Bankruptcy
Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcy proceedings allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full. Bankruptcy law is federal statutory law contained in Title 11 of the United States Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to “establish… uniform laws on the subject of Bankruptcy throughout the United States.” See U.S. Constitution Article I, Section 8. States may not regulate bankruptcy though they may pass laws that govern other aspects of the debtor-creditor relationship. See debtor-creditor. A number of sections of Title 11 incorporate the debtor-creditor law of the individual states. Bankruptcy proceedings are supervised by and litigated in the United States Bankruptcy Courts. These courts are a part of the District Courts of The United States. The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings. Proceedings in bankruptcy courts are governed by the Bankruptcy Rules which were promulgated by the Supreme Court under the authority of Congress. There are two basic types of Bankruptcy proceedings. A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Bankruptcy proceedings under Chapters 11, 12 and 13 involve the rehabilitation of the debtor to allow him or her to use future earnings to pay off creditors. Under Chapter 7, 12, 13, and some 11 proceedings, a trustee is appointed to supervise the assets of the debtor. A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy proceeding is filed, creditors, for the most part, may not seek to collect their debts outside of the proceeding. The debtor is not allowed to transfer property that has been declared part of the estate subject to proceedings. Furthermore, certain pre-proceeding transfers of property, secured interests, and liens may be delayed or invalidated. Various provisions of the Bankruptcy Code also establish the priority of creditors’ interests.
However, a recent decision by the Supreme Court has shifted this power towards the debtor. In Rousey v. Jacoway, (April 4th, 2005), the Court held that assets in Individual Retirement Accounts (IRA’s) are protected under 11 U.S.C § 522(d) and thus exempt from withdrawal from the bankruptcy estate. This decision has broad implications for the baby-boomer generation, providing millions of Americans nearing retirement with increased protection of their earnings. Recent passage of the Bankruptcy Prevention and Consumer Protection Act in April 2005 has also resulted in major reforms in bankruptcy law, outlining revised guidelines governing the dismissal or conversion of Chapter 7 liquidations to Chapter 11 or 13 proceedings. The law also expands the responsibilities of the United States Trustees Program to include supervision of random and targeted audits, certification of entities to provide credit counseling that individuals must receive before filing for bankruptcy, certification of entities that provide financial education to individuals before being discharged from debt, and greater oversight of small business Chapter 11 reorganization cases.
Bankruptcy has many disadvantages. It is terribly intrusive because you are required to publicly disclose your financial activities over the previous two years. You must also disclose the current property that you own. Additionally, bankruptcy is emotionally draining because many people interpret bankruptcy as meaning failure. Bankruptcy also leaves a long lasting mark on your credit report and does not rid you of student loans, certain child support obligations and certain tax debt.
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What other options should be considered?
* First consider whether the debt problem is temporary or will the circumstance last a while. Permanent disability may be far different than job loss. Both are devastating situations but one may or may not require bankruptcy and the other may only require negotiating with creditors.
* Creditors are human beings. They are also business people. They do not want to see bankruptcy for you. They know customer relations are their lifeline and bankruptcy is profit out of their pocket. Therefore, see if they will work with you to lower payments, skip a payment, change billing dates, anything, including taking settlements.
* If all else fails send a smaller than minimum payment. You cannot get in trouble for making a bone fide attempt to repay creditors no matter how small the payment.
* Instead of thinking of all the debt you have or the high interest or high balance debt, think of the debt that can be paid off fastest. Is there any way to pay one debt off quickly by selling something and then use that added income to apply towards the next fastest payoff. In other words, do not try to chop down the whole rose bush. Work with cleaning off one or two unsightly limbs first and see where you are. It is far too easy to get tangled up in the thorns and not be able to envision a clean emotional environment.
Pay Less Each Month and Payoff Your Debt
F.S.I., and its staff of expert debt negotiators pride themselves on providing our clients with the highest level of customer service. Years of success with our debt settlement program is the result of the integrity rich relationships we have built by taking care of our clients. Our results have lead thousands of clients on the path to financial freedom. Our financial advisors are available Monday through Friday 9:30a.m. to 5:30p.m. EST Call 877-640-2677 for a free debt settlement consultation to inform you about the benefits our debt settlement can provide to you.
How long does it take to go through a bankruptcy or get my discharge?
Each case is different, but a general rule of thumb in a Chapter 7 case is that a debtor’s discharge will be entered about 120 to 150 days after the case was filed. The entry of a discharge may take longer if a debtor’s entitlement to the discharge is contested. In Chapter 11 cases, a discharge is obtained when the plan is confirmed and other Bankruptcy Code requirements have been satisfied. In Chapter 12 and 13 cases, a discharge is not entered until the plan has been completed. Chapter 12 and 13 plans generally last from 36 to 60 months (3 to 5 years).
How long does a bankruptcy stay on my credit report?
A bankruptcy generally affects a debtor’s credit report for 7 to 10 years. However, this depends
entirely on the individual credit reporting agency. The Bankruptcy Court has no influence on the type of information the credit bureaus report, nor how long they keep it in their records.
Can all debt be included in bankruptcy?
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it. Also debts incurred in recent months cannot be included.
What don’t I keep?
In a bankruptcy, assets in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats will be liquidated by the trustee.
Will I lose everything including my home in bankruptcy?
Each state has established exemptions from bankruptcy court and all consumers should review their state exemptions before contemplating bankruptcy. One final point… if bankruptcy is inevitable, keep your head held high. It is not the end of the world… it just feