy law that goes into effect immediately upon filing a bankruptcy petition. It forces creditors to stop all collection actions against the debtor, such as foreclosures, repossessions, garnishments, and evictions, and gives the debtor time to sort things out and come up with a solution to its problems.

Chapter 7. A Chapter 7 bankruptcy, which may be voluntary or involuntary, permits the debtor to liquidate assets in an orderly way. In Chapter 7 (also known as "straight" bankruptcy), a trustee is appointed, who collects all nonexempt assets of the debtor, sells those assets, and distributes the proceeds to creditors. Individuals, partnerships, and corporations may file for Chapter 7 bankruptcy. Businesses usually file under Chapter 7 when they can't be run profitably, there is no chance of reorganizing, and the business wants to distribute its assets to creditors. There is no minimum or maximum debt limitation for Chapter 7, and the debtor need not be insolvent. If the debtor is an individual, he or she may be entitled to a "discharge" of debts. A debtor cannot dismiss a Chapter 7 case.

Chapter 11. A Chapter 11 bankruptcy, which may be voluntary or involuntary, permits the debtor (usually a business) to restructure or reorganize its debt. A trustee is usually not appointed in a Chapter 11 case; the debtor is allowed to continue to manage its business. The debtor develops a "plan" outlining how its debts will be repaid. Usually, the plan does not involve "liquidating" assets; rather, a debtor plans on reorganizing its debts so that it can continue to operate, hopefully on a profitable basis. Individuals, partnerships and corporations may file under Chapter 11. Businesses usually file under Chapter 11 when they are facing a cash flow shortage or temporary downturn in business. Upon confirmation (court and creditor approval of its plan of reorganization), a Chapter 11 debtor receives a discharge of any debt that arose before confirmation. However, confirmation of a plan does not discharge an individual debtor from certain debts that are exceptions to discharge under the Bankruptcy Code. A debtor cannot dismiss a Chapter 11 case.

Chapter 13. A Chapter 13 bankruptcy is used by individuals (including those engaged in business) to restructure or reorganize debt. A debtor "engaged in business" is someone who is self-employed and incurs trade credit in the production of income from that employment. A debtor engaged in business may continue to operate his or her business in a Chapter 13 case. Like a Chapter 11, the debtor proposes a plan that outlines how his or her debts will be repaid. The debtor must devote all of his or her disposable income to payments under the plan for three to five years. To qualify for Chapter 13, a debtor must have regular income; unsecured debts of less than $269,250; and secured debts of less than $807,750. Partnerships and corporations may not file under Chapter 13. A trustee is appointed in all Chapter 13 cases, but the trustee's role is much more limited than in a Chapter 7 case. The small business debtor is allowed to continue his or her business. In Chapter 13 cases, a debtor receives a discharge when the debtor has completed all payments under the plan. Only a debtor may commence a Chapter 13 bankruptcy proceeding. Creditors may not commence an involuntary proceeding under Chapter 13. A debtor may dismiss a Chapter 13 case.

Discharge. Generally, a discharge in bankruptcy means that an individual debtor's obligations are erased or wiped out. When a discharge is granted, it protects the debtor from personal liability on the discharged debt. A discharge is only available to certain debtors and for certain debts, however. For example, debtors that are not individuals cannot receive a discharge in a Chapter 7 bankruptcy. In addition, if a corporate or partnership debtor is liquidating under Chapter 11 and will not continue operating on consummation of a plan, it will not receive a discharge.

A creditor or the trustee may object to a debtor's general discharge if the debtor has committed a fraud on the court, for example if the debtor has been dishonest, uncooperative, or has destroyed or hidden property of the estate. In such cases, the debtor may be denied a discharge altogether. If a debtor is denied a general discharge, the debtor does not receive the benefit of the bankruptcy. The debtor will remain liable for pre-petition debts and all creditors are free to pursue the debtor to recover their claims.

