If you're considering bankruptcy, you might want to know how the system decides who gets relief. Before you file, it's a good idea to understand who makes the decision and how it will likely go down.
A judge will have the final say in your case. However, there is one base factor that may give some say to your creditors. The type of bankruptcy will determine how much power the creditors have over the outcome.
For the vast majority of personal bankruptcies, the conversation is largely between the petitioner and the judge. The exception is if you file a Chapter 11 bankruptcy personally. While Chapter 11 is mostly the domain of businesses, some people with more than a million dollars of personal debts may want to go this route.
Chapter 11 is a restructuring process where the court reduces your debts after approving a repayment plan at a lower amount. Whether you're filing personally or on behalf of a business, creditors in a Chapter 11 case have the right to submit their own repayment proposals. Your bankruptcy lawyer can submit one, too, but the court might go with the creditors' plan.
If you restructure personal debts under Chapter 13, the creditors can still register complaints. However, the judge doesn't have to consider counterproposals.
Protecting Creditors' Rights
So far, it sounds like the petitioner holds all the cards. However, the judge has a legal duty to protect the creditors' rights. The court must seek to recover as much of what the creditors are rightly owed as possible.
Judges address this by examining petitioners' finances. If the judge believes you can afford to pay, they can reject the petition altogether. Similarly, a judge might tell someone seeking a full discharge under Chapter 7 to file again under Chapter 13 if they believe the petitioner could handle a repayment plan.
This is a big reason to hire a bankruptcy attorney. You want to be sure you've filed for the right type of relief. Likewise, the lawyer can tell you whether they believe you're eligible. You don't want to be wrong because having a bankruptcy lawyer file a second time will cost you money at the worst possible time.
While the judge has the final say, the court often transfers much of its power to a trustee. The trustee handles the basic work of making a bankruptcy happen. If the court is liquidating your assets, for example, the trustee will conduct the sale and try to get the most money for your creditors.
Contact a bankruptcy attorney to learn more.