Types of Bankruptcy

Commercial and Consumer Bankruptcy

Both businesses and individuals may consider discussing bankruptcy with a qualified Louisville Bankruptcy lawyer. Commercial bankruptcy is a remedy available to Louisville businesses that are unable to pay their debts. Options include liquidation bankruptcy, in which many of the business’s assets are sold and the proceeds are divided among the creditors, and reorganization bankruptcy or restructuring bankruptcy, in which the business continues to operate according to a plan that allows for at least partial payment to creditors.

Consumer bankruptcy, by contrast, is a method by which Louisville individuals may be able to get out from under insurmountable debt and make a fresh start, albeit with a negative impact on their credit ratings. As in commercial bankruptcy, there are two options: liquidating assets to pay off creditors, and filing a wage-earner plan that allows the debtor to retain more assets while working to pay off his or her debts. An experienced Kentucky bankruptcy law attorney can help you choose the right course of action for your particular situation.

“Voluntary” and “Involuntary” Bankruptcies

Most Kentucky bankruptcy law cases are filed by the debtor and are thus considered “voluntary bankruptcies” (although few would “volunteer” to be in this position). Once a bankruptcy petition is filed, the debtor is immediately entitled to relief from creditors through the bankruptcy procedure known as the “automatic stay.” The automatic stay freezes all debt-collection activity and forces creditors to allow the Louisville bankruptcy court to determine how payment will be made.

Not all bankruptcy proceedings are voluntary, however. Under Chapters 7 and 11, creditors, too, have the option of filing for relief against the debtor, in which case the proceeding is called an “involuntary bankruptcy.” Involuntary bankruptcies are allowed only when certain minimum thresholds are met; for instance, there must be a minimum number of creditors and a minimum amount of debt. If the court dismisses an involuntary bankruptcy filing because it has no merit, the creditors may be ordered to pay the debtor’s attorneys’ fees, damages for any losses the debtor experienced because of the bankruptcy, and even punitive damages to punish the creditors for the frivolous or abusive filing of a petition.


Chapter 7, 11 & 13 – What It All Means

Bankruptcy law provides two basic forms of relief: (1) liquidation, and (2) rehabilitation, also known as reorganization. Read below to see which might be right for you.

Chapter 7Chapter 11Chapter 13

Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. To qualify for Chapter 7 in the Louisville area, an individual debtor has to satisfy a financial means test. Chapter 7, does not allow you to obtain a discharge of certain debts, including student loans, child support payments, or tax obligations.

In a Chapter 7 liquidation case, a bankruptcy “trustee” collects the debtor’s “nonexempt” property (as opposed to the property that the debtor is allowed to keep and that is not subject to the creditors’ claims) and converts it into cash. The trustee then distributes the resulting funds among the various creditors according to an order of priority described in the Bankruptcy Code. Not all creditors receive the full amount owed through this process; in fact, some may receive no payment at all. When liquidation and distribution are complete, the Louisville bankruptcy court may discharge any remaining debts of an individual (non-business) debtor. If the debtor is a corporation, it ceases to exist after liquidation and distribution, and there is therefore no reason for further discharge because the creditors cannot seek payment from an entity that no longer exists. Talk to one of our Louisville bankruptcy lawyers to see if liquidation bankruptcy is right for you.


In a rehabilitation or reorganization, the option often preferred by the courts, creditors may be provided with a better opportunity to recoup what they are owed. Chapter 11 generally applies to individual debtors with excessive or complex debts, or to large commercial entities like corporations.

Chapter 13 bankruptcy is designed to allow a debtor to restructure his or her debt in order to pay the creditors back in installments. Chapter 13 is for people with a reliable source of income who are temporarily overwhelmed with their financial obligations. If you file under Chapter 13, you will submit a plan with the court to repay your creditors all or part of what you owe, subject to certain protections offered by the bankruptcy code. The experienced attorneys at Whitford & Neuhauser will work with you to craft a plan that allows you to get out from under debt while also protecting your property.

In a Chapter 13 filing, you get to keep nonexempt assets that would be subject to liquidation in a Chapter 7 filing. This makes Chapter 13 a good choice for a person who has valuable property that might be subject to liquidation under Chapter 7. When the payment plan is completed, the unpaid portion of your debt will be discharged. Chapter 13, like Chapter 7, does not allow you to obtain a discharge of certain debts, including student loans, child support payments, or tax obligations.