What is Bankruptcy?
Bankruptcy is a discharge or relief of debts obtained through a court proceeding in front of a judge. This legal provision is available to provide relief to individuals who, whether due to bad luck or bad decisions, are in a bona fide hardship. It gives people a chance to wipe the slate clean and start over. At a bankruptcy hearing, the judge and court trustee examine the individual’s assets and liabilities to determine their ability to pay their debts. If the court decides to discharge debts, you are no longer required by law to pay them.
what are The Types of Bankruptcy?
The United States Bankruptcy Code provides for six different types of bankruptcy, each known by its chapter number in the Bankruptcy Code. While they each have different procedures and requirements for eligiblity, the common goal of all is to provide debt relief.
The three most commonly filed types of bankruptcy are Chapters 7, 11, and 13.
- Chapter 7, or liquidation, discharges an individual’s non-exempt assets. Certain secured loans, such as cars and homes, may be exempt. In Chapter 7 bankruptcy, the debtors non-exempt assets are sold in a trustee sale and proceeds are used to pay creditors. Both individuals and businesses may file Chapter 7 bankruptcy.
- Chapter 9 bankruptcy is for reorganization of municipalities (i.e. school districts, utilities, taxing districts, cities and towns)
- Chapter 11 bankruptcy is for partnerships and corporations. It involves a supervised reorganization of a business. The business can continue operations while implementing a court approved payment plan.
- Chapter 12 bankruptcy provisions are applicable to fishermen and family farmers.
- Chapter 13, or the wage earner’s bankruptcy, involves a three to five year repayment plan, after which the remainder of the individual’s debts are discharged.
- Chapter 15 provides for cross-border bankruptcies in accordance with the United Nations’ Model Law on Cross Border Insolvency.
Do I Need An Attorney to File Bankruptcy?
Bankruptcy forms are available to the public and no one is required to hire an attorney to file bankruptcy. However, because of the long term financial and legal implications, there are many reasons why enlisting a bankruptcy attorney is in your best interest. If you are representing yourself, you are expected to be very familiar with the United States Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. Not being aware of these codes and requirements is not a permissible excuse, and your case could be dismissed if you make a mistake. While you can find a lot of information online on these government websites, sifting through all the legal codes and regulations to find what applies to you and follow it can be overwhelming. Additionally, bankruptcy judges and court employees are not permitted to give you legal advice.
A lawyer can help you with many confusing aspects of filing bankruptcy, such as whether or not filing bankruptcy is the best option for you, which chapter to file, which debts can and cannot be discharged as well as what property (home, car, or personal property) you will be able to keep after filing. A bankruptcy attorney can help you fill out forms and explain bankruptcy procedures as they apply to you, including the tax consequences, and which you should continue paying if any.
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Will bankruptcy eliminate all of my debts?
Most consumer debt can be discharged through with bankruptcy. However, it is your responsibility to make sure you include all of your debts. Any debts that you forget to include will not be discharged.
Also, your creditors will have the opportunity to object to the discharge of debt.
Additionally, the law stipulates 19 debt categories that are considered non-dischargeable.Among these are child support, alimony,tax debts, fines or penalties owed to the government, debts based on tax-advantaged retirement plans, condo fee debts, criminal restitution and personal injury debts resulting from drunk driving accidents. Student loans are very rarely discharged; doing so requires convincing the court that they are causing you undue hardship.
There are a few types of technically non-dischargeable debt that may be discharged if your creditor does not challenge the discharge. Among these are credit card purchases of more than $650 for luxury goods incurred within 90 days of filing, fraudulently obtained debts, and debts resulting from willful and malicious property damage or personal injury.
What is the process for filing bankruptcy?
The bankruptcy process depends on which type you are filing. The two most common types of bankruptcy that individuals file are Chapter 7 and Chapter 13. Whichever type of bankruptcy you file,your case commences with filing a bankruptcy petition, which automatically triggers a stay of all collection efforts by creditors. In both Chapter 7 and Chapter 13 bankruptcy, your creditors have to opportunity to object to the discharge of your debts owed to them. This occurs at what is called a 341 hearing with your creditors and your bankruptcy trustee, in which you will have to answer their inquiries regarding your financial situation.
In order to file Chapter 7, or liquidation bankruptcy, you’ll need to pass a means test, which determines if you actually have the ability to at least partially repay your debts. Chapter 13, or the wage earner’s bankruptcy, is for those with higher income and involves drawing up a three to five year plan to partially repay your debts in order to have the rest forgiven.
Filing Chapter 7 Bankruptcy
Chapter 7 bankruptcy filing begins with a means test. If you don’t pass the means test, then you are not eligible to file Chapter 7.The means test compares your income to the median income: if your income is below the median, you qualify for Chapter 7. If your income is above the median, you may still qualify if your essential expenses (housing, food, clothing and medical) are high enough in relation to your income that your net, or disposable income, is low enough to inhibit your ability to pay. Chapter 7 is usually the best choice for individuals with low income and little or no assets. Chapter 7 bankruptcy filings usually result in a discharge of all included debts within 4 to 6 months.
Filing Chapter 13 Bankruptcy
Chapter 13 bankruptcy is in place for those whose disposable income is too high and/or they want to keep their property.Before you can file for Chapter 13 bankruptcy, you will be required to receive credit counseling from an approved agency. The fee for this counseling may be waived or reduced for those who need it. In 2020, at the time of this writing, the maximum amount an individual can file Chapter 13 bankruptcy for is $394,725 and secured debts cannot exceed $1.184 million. However, these numbers do change, so check with your counselor or lawyer to confirm current limits. It’s very important to keep up with your monthly payments, so a vital part of the filing process is ensuring that you have the income to make the necessary payments. You will also have to provide annual income and expense statements to your trustee. Once you complete your payment plan, the rest of your debts will be discharged.
Should you file for bankruptcy?
Bankruptcy is not a magic bullet solution. In fact, it should be your last resort to resolve financial issues. Credit counseling and debt settlement are viable options to explore first before considering bankruptcy if your situation is not dire. Chapter 7 bankruptcy will stay on your credit report for ten years, and Chapter 10 will remain with you for seven years. Considering the long lasting effects of bankruptcy, as well as the limitations as to how often you can file, many experts deem a bankruptcy for less than $15,000 in debt to be counter-productive. There are two more factors to consider before filing for bankruptcy. First, if you have any debts with a co-signor, bankruptcy does not protect them. They can legally be obligated to pay even if you are released from responsibility. Second, there are 19 types of debt that are considered non-dischargeable. Some of these non-dischargeable debts are: child support, alimony, tax debts, fines or penalties owed to the government, debts based on tax-advantaged retirement plans, student loans, condo fee debts, criminal restitution and personal injury debts resulting from drunk driving accidents.
How much does it cost to file for bankruptcy?
The current fee for filing Chapter 7 is $306 and filing for Chapter 13 is $281. These fees are regularly reassessed and changed, so consider these an estimate. Your counselor or attorney can confirm the current rates. Additionally, some courts charge an administrative fee. Fees can sometimes be paid in installments, and possibly even waived if your income is low enough.
Bankruptcy laws can be complex and confusing, and while you can file bankruptcy on your own (pro se), it is best to hire an attorney who is well versed with bankruptcy laws. It is not advisable to represent yourself, as any mistake you make in your paperwork can have your case dismissed.
Free initial consultation with our experienced legal team
Are you considering bankruptcy? We know what a difficult process this is, and your best chance of getting a good result is with the guidance of an experienced bankruptcy attorney. We are here to help you explore your options. Email us here or call 1(877) 375-9599 to schedule a free consultation.