Get Out Of Debt

The bankruptcy code in the United States of America has been designed to protect the rights of debtors and creditors. There are various chapters, rules, and clauses in the US code. Some laws are in favor of the debtors, while others are in favor of the creditors. Time to time, new laws are also added to this system, in order to fill the loopholes, if any. The liquidation laws in America is some of the strongest laws in the world, where there is very little or no possibility to commit frauds. However, the code has also made enough provisions to save the financial life of the debtor, if his or her case is genuine.

Bankruptcy Code Is Divided In Various Chapters

There can be various types of bankruptcy cases. In order to deal with specific cases, things have been categorized in the bankruptcy code under the various chapters. For example, the chapter 7 bankruptcy deals with straight filing bankruptcy. The debtors who are in the worst phase of their financial life and whose income is not even enough to pay off the necessities of the life, can use this chapter. This chapter takes everything from the debtor other than the legally exempted assets and properties. The money thus collected by selling off the unexpected assets is then used to settle the creditors’ claims. On the other hand, a chapter 13 deals with individual or businesses that have mismanaged their finances, but have not yet lost all hopes. If they get some time and a little favorable situation, they might get their business back on the path of profit. The chapter 13 rules allow them to do just that. There are several chapters as well, such as chapter 11, 17, 20 etc.

The Bankruptcy Code Is Same In All the States

Some people have the misconception that insolvency code changes from state to state, which is not the case. It the bankruptcy laws and not the code that varies from state to state. It is important for you to understand that the new laws are not different things. They are just parts of the impoverishment system. However, as far as the laws variation in state is concerned, the major difference lies in the way the various property exemptions have been interpreted in various states. Some states have been very liberal in allowing exemptions for the debtors, while some other states are very rigid and they are more concerned towards the rights of the creditors.

You should note that the bankruptcy code is all the same all the states. If a modification is done in the code, the change will come into affect in all the fifty states of America.

The bankruptcy code is divided into individual chapters that cater for different circumstances of dealing with debt and bankruptcy. There are also different interpretations of these chapters for the individual or business. This article will list the various chapters and how they apply to the individual and for corporations.

For individuals there are three types of bankruptcies including Chapter 7, Chapter 11 and Chapter 13.

The most common bankruptcy for individuals is Chapter 7. It is often termed the straight bankruptcy or liquidation because it discharges the debt by liquidating the assets of the debtor (some assets like the home are exempt in individuals). Under new revisions in 2005 this chapter requires that the individual must qualify before filing. By qualification, they must earn an annual income that is below the state average. This was done to protect the financial institutions and the government that had secured much of the debt in the case of student loans.

In Chapter 7 bankruptcy, all debts, including secured and unsecured can be discharged. However, some assets owned by the individual may be confiscated and sold by the court in order to satisfy a portion of the secured debt. Of the types, Chapter 7 offers the most financial relief for the creditor.

Chapter 13 bankruptcy is the second most common form of bankruptcy for individuals. This is known as the reorganization. In this case the court appoints a trustee who will work out a repayment plan that is acceptable to the creditors and workable for the debtor. By workable, it should be a monthly repayment schedule that leaves the person with enough money for everyday living expenses like accommodation, food and other such things. The debtor is given a maximum of 5 years to complete these payments.

Corporations can file for Chapter 7 bankruptcy. This generally involves ceasing trading and selling off of all assets. Businesses can use a Chapter 11 to reorganize their debts until they are paid off or renegotiate the debt. This allows them to stay in business and possibly rectify their financial or organizational problems. An initial consultation with an attorney will help determine which of the types the individual qualifies to file. they will have to file for Chapter 13 bankruptcy.

It is important to engage a lawyer when considering potential bankruptcy. The lawyer can advise which chapter to file for based on your circumstances. They will also fill in all paper work and present it at the hearing.

If you find yourself in severe financial circumstances, you might be considering bankruptcy as a way to give you a fresh start. It certainly is an option you should consider if things are that bad, but there are some drawbacks to filing. One of the factors that keep many people from filing for bankruptcy is the cost of bankruptcy attorney fees.

Well, the first thing you should remember is that declaring bankruptcy will help you with your other debts, which will make it easier to pay your legal fees. The bankruptcy automatic stay puts a freeze on all of your debts so your creditors cannot even contact you.

