Bankruptcy Law - Chapter 7, 11, 13




What is Bankruptcy?

Bankruptcy allows individuals, couples, and businesses that cannot meet their financial obligations to be excused from repaying some or all of their debt. Bankruptcy has been in existence since ancient times. In the United States, the rules and procedures for filing bankruptcy are governed by federal law. States are prohibited from legislating in this area of the law.

Generally speaking, there are two types of bankruptcy. In a liquidation bankruptcy, debtors must surrender their property, which is sold, and the proceeds distributed to creditors. In return, all debts are permanently discharged. In a reorganization bankruptcy, debtors are allowed to keep their property. But the debtors must agree to an installment plan to repay creditors a portion of the amount they owe.

Filing for bankruptcy involves submitting a petition and fee to the bankruptcy court. The fee is close to $300 for most personal bankruptcies. The petition will contain sworn statements by the debtors concerning the amount of money they owe, their income and expenses, as well as a complete list of all of their assets. After filing, a court hearing is held to review the information in the petition.

Chapter 7 bankruptcies are by far the most common. These are liquidation bankruptcies in which the debtors must turn over all “non-exempt” property to a supervising officer known as the bankruptcy trustee. Property is exempt if it falls within specific categories of assets that debtors are allowed to keep, such as a certain amount of clothing, household items, tools for work, and in some instances, vehicles and the family home.

The Chapter 7 trustee will take the debtor’s non-exempt property (if there is any), and sell it. The money will be paid to the debtor’s creditors. This may result in creditors receiving a small fraction of their claims. The balance of the debtor’s loans and obligations are forgiven and can never be collected. Creditors who attempt to collect debts that have been discharged face severe penalties under federal law.

Keep Your Property

The fact that a liquidation bankruptcy wipes out debt completely is obviously attractive to anyone who cannot afford to pay their bills. But what about people who have non-exempt property that they do not want to give up? Chapter 13 is a reorganization bankruptcy. It allows debtors to keep their property by agreeing to make monthly payments toward their debt over the course of three to five years.

Chapter 13 bankruptcies offer a number of benefits besides allowing debtors to keep their property. For example, certain types of secured debt, like a car loan, can be restructured by reducing principal to the market value of the collateral, and lowering payments by extending the repayment period to 60 months. Other obligations, like mortgages, student loans, and tax liabilities can be modified as well. Creditors are given no choice in the matter.

Bankruptcy is not available to everyone. Those who have had their debts discharged in a Chapter 7 within the past eight years cannot re-file. For Chapter 13, the waiting period is six years. Too much disposable income is also a problem. Congress has established a “means test” for this purpose. Debtors who make enough money to repay their creditors will be barred from filing a liquidation bankruptcy, though reorganization may be an option.

Businesses that have become insolvent but want to stay in business may be able to file a Chapter 11 bankruptcy. Like a personal reorganization, Chapter 11 allows businesses to obtain protection from their creditors while they put together a repayment plan. Liabilities can be reduced and restructured to give the business another chance at achieving profitability.

Whether a debtor is considering filing under Chapter 7, 11, or 13, they must comply with a vast number of federal laws and regulations. An error at any step of the process can result in the court refusing to discharge the debtor’s liabilities. When the bankruptcy process ends this way, the consequences are disastrous. With so much at stake, hiring a licensed bankruptcy attorney at the outset is wise investment.

Know Your Rights!

Articles About Bankruptcy Law

  • Should Bankruptcy Stop You from Getting a Personal Loan?
    Bankruptcy is not the end of the road in getting a loan. It’s neither a financial slaughter house. The old golden days when one would lose hope and feel miserable after filling a bankruptcy case are gone
  • Ways to Stop Foreclosure
    There are several ways that homeowners can help guard against foreclosure so that they can keep their homes and avoid the negative consequences of this action.
  • Perfecting Your Security Interest – Requirements for Listing a Debtor’s Name on Florida Article 9 Filings
    Florida lenders seeking to secure a lien against the personal property of a borrower in default must follow the guidelines detailed in Article 9 of the Uniform Commercial Code (UCC) and Florida’s Article 9, which governs secured transactions and is applied to a wide range of consumer and commercial credit transactions.
  • Deciding between Chapter 7 and Chapter 13 Bankruptcy
    Many individuals who file bankruptcy file under the specific chapter that they qualify for. If they are not eligible for one filing, they explore the other. However, some people fall into multiple eligibilities and determine which bankruptcy filing will better suit their needs.
  • What Bankruptcy Can and Cannot Do
    Millions of underwater debtors including individuals and businesses have turned to bankruptcy for relief. While bankruptcy is a powerful way to shield debtors from further debt collection efforts, it does not solve all financial problems. Additionally, there are different things that bankruptcy can accomplish based on the type of bankruptcy that is filed.
  • What Not to Do Before Bankruptcy
    Bankruptcy laws are often complex in nature and some filers make mistakes before they ever file their petition at the courthouse. Making certain mistakes may have an adverse effect on bankruptcy or even prevent someone from qualifying for bankruptcy. Some mistakes to avoid include:
  • Three Benefits of Chapter 7 Bankruptcy
    Some of you may be at a point in your life when you are considering bankruptcy. If so, you may be wondering why a Chapter 7 Bankruptcy may be better for you. Some of the advantages to filing a Chapter 7 bankruptcy are as follows:
  • Defending a Debt Collection Lawsuit
    If a person owes money to a creditor, the creditor or debt collection company may commence a debt collection lawsuit against the debtor. If the creditor secures a judgment, it can then take steps to collect on it through garnishment or attaching a lien on the debtor’s unexempted property. There are often several ways that a debtor can avoid these negative results, including the following:
  • What Happens in a Debt Collection Lawsuit?
    Debt collection companies are often given a specific protocol to follow when collecting debts. Their owners may set out specific rules for these transactions. Additionally, federal and state laws often impose additional requirements regarding the collection of debt.
  • What is the Role of a Bankruptcy Attorney?
    Bankruptcy is a complex procedure that requires you to make a host of critical decisions from before the time you file straight through to the time your debts are discharged and the bankruptcy procedure concludes. An experienced bankruptcy attorney can guide you through the dizzying maze of decisions, paperwork and procedure that marks a bankruptcy filing, whether it is a chapter 7 or chapter 13.
  • All Debtor and Creditor Law Articles

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