What is bankruptcy?

Bankruptcy is the legal method for a debtor to discharge or relieve debt. Bankruptcy is a way for people or a business who owe more money than they can pay to either work out a plan to repay the money over time or to have their debt wiped out. While no debtor is guaranteed a total discharge, most debtors who file for bankruptcy are given such relief. One of the primary purposes of the bankruptcy act is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start. Title 11 of the United States Code regulates the filing of a bankruptcy. If the debtor initiates the bankruptcy it is called a voluntary bankruptcy. If the creditor initiates the bankruptcy it is called an involuntary bankruptcy.

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In an involuntary bankruptcy the debtor has the opportunity to contest the petition. While the debtor is either working out a plan or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor. The Bankruptcy Code regulates what chapter you must file under, what bills can be eliminated, how long payments may be extended, what possessions you may keep, and all other details concerning the bankruptcy.

What is the Bankruptcy Code?

The Bankruptcy Code refers to Title 11 of the United States Code. (11 U.S.C. §§ 101-1330) Federal Law governs bankruptcy. The Bankruptcy Code includes most, but not all of the laws passed by congress that govern bankruptcy.

Where do I get a copy of my state’s local rules?

Copies can be obtained at the public service counters in the Clerk`s office of the Bankruptcy Court. In addition, many Bankruptcy Courts now publish their rules online. Each bankruptcy court district has its own special rules that apply to bankruptcy cases filed in that court. It is important to review the local bankruptcy rules and required local forms before filing a bankruptcy case.

Who can file for bankruptcy?

Any person, partnership, corporation or business trust may file bankruptcy. In addition, charitable or social organizations may also file for bankruptcy. United States citizenship is not a requirement for filing bankruptcy.

Do I need an attorney to file bankruptcy?

Federal law does not require you to have an attorney represent you when you file bankruptcy. In fact, congress requires anyone who advises on bankruptcy to tell you that a lawyer is not required.You are allowed to file pro se, that is, on your own without an attorney. However, without the assistance of an attorney, it is extremely difficult to do so successfully. Hiring a competent attorney is highly recommended. After all, you are allowed to take out your own appendix without a doctor if it gets infected.

What if I am married?

If you are married, you may file a joint petition for bankruptcy relief. A joint petition is the filing of a single petition jointly by an individual and that individual`s spouse. Federal law does not yet recognize same sex marriage. Consequently, your spouse for bankruptcy purposes must be of the opposite sex. In order to qualify for a joint petition, you must be married on the date that the joint petition is filed. Unmarried persons, corporations and partnerships must each file a separate case. If you are an individual and have a business that is a separate entity, you may not file a single petition for yourself and your business; each must be a separate bankruptcy case. However, if your business is a sole proprietorship, it is included in the bankruptcy you file personally.

Will I lose my house, car, and other personal property?

Not necessarily, each state has exemption laws that determine which items of property you can keep for yourself in a bankruptcy. For example, many states exempt personal items such as furniture and clothing to a certain value. In addition, other kinds of property are exempt up to a limit. These exemption limits mean that any equity that you have in the property above the limit is not exempt. The Bankruptcy Trustee can take the non-exempt property and sell it, pay off any creditors, and give to you the exemption amount.

Does my divorce decree protect me if my ex-spouse has filed bankruptcy and listed me as a co-signer?

If you are contractually bound with your ex-spouse on a debt, the creditor can require the entire payment of that debt from your share of the community property even though the divorce decree assigns the debt to your ex-spouse. Depending on the terms of your divorce decree, you may be able to have certain support obligations under it determined to be non-dischargeable by the bankruptcy court or in state court. If you find out that your ex-spouse has filed for bankruptcy, you should seek legal advice to find out your possible obligations.

Will filing bankruptcy change my credit rating?

Normally, filing a bankruptcy will have an impact on your credit rating. However, a bankruptcy filing will often actually improve your credit rating over time. Most individuals are able to rebuild their credit within a few years after filing. If you are currently thinking about bankruptcy, and you have fallen behind on paying your debts, it is likely that your current credit rating has already dropped. A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.

How long will a bankruptcy show on my credit reports?

The Bankruptcy Code has nothing to say about credit reporting agencies. The Fair Credit Reporting Act, 15 U.S.C. 1681 et seq., is the law that controls credit reporting agencies. The law states that credit reporting agencies may not report a bankruptcy case on a person`s credit report for more than ten years after the date the bankruptcy case is filed. Other bad credit information is removed after seven years.

What chapter should I file under?

Your personal circumstances will determine the best chapter for you to file under. Choosing the appropriate type of bankruptcy is very important. The decision whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all of the relevant facts concerning your case.

What is a chapter 11 bankruptcy?

