5.


Insolvency proceedings

5.1. General information

Bankruptcy is controlled by federal laws, which prevent any collections effort or litigation from proceeding as long as bankruptcy petitions are pending.


There are more bankruptcies filed as no-asset bankruptcy, in which the debtors give sworn statements that there are no assets to satisfy the creditors. The creditors are not allowed to file proof of claim in a no-asset bankruptcy, unless the bankruptcy trustee locates the assets. In that case, the bankruptcy court will notify the creditors to submit proof of claim.


In bankruptcy filings where there are assets and the creditors file proof of claim, it can take from 12 to 24 months to learn if the creditors will receive distributions from the bankruptcy estate.

5.2. Proceedings

There are two different types of bankruptcy proceedings:

Chapter 7 - Liquidation

A chapter 7 filing is the most common form of bankruptcy. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it, and distributes the proceeds to the creditors. Because each state allows debtors to keep essential property, most chapter 7 cases are no-asset cases, meaning there are insufficient non-exempt assets to fund distributions to the creditors. When there are assets available for liquidation, proof of claim may be filed. Proof of claim must normally be filed within 90 days since the original filing date of a bankruptcy.

Chapter 11, 12, and 13 - Reorganisation

Bankruptcy under chapter 11, 12, or 13 is more complex reorganisation, allowing the debtor to keep some or all of their property and use future earnings to pay off the creditors. Proof of claim is required to be filed for consideration of any payout or dividend.


Chapter 7 or chapter 13 is usually filed by consumers or personal guarantors, and chapter 11 is normally filed by companies or corporations. Individuals filing chapter 11 are allowed, but it’s rare. Chapter 12 is similar to chapter 13 but available only to farmers and fishermen in certain situations; and chapter 12 generally has more generous terms for debtors.

5.3. Required documents

In order to file a claim on your behalf, we need:


  • Copies of the invoices
  • Copies of the contracts
  • Copies of a statement of account
  • The original claim form signed by the original creditor

5.4. Expected time frame

The deadline for filing claims is normally within 90 days since the original filing date of the proceedings. It may take from 12 to 24 months to find out if any dividends are available for distribution.


The duration of bankruptcy proceedings is between six months and five years.

5.5. Rescission

In the preference period or 90 days prior to the filing date of the bankruptcy, the trustee can dispute payments made by the debtor to the original creditors. If the trustee disputes these payments, the creditors have to refund them and can only file claims for the corresponding debts instead.


(End of chapter 5 - Insolvency proceedings)

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