Bankruptcy Court Meaning & Definition

Bankruptcy court summary:

Bankruptcy court is a special federal court that processes bankruptcy cases for individuals and businesses.
If you’re struggling with unsecured debts and overdue bills you have no reasonable way to repay, going to bankruptcy court could be an option.
The U.S. has 90 bankruptcy courts. Your court district is typically determined by your location.

What is bankruptcy court?

Bankruptcy court is a federal court that helps hear, judge, and resolve court cases for people or businesses that file bankruptcy. If you’re struggling to pay your debts and decide to file bankruptcy, you’ll go to a bankruptcy court in the district that covers your location.

Bankruptcy court is not the same as criminal court. The judges in bankruptcy court make sure the process is fair. They protect your rights under the law while also listening to any arguments from your creditors.

Key concept: A special federal court that helps hear, judge, and resolve court cases for people or businesses that file bankruptcy.

More on bankruptcy court

For many people who struggle with overdue bills and unpaid debts, filing bankruptcy could be a solution to get control of your debt. Chapter 7 bankruptcy could help you get rid of unsecured debt. Chapter 13 bankruptcy is designed to help you restructure your debts.

Whichever type of bankruptcy you file, your case will go to bankruptcy court under the supervision of a judge. In most cases, you won’t appear in front of the judge unless there’s a disagreement that needs to be resolved.

Many people choose to use a bankruptcy attorney to help file and see through their case in bankruptcy court. A reputable bankruptcy attorney could help you go over your options and better defend your case.

Key aspects of bankruptcy court

Bankruptcy court is nothing to be afraid of—it’s there to help protect your rights as a debtor. Here are some key aspects of bankruptcy court:

Federal court. Bankruptcy law is governed at the federal level. No matter what state you’re in, your rights as a person filing bankruptcy are protected at the federal level. There are a total of 90 bankruptcy courts in the U.S..
Bankruptcy judges. Bankruptcy courts have special judges who are judicial officers at the federal district level. A bankruptcy judge hears, presides over, and manages bankruptcy cases.
Liquidation and reorganization. Bankruptcy courts typically work to resolve cases in two ways—liquidation (some of a debtor’s assets and property are sold to help pay off the debt) or reorganization (the debtor agrees to a new repayment plan, while getting rid of some debt).

Filing bankruptcy and going to bankruptcy court doesn’t mean you’re in trouble with the law. It’s one of your legal rights in the U.S. when your debts are unmanageable. Bankruptcy court could help you get a better grip on your personal finances.

Real-life example of bankruptcy court

Here’s what it could look like if you file for bankruptcy and go to bankruptcy court.

Caleb owes $25,000 in credit card debt and decides to file Chapter 7 bankruptcy. He hires a bankruptcy attorney to help with the paperwork. Once he files:

Bankruptcy court assignment: Caleb’s case is filed in his local federal bankruptcy court. A judge is officially in charge of the case, but he won’t appear before the judge immediately.
Meeting of creditors (341 meeting): About a month after filing, Caleb attends a short meeting with the bankruptcy trustee. The trustee asks him questions about his income, assets, and debts to confirm everything in his filing is accurate. No creditors attend, and the judge doesn’t appear.
Trustee review: The trustee checks his paperwork and ensures there are no assets that could be sold to pay creditors. In Calebl’s case, he owns no valuable property, so there’s nothing to sell.
Discharge: A few months later, the trustee reports to the judge that everything is in order. The judge signs an order of discharge, which legally wipes out Caleb’s credit card debt. Caleb never had to appear before the judge in person—the judge’s approval is mostly administrative.

Before you set foot in bankruptcy court, you’ll want to understand your options to make the best choice of Chapter 7 vs. Chapter 13. You’ll probably want to consult an experienced bankruptcy lawyer. Not everyone is allowed to file Chapter 7, and Chapter 13 could take time and cost money that you might not want to spend on getting rid of debt.

As with anything, bankruptcy has pros and cons. You might want to avoid bankruptcy, and that’s fine. You have other debt relief alternatives to consider alongside bankruptcy.

Bankruptcy court FAQs

Medical debt is unsecured debt, and you can usually include it in a bankruptcy. Bankruptcy is not the only alternative. Debt relief, for example, is designed to help people who have suffered a financial hardship to reduce their debt. You could also try negotiating directly with your doctor or medical institution to find out if they have financial assistance programs or might consider lowering the balances.

There's no minimum amount of debt for filing bankruptcy. You’ll pay court fees, and most people hire an attorney. So you need to have enough debt to make those expenses worth paying. Ultimately, it's up to you to decide if filing is worth it for the amount you owe.