Chapter 11 is the reorganization chapter available to businesses and individuals that have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization that must be approved by the court. Chapter 11 allows flexibility in structuring the reorganization. Some plans may even release a debtor from ongoing contracts such as a commercial lease or service contract. Because of the flexibility, if you think that you are nearing financial trouble, you should consult with an attorney before you reach a financial crisis. There is no debt limit under chapter 11. However, only a chapter 11 debtor that qualifies as a small business may request expedited treatment under chapter 11. To qualify as a small business, the debtor must be engaged in commercial or business activities, other than the ownership of real property, and meet certain other financial requirements. Due to the expense and complexity of chapter 11, the decision to file a chapter 11 petition should be made in consultation with an attorney. In addition to the filing fee paid to the Clerk, a quarterly fee must be paid to the U.S. Trustee in all chapter 11 cases.

What is a chapter 13 bankruptcy?

Chapter 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,441,875 ($360,475 in unsecured debt and secured debt less than $1,081,400), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan that must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a small fee. Debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.

What should I do if I cannot make my chapter 13 payment?

If the debtor cannot make a chapter 13 payment on time according to the terms of a confirmed plan, the debtor should contact their attorney to seek advice. If the debtor has no attorney then contact the chapter 13 trustee directly about the trustee of the problem. Significant changes in the debtor`s circumstances may require that the plan be formally modified. If the problem is permanent and the debtor is no longer able to make payments to the plan, the case can be dismissed or converted to another chapter. Under some circumstances, a special hardship discharge is allowed without completing all payments under the plan. The determination of whether to modify, dismiss or convert a case requires the same kind of analysis as is needed for the initial decision whether to file bankruptcy and under what chapter. Therefore, the debtor should seek counsel from a qualified bankruptcy attorney before attempting to make such a decision. If the debtor delays making a voluntary decision and cannot make the plan payments, the court may dismiss the case.

What is a chapter 7 bankruptcy?

Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are often referred to as straight bankruptcy, and may be filed by an individual, corporation, or a partnership. In a chapter 7 bankruptcy case, a trustee is appointed to collect and liquidate all property that is not exempt and to use any sale proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property as exempt. Debtors file a chapter 7 case to get a discharge of their debts. When a bankruptcy discharge is granted, the debtor does not have to pay certain types of debts. Corporations and partnerships do not receive discharges in a chapter 7 bankruptcy. Consequently, any individuals legally responsible for the partnership or corporation debts will remain liable and may have to file a personal bankruptcy to obtain a discharge of debt.

What is a chapter 12 bankruptcy?

Chapter 12 offers bankruptcy relief to those who qualify as family farmers or family fishermen. There are debt limitations for chapter 12, and a certain portion of the debtor`s income must come from the operation of a farming or fishing business. Chapter 12 debtors must propose a plan to repay their creditors over a period of time from future income and the court must approve it. Plan payments are made through a chapter 12 trustee who also monitors the debtor`s business operations while the case is pending.

What is a chapter 9 bankruptcy?

Chapter 9 is only for cities and other governmental units, such as school districts, water districts, some utility companies and other similar organizations.

What is a discharge?

When a discharge is granted, the court enters a discharge order and permanently prohibits creditors from taking action to collect dischargeable debts from the debtor. A discharge of the debt does not prohibit secured creditors from seizing collateral if payments are not made on time. Some debts are not dischargeable, and others may be found to be non-dischargeable depending on particular circumstances.

What debts are dischargeable?

11 USC § 523 lists exceptions to discharge in bankruptcy cases. Generally, all other debts are dischargeable. Some debts listed in 11 USC § 523, such as those debts based on fraud, embezzlement or willful and malicious injury by the debtor to another person, are discharged unless a complaint to deny discharge of that debt is filed with the bankruptcy court within certain time limits. Ordinarily, discharge complaints must be filed within sixty days after the first date set for the meeting of creditors. Debts that were not listed on your bankruptcy schedules or that were incurred after you filed bankruptcy are generally not discharged. In some circumstances the debtor is denied a discharge in the bankruptcy proceeding. Denial of a discharge applies to all debts, while determination of non-dischargeability goes to a particular debt only. A request for denial of discharge is usually granted because the debtor concealed property of the estate, made a false oath, presented or used a false claim, refuseed to obey a court order or for other reasons set out in the Bankruptcy Code.

What is a priority debt?

A priority debt is a debt entitled to priority of payment by law in a bankruptcy case. A general listing of priority debts is given in 11 USC § 507 of the Bankruptcy Code. Examples of priority debts include administrative expenses of the bankruptcy, some taxes and certain types of wage claims from employees. Domestic support obligations for alimony, maintenance or support of a spouse, former spouse, or child are a priority debt and get paid first, before all other priority debt except those necessary for operating the bankruptcy case itself. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.