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What is bankruptcy?
Bankruptcy is a method by which debts are discharged, that is, legally eliminated by preparing and filing a formal petition in federal bankruptcy court.
Bankruptcy is a citizens' right established in our constitution by our founders.
Congress is authorized in the Constitution to establish uniform national laws regarding bankruptcy. However the several states, with their sovereign powers retained the right to pre-empt federal bankruptcy laws and impose their own standards of qualifying exemptions.
Some states prohibit the use of federal standards altogether and impose only their own standards of qualifying exemptions.
Some states allow the use of either their specific state standards or federal standards. In these states, the debtor can choose whichever set of standards are most advantageous to their own specific set of circumstances. American Bankruptcy performs this service automatically by electronically assessing the effects of both sets of standards and offering petitions and schedules which will provide the best results for our client.
Why do people file bankruptcy?
Many of us, especially those of us who have maximized our credit limits and have depleted our savings, have fallen prey to the pursuasive overtures of the moneylenders.
Their usurious rates of interest have virtually enslaved us, and we find ourselves working for the primary benefit of those who have inveigled us to fall deeply into their debt. Others of us have fallen upon hard times through loss of employment, medical emergencies, or other catastrophes for which we were not prepared.
In any of these events, and many others too numerous to mention specifically, bankruptcy provides us with relief from creditor pressures and offers us a chance for a fresh start.
What types of consumer bankruptcy are there?
A Chapter 7 bankruptcy allows debtors to discharge their debts, subject to certain statutory exceptions, through liquidation of a debtors non-exempt assets, if there are any.
Many, maybe even most, debtors lose virtually no assets through bankruptcy.
The moment a debtors petition is recorded with the clerk of the bankruptcy court all of the debtors listed creditors must cease and desist in their collection activities.
All further attempts to collect creditor claims must thereafter be made through the bankruptcy trustee assigned to the case by the court.
Tax collections, including any IRS claims, re-possessions, evictions, civil suits, judgement collections, et. al., are stayed (stopped, prohibited) the moment the filing of the petition is recorded by the clerk of the bankruptcy court.
A Chapter 13 bankruptcy allows debtors to pay their debts under the protection and supervision of a trustee appointed to the case by the bankruptcy court. A Chapter 13 repayment plan must be submitted to the trustee for confirmation by the judge of the bankruptcy court. Once confirmed by the court, creditors are required by law to submit to the terms of the repayment plan, whether they receive payment in full under the plan or not.
A minimum requirement, among others, for repayment of creditors under a Chapter 13 Plan is that each creditor must receive at least as much as they would have received under a Chapter 7 filing in the same circumstances.
A Debtor must exhibit a record of a regular, sustainable, income to qualify for approval of a Chapter 13 Plan.
Do you lose property when you file bankruptcy?
In a Chapter 7 filing property that is valued over and above that allowed by the specific bankruptcy exemption standards in a given jurisdiction may be sold by the Chapter 7 trustee assigned to the case by the court. Any proceeds from the sale of assets are distributed, first to the debtor, in the amount of the exemption allowed in the debtor's jurisdiction, then, secondly, any amount over and above the allowable exemption amount is distributed among the creditors, according to statutory requirements, by the bankruptcy trustee. A debtor is able to protect the home they live in if there is not a lot of value in the property over and above the amount the debtor may exempt according to the exemption statutes of the jurisdiction in which the petition has been filed. In many jurisdictions married couples living together are allowed to double all of the allowable statutory exemptions if they file a joint bankruptcy petition. Long term secured debt, such as home mortgages, may be re-affirmed by agreement with the holder of the mortgage. Under certain conditions a Chapter 7 debtor may convert to a Chapter 13 filing.
In a Chapter 13 filing a debtor usually keeps all of their exempt and non-exempt property, as the debtor chooses, as long as they make all of the payments to the Chapter 13 trustee according to the Chapter 13 Plan confirmed by the bankruptcy court.
What are the advantages of bankruptcy?
Bankruptcy provides the debtor with a fresh start in life without the oppressive destructive, burdens of excessive debt and creditor pressure. Upon filing a petition with the bankruptcy court, the debtor is granted immediate relief from creditor pressure.
Filing the petition can stay (stop) a pending foreclosure sale of a debtors home, an eviction, a garnishment of wages, a civil suit, a judgement or tax collection, or a threatened re-possession.
A Chapter 13 filing can allow a debtor to reduce the interest rate and repayment schedule of most debts, except for a home mortgage. If a debtor has fallen behind in making the payments on a home mortgage or vehicle, a
Chapter 13 filing can allow the payments to be made up within the plan, often at a greatly reduced rate of interest and without the imposition of further penalties.
A Chapter 13 filing allows a debtor to keep property that they might lose in a Chapter 7.
The debtor should bear in mind that the petitioner reserves the absolute, undeniable, right to convert a Chapter 13 into a Chapter 7 filing any time before the Chapter 13 repayment plan has been completed. This is sometimes informally called a "Chapter 20" bankruptcy.
The debtor also has the right to file another Chapter 13 Plan, immediately upon completion of a prior Chapter 13 Plan. There is no statutory limitation to the number of successive Chapter 13 plans a debtor may utilize to gain the protection of the bankruptcy court.
What are the disadvantages of bankruptcy?
A petitioner can have trouble getting new credit in the future. For this reason, many petitioners decide to keep an existing credit card or two, along with the re-affirmation of a home mortgage, or a vehicle loan.
A bankruptcy will remain on a petitioners credit report for up to ten years.
It is probable that not all of a petitioners creditors will be paid in full. These write-offs, as they are known, will be reported on a debtors credit report for at least six years.
It is possible for a petitioner to lose their house and car in a Chapter 7 filing.
In a Chapter 13 filing you will be required to send most of your excess income (income above and beyond what is required for a debtors basic living needs) to a Chapter 13 trustee according to the terms of the Chapter13 plan confirmed by the bankruptcy court. However, if the terms are too tough to comply with, the debtor always has the absolute right
to convert a Chapter 13 filing to a Chapter 7.
What are the alternatives to filing bankruptcy?
A debtor can personally attempt to work out different arrangements or payment plans with creditors that will allow some relief until current circumstances may improve.
Some non-profit agencies such as Consumer Credit Counseling Service are available to assist a debtor in managing their money and somehow to overcome their money problems. Moneylenders support these agencies that will help debtors maintain the repayment of their excessive debt.
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