You and your lawyer will go through the process without having to worry about paying any debts, at least not until your case has been heard. If your bankruptcy case is successful, then you may be able to discharge much or all of your current debt. This will make it easier for you to pay for your lawyer fees. In addition, your lawyer may work out some sort of payment plan to make things easier for you.

Perhaps a more important consideration is how to lower your bankruptcy attorney fees. We’ve already spoken above about how declaring bankruptcy can make it easier for you to pay your legal bill. But what about actually lowering the cost of that legal bill?

One of the simplest things you can do is to prepare as much as possible before your initial legal consultation. Before you ever walk into a bankruptcy law office, you need to do your homework about bankruptcy and your current situation. Reading articles like these, as well as a good book on the subject, can help you understand many things before you ever step foot into a bankruptcy law practice.

You can better understand who is eligible, the different types of bankruptcy, and what the ramifications are for filing. You should also get all of your paperwork in order. That includes your federal tax returns, all of your credit card statements, and everything else that proves your current income and expenses.

Taking the time to do this will make you a better informed client, and it will also reduce the amount of work that the lawyer has to accomplish. Less work means a smaller bill for you. Who knows, you may even decide with your own research that bankruptcy is not the best alternative for you.

The quick and dirty definition of bankruptcy is when a person who is unable to pay their debt goes to court seeking relief. If you are the petitioner, the court must determine if your debts are truly beyond your ability to pay. Then, depending on your case, either the court discharges the bulk of your debt or sets up a payment schedule that is in your best interests but does not entirely absolve you of the responsibility of paying your creditors.

While that might be a simplified explanation of bankruptcy, it is one of the most complicated consumer legal issues you might encounter. Part of the complexity is due to the regulations, the fact that there are different types of bankruptcy petitions, and the process to administer the petition within the court system.

The other aspect that cannot be ignored is the negative stigma attached to bankruptcy. You have not owned up to your debt, you are trying to cheat your creditors out of money, etc. It is true that some people are looking for an easy way out to not pay their bills, but the fact of the matter is that bankruptcy is a legitimate legal proceeding to reorganize your debt.

In order to decide whether bankruptcy is the right course of action, the first thing you need to do is separate the emotional response from the financial response. Then go consult with a lawyer. Bankruptcy law changed significantly last year, and your first and best source of information is always going to be someone who is aware of the legal ramifications and, in fact, whether or not bankruptcy is the best financial choice in your situation.

Credit Cards

Unless your credit cards are paid off in full before you file, chances are you will not be able to use them again after you file (and even then, the creditor may cancel the credit card.) This is not a call to action to charge up your cards the month before you file. For one, the courts may recognize that as bad faith and order you to pay those recent charges in full instead of discharging them. Two, the act of bankruptcy is intended to give you the means to show more financial responsibility and charging your cards to the max is rarely a sign of responsible spending.

However, your credit card companies will stop collection calls on your delinquent credit card accounts, and your attorney can handle all the contact with credit agencies. This is one of the most powerful benefits of a bankruptcy: the “automatic stay.” This means that all attempts to collect all debts by all entities must immediately cease.

Other Types of Debt

If you have foreclosures or garnishments, the collection actions on those will stop as well. Secured debt, i.e. mortgages and car payments, cannot be eliminated through bankruptcy. The debtor has the choice of catching up on arrears and continuing to make payments, surrendering the collateral and owing nothing, or “redeeming” the collateral with a lump sum payment of the balance due or current value, whichever is less. If reading that is already overwhelming, just know that secured debt is still your debt after you file.

In the immediate future, your credit will take a severe hit, so the likelihood that are you are extended credit after you file is slim. That does not extend indefinitely into the future. The point of bankruptcy is also to give you a chance to rebuild your credit, and sooner than you expect, you might be eligible for some forms of credit. Although something large like a mortgage on a home will probably be five years or more away.

You should also be aware that there are certain types of debt that will not be wiped clean no matter your situation. You will almost always owe on student loan payments, even in bankruptcy, as well as back taxes from the last few years. Child support and alimony are two other types of debt that you will continue to owe.

Public Disclosure of Debt

If embarrassment is your main concern, then you should know that most court proceedings are public record, can be researched by just about anyone, and in some cases, the information about your claim will show up in newspapers. Public disclosure is part of the legal process, and it should not stop of you from declaring bankruptcy if it is a sound financial decision.

A report of bankruptcy does stay on your credit report for ten years. It stays that long to discourage people who are only filing to get out of obligations they never intended to pay to begin with. Though it is possible to file multiple bankruptcies in a lifetime, for most individuals, one time should be sufficient to get you back on track financially.

The Next Step

The two most common petitions for individuals are Chapter 7 bankruptcy and Chapter 13. This is where a conversation with a lawyer is critical so that you can understand the differences between the two and get information on your eligibility for Chapter 7. The 2005 Bankruptcy Reform made it more difficult for individuals to qualify for Chapter 7 bankruptcy.

In general, Chapter 7 discharges the bulk of your debt (the exceptions were mentioned earlier) and Chapter 13 is essentially a court ordered payment plan to handle your debt. There is a court supplied formula that determines what the monthly payment should be in Chapter 13. It is based on the income and expenses of the debtor. If the plan is approved, after 60 months of steady payments whatever remains unpaid is discharged.

If you are overwhelmed by your debt, then the best thing to do is think carefully about the ramifications of filing for bankruptcy. First, separate the financial and emotional issues, and have a conversation about each separately. It is important to talk to someone who is familiar with bankruptcy law, and advisable to seek out a lawyer in any case to address the financial implications.

With the proper information in regards to the new bankruptcy laws you can avoid the hassles many people have to deal with because they did not take the time to do some research. Only you can decide what is best for your debt burden with the current bankruptcy law.

Types of Bankruptcy

You may have heard of someone filing for Chapter 11 or Chapter 7. What do they mean by this?

These are actually the types of bankruptcy, so-named after the title of the Chapter of the Federal Bankruptcy Act in which they appear. There are three common types of bankruptcy available. Here is a quick rundown of each one:

Chapter 7

This is also known as liquidation. In a Chapter 7 bankruptcy case, all the assets and nonexempt properties, if any exists, of the debtor must be turned over to a trustee for the purpose of converting them into cash to pay the debtor’s creditors.

In return, the debtor receives a Chapter 7 discharge in the form of a court order, releasing the debtor from all of his or her dischargeable debts. This order also has the effect of preventing creditors from attempting to collect these dischargeable debts from the debtor.

Note that there are some debts which cannot be discharged with a Chapter 7 bankruptcy.

Chapter 11

This type of bankruptcy is typically used for business bankruptcies and restructuring. As such, this is not an option for individual consumers. Besides being far more complex, it is also more expensive to pursue.

A Chapter 11 bankruptcy gives businesses the opportunity to reorganize themselves, restructure debt, and get out from under certain burdensome leases and contracts. “Business” here may include a corporation, sole proprietorship, or partnership.

When a corporation files for a Chapter 11 bankruptcy, the stockholders’ personal assets are not at risk. Since a corporation exists separate and apart from its owners, the stockholders, the only asset the latter stands to lose are the value of their investment in the company’s stock.

Chapter 13

This is sometimes referred to as a “mini Chapter 11″ because it allows small proprietary business owners and certain qualified individuals to file for it in order to repay their creditors but still retain your property.

So how is this different from a Chapter 7 bankruptcy, which likewise allows you to retain certain exempt properties and assets? Chapter 13 is different in that it enables a debtor to retain the assets that would otherwise be liquidated by a Chapter 7 trustee.

In most cases, you can keep your home and your car under either Chapter 7 or Chapter 13. However, there are certain instances under Chapter where you would not be able to keep your rental properties, antique gun collections, etc. Whereas, if you file for a Chapter 13 bankruptcy, you may be able to keep these “luxurious items” and submit yourself to a Plan where you can make repayments.

The goal of a Chapter 7 bankruptcy is to discharge your existing debts so you can get a “fresh start” on your finances. A Chapter 13, on the other hand, obliges you to repay most or all of your debts before your slate is wiped clean. It is because of this – you repay your debts – that you gain a certain advantage over a Chapter 7.

Make no mistake that bankruptcy is a complex process. There are many intricate details involved in this legal process that should be taken into consideration before making any decisions involving bankruptcy. The information above is only basic. There are still many important questions that may arise and only your bankruptcy lawyer who knows more about your particular situation can authoritatively answer your questions.