• In a Chapter 7 case, certain particular debts are not dischargeable under Section 523 of the Bankruptcy Code. Debts that are not dischargeable include: (1) debts for certain taxes; (2) debts arising from false pretenses, false representation, actual fraud or false financial statements; (3) debts for certain luxury goods and cash advances; (4) debts that a debtor fails to list in the bankruptcy schedules; (5) debts arising from fraud or defalcation, embezzlement or larceny; (6) debts for alimony and child support, and other obligations arising out of a divorce or separation; (7) student loans; (8) restitution orders; and (9) debts arising from willful and malicious injury.
  
  
• In a Chapter 11 case, the debtor receives a discharge of all debts that arose before confirmation of the plan. If the debtor is an individual, however, the same exceptions to discharge found in Section 523 of the Bankruptcy Code apply.
  
  
• In a Chapter 13 case, all debts that are provided for in the plan are discharged upon completion of all payments under the plan, with only a few exceptions. The only debts excepted from discharge (not discharged) under Chapter 13 are: (1) debts that were not listed on the debtor's bankruptcy schedules; (2) debts for spousal maintenance, alimony and child support; (3) student loans; (4) criminal fines and restitution; and (5) debts related to driving while intoxicated.
  
  

Exemptions. Individual debtors are entitled to keep certain assets free from the claims of creditors, under federal or state exemption laws. Typical exemptions are the homestead exemption (equity in your personal residence); cash value of insurance policies, household goods and furnishings, clothing, wages, and tools used in the debtor's job. The amount of the exemption depends on whether federal or state exemptions are available and/or used.

Fraudulent transfer. In general terms, a fraudulent transfer is a transfer made by a debtor with the intent or effect of reducing the assets available to creditors. Fraudulent transfer law exists both in and outside of bankruptcy. A trustee has the power to avoid transfers of the debtor made with actual intent to hinder, delay, or defraud creditors, and certain transfers for which the debtor did not receive a reasonably equivalent value in exchange for the transfer.

Preference. A preference is a payment received from a debtor by a creditor in the ninety days before the debtor's bankruptcy filing. The trustee can recover such a payment if: (1) the debtor made the payment within ninety days of filing bankruptcy; (2) the payment was made to or for the benefit of a creditor on a pre-existing debt; and (3) the debtor was insolvent when it made the payment. There are various defenses to a preference action by the trustee, including that the payment was made in the ordinary course of the debtor's business.

Relief from the automatic stay. Although the automatic stay prohibits collection of debts by a creditor-including secured creditors-a secured creditor can ask the bankruptcy court for "relief" from the automatic stay. There are three ways a creditor can obtain relief from the automatic stay. First, a creditor is entitled to relief for "cause." Although not defined by the Bankruptcy Code, usually cause means the creditor does not feel that it has adequate protection. Second, if a creditor wants relief from stay related to an act against property, the creditor must show that the debtor does not have equity in the property and that the property is not necessary to an effective reorganization. Third, a creditor is entitled to relief if its claim is secured by "single asset real estate," unless the debtor files a plan that is likely to be confirmed or the debtor makes monthly payments to the creditor equal to interest at current fair market value on the balance of the creditor's interest in the real estate.

Trustee. There are several "types" of bankruptcy trustees. The United States Trustee is responsible for oversight of the bankruptcy process as a whole. The United States Trustee's duties are to maintain and supervise a panel of private trustees (usually, but not always, private attorneys) to serve in Chapter 7 cases, review fee applications filed in Chapter 11 cases, monitor plans and disclosure statements in Chapter 11 cases, monitor activities of creditor's committees, monitor the progress of Chapter 11 cases, and assist the United States Attorney in criminal prosecutions.

The United States Trustee appoints the trustee in a Chapter 7 case from a panel of private trustees. A Chapter 7 trustee is responsible for representing the interests of the debtor's estate and creditors as a whole. In a Chapter 13 case, a "standing" trustee is appointed by the United States Trustee to conduct the duties of the United States Trustee in Chapter 13 cases.

Involuntary bankruptcy. In some cases, creditors may file a petition to commence an involuntary bankruptcy. Creditors may commence a Chapter 7 or a Chapter 11 case if they hold the required amount of debt.

Voluntary bankruptcy. A debtor files a petition to commence a voluntary bankruptcy.