What is Bankruptcy?

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1)   What is Bankruptcy?

2)  Who can file Chapter 7 bankruptcy?

3)  Why is it legal "wipe out" our debts?

4)    What is Chapter 7 Bankruptcy?

5)   Will I have to give up any of my property to my creditors?

6)   Are some of my debts not dischargeable?

7)   What is a Chapter 13 Bankruptcy?

8)   When is a Chapter 13 a better alternative than a Chapter 7?

9)   Will Filing Bankruptcy Stop My Bill Collectors from Taking Action?

10)  How quickly will my creditors get notice of my bankruptcy?

1)   What is Bankruptcy?

Bankruptcy is a legal method of eliminating debt and providing a means for debt-oppressed people to obtain a "fresh start." In many cases, bankruptcy means the elimination of the debt that you owe to your creditors. They are two primary forms of bankruptcy, Chapter 7 and Chapter 13.

 

2)  Who can file Chapter 7 bankruptcy?

You must reside or have a domicile, a place of business, or property in the United States or a municipality. You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan. You must not have had a bankruptcy filing dismissed for cause within the last 180 days. It must not be a "substantial abuse" of bankruptcy to grant the debtor relief.

Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7. It would not be fundamentally unfair to grant the debtor relief under Chapter 7 or Chapter 13.

 

3)  Why is it legal to "wipe out" our debts?

More so than in any other time in our country's history, our economy is based on consumer debt. In fact, in this age of multibillion dollar corporate bailouts, easy credit and relentless bombarding of seductive messages cajoling us to "charge, consume, buy" it is not surprising that so many people are drowning in debt.

For many of us, this debt is insurmountable and is causing family problems and feelings of hopelessness and even suicide. With credit card interest rates of 18-21%, many feel like modern day indentured servants. Many times, the debt is occasioned by unforeseen events such as loss of a job or medical bills, but more often it is simply poor planning. Nevertheless, in instituting our bankruptcy laws, Congress recognized that responsible, well-intentioned people could from time to time run into financial problems. By allowing you to recover from your debt burden you will be able to start afresh, look to the future and become a more productive member of society. This is good for you and for good for society as a whole.

 

4)    What is Chapter 7 Bankruptcy?

This is commonly referred to as "straight bankruptcy" and it is the most commonly filed form. Only individuals (not businesses or partnerships) may obtain a discharge in a Chapter 7 proceeding. Large credit card debt and other unsecured bills coupled with few assets, typify the filer of this form of bankruptcy.  In the vast majority of cases this type of bankruptcy is able to completely eliminate all of the filers debts.

5)   Will I have to give up any of my property to my creditors?

The vast majority of filers get all or most of their debts discharged (wiped-out) without giving up any of their own property. This is because federal as well state laws provide exemptions for your property. Exempted property is property such as household goods and personal belongings, which you may keep despite your bankruptcy.

 

6)   Are some of my debts not dischargeable?

Some kinds of debts are not dischargeable, which means that you will remain obligated to repay them even after you complete your personal bankruptcy. Examples of nondischargeable debts are certain state and federal taxes, student loans unless at least 7 years old and debts that were induced or extended by fraud.

 

7)   What is a Chapter 13 Bankruptcy?

Under a chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering to pay off all or part of the debts from the debtors' future income.

The amount to be repaid is determined by several factors including the debtors' disposable income. To file under this chapter you must have a "regular source of income" and have some disposable income. Like in a Chapter 7, corporations and partnerships may not file under this chapter.

 

8)   When is a Chapter 13 a better alternative than a Chapter 7?

There are several situations where a chapter 13 is preferable to a chapter 7. A chapter 13 bankruptcy is normally for people who have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non- dischargeable in a Chapter 7 (e.g. certain taxes). Also, people file Chapter 13 because they are behind on their mortgage or business payments and are trying to avoid foreclosure. A chapter 13 bankruptcy allows them to make up their overdue payments over time and to reinstate the original agreement. Also, where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 may be a better option.

However, for the vast majority of individuals who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.

9)   Will Filing Bankruptcy Stop My Bill Collectors from Taking Action?

Yes, When you file bankruptcy, federal law imposes an "automatic stay" which precludes your creditors from taking any action to collect debts against you including court judgements and tax debts during the pendency of the bankruptcy. For instance, if you have been served by one of your creditors to appear in court over a debt, the bankruptcy filing will stop this lawsuit.

Any wage garnishments or repossession efforts are also halted.  However, once the bankruptcy is over, a creditor holding a claim that was not discharged may proceed to collect on the debt. Also, under some circumstances a secured creditor may proceed to collect on the lien he has on the filer's asset during the bankruptcy proceeding, but may only do so by filing a court motion and by getting the approval of the bankruptcy court first.

 

10)  How quickly will my creditors get notice of my bankruptcy?

Within a couple of weeks of the filing of your petition, the bankruptcy court clerk mails your creditors notice of the filing and the imposition of the automatic stay. Until the creditors get notice, it may be necessary for you supply the creditor with the docket number and date of your bankruptcy. Once they have been given notice, they must stop collection efforts against you or may be liable for court sanctions. Thankfully, for the vast majority of people, once their bankruptcy petition is filed that is the last they hear from their unsecured creditors. 

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