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"Bankruptcy"

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What is bankruptcy?

What has changed in the new bankruptcy laws?

Is bankruptcy right for you?

Bankruptcy FAQ

How to find a bankruptcy lawyer

     What is Bankruptcy?

      Bankruptcy is a legal proceeding in which a person who cannot pay their debts can eliminate, or greatly reduce their debt, and get a fresh financial start. Bankruptcy protects you from your creditors and stops all collection efforts. The right to file for bankruptcy is created and protected by the U.S. Constitution and the Federal Bankruptcy Code is codified at 11 United States Code Section 101 et seq.

      Financial problems can be deeply disturbing and extremely stressful. However, in most circumstances one should not be too hard on one’s self. The need for bankruptcy usually arises from a major life event such as job loss, extended illness, or divorce. Most people in this modern age at all income levels really live almost day-to day. Once there is an even moderate break in cash flow, we all seem to be robbing Peter to pay Paul. Do not feel alone if you are embarrassed about considering bankruptcy. Each year millions of Americans file for bankruptcy protection.

      Any person who owes debts may file for bankruptcy. An individual’s motive for filing is irrelevant, unless it is to commit fraud, in which case not only can the bankruptcy be dismissed, but one could also be facing serious criminal penalties.

      One lawyer we know advises that in his 15 years of practice he has yet to encounter one person who just indicated that they didn’t want to pay their bills. Most of us want to pay our bills, but unfortunately circumstances may not always allow. Bankruptcy affords you protection. Civilized societies provide a way to help people who cannot pay their debts. Even the Bible at Deuteronomy Chapter 15 discusses debt relief.

      The “automatic stay” provision of the Bankruptcy Code is one of the most powerful tools under bankruptcy. The Stay prohibits creditors from making any attempt to collect money. Upon filing for bankruptcy protection, a creditor may not call, send letters or sue. The Stay also stops any pending lawsuits. Instead, creditors are forced to proceed under the umbrella of the bankruptcy court.

      Although there are five types of bankruptcy, only two, Chapter 7 and Chapter 13, are of relevance to most consumers.

The five types of bankruptcy are:

Chapter 7: Sometimes called a “straight bankruptcy”, is a liquidation of non-exempt assets to pay-off debts. The basic idea of a Chapter 7 case is to discharge (wipe out) your debts in return for giving up non-exempt property. For most consumers, federal and/or state laws will protect most, if not all, of one’s assets as “exempt”, leaving little or nothing for creditors. Accordingly, for most people, Chapter 7 usually gets rid of your debt and you lose nothing. A Chapter 7 Trustee is appointed in each case, and will gather and sell any “non-exempt” property and distribute any proceeds to creditors.

Chapter 9: Reserved for filings by municipalities and other government units. As you might recall New York City and Bridgeport, CT. filed under Chapter 9.

Chapter 11: A reorganization of debts mostly used by business. Although individuals may also file for Chapter 11, it is much more expensive and complicated than Chapter 13 and does not generally provide any additional benefits than can be gained in Chapter 13. US Airways and other major airlines are the most publicized Chapter 11 cases.

Chapter 12: Only applies to family framers.

Chapter 13: Sometimes called a “wage earner plan” is a personal reorganization plan that allows for repayment of debts over time. How much one must pay depends in large part on one’s disposable income. In chapter 13 a “Plan” is filed showing how you will pay off your past-due and current debts over a period of at least 3 years and no longer than 5 years. Because Chapter 13 lasts longer and involves more work, it costs more than a Chapter 7 case. However, upon completion of your plan payments, you receive a “super discharge” wherein more liabilities are dischargeable. Perhaps the most important thing under Chapter 13 is that it allows you to keep your home, car and other valuable property, which may otherwise be lost, so long as you make your required payments.

      Although bankruptcy may help the most dire financial situations, it is not a “cure all” for all your financial problems. Moreover it has a long term effect on your credit. Accordingly, in most circumstances, it should be used as a last resort after other available means, such as debt consolidation or re-financing alternatives, have been exhausted.