BANKRUPTCY

Bankruptcy relief from debt was first authorized in the United States Constitution. It is government’s way to help an individual citizen gain relief from overwhelming debt where he/she is no longer a contributing member of our society. Bankruptcy is authorized in various forms under Title 11 of the United States Code. The two most common bankruptcy proceedings are under Chapter 7 and Chapter 13 of Title 11.

Chapter 7 Bankruptcy is a straight forward effort to have unsecured debt (credit cards, personal loans, delinquent bills, etc.) discharged by the U.S. Bankruptcy Court so the debtor is no longer responsible for the payment of the debts. Some debts are not discharge-able like taxes, government student loans and child support or alimony, to name some.

In 2005, the bankruptcy rules were changed by establishing the Bankruptcy Abuse Prevention and Consumer Protection Act in order to protect creditors from inappropriate filings of unnecessary bankruptcy cases while also improving some other protections for the consumer. A prospective debtor who wishes to file for Chapter 7 bankruptcy must pass a means calculations test. Basically, if a debtor’s income is below the local U.S. Census Bureau average for his/her size family, he/she may file a Chapter 7 bankruptcy. Some types of income are exempt from the calculations. If not, the test takes other considerations into account to see if the debtor qualifies for a Chapter 7 bankruptcy discharge.

The trustee, a lawyer appointed by the court, investigates your assets, liabilities, state exemptions, to see if you qualify and if you have assets he can obtain from you to pay creditors in exchange for your discharge of debt. Most people do not have as much as they think they do once they inventory their belongings and money. Some funds are exempt by state or federal law such as IRA or SEP accounts, state or federal government pensions or military pensions. It may vary from state to state.

Chapter 13 Bankruptcy is available if the debtor has too much surplus income and or there are assets he/she desire to retain. The most common use of Chapter 13 is when the debtor is facing a home foreclosure but now can afford to keep the home but the bank wants the arrears in lump sum. A Chapter 13 payment plan as supervised by the U.S. Bankruptcy Court mandates a payment schedule of the late payments due the bank. It could be a 3 or 5 year plan. The debtor must be able to pay at least his net worth minus his/her available exemptions minus 25% towards his/her unsecured debt.

A debtor is protected from creditors immediately upon the filing of his/her petition for bankruptcy by an Automatic Stay issued by the U.S. Bankruptcy Court. No creditor is allowed to even attempt to contact you about your debt once the case is before the court.

There are other forms of bankruptcy for family farmers, fisherman, business corporations and others. Consult your attorney as to your needs. Beware of credit consolidation companies making big promises. If your credit rating is already bad, a bankruptcy discharge may give you the relief you need to rebuild your rating faster than you think and for less than some credit companies may charge you. Bankruptcy is complex. Bankruptcy is possible to do yourself, but consult an attorney first.

The stigma and embarrassment of bankruptcy is no longer present today due to the unprecedented economic situation of our country. People are cut back or laid off from their jobs, experience medical emergencies without insurance and a multitude of other life problems. Bankruptcy filings are the highest in over 40 years. A bankruptcy discharge of debt may allow you to become a consumer again, thus paying taxes on goods and helping the local economy. Though attorneys do get clients from advertising, more and more clients seeking bankruptcy discharge, are coming to the attorney after word of mouth referral from a friend or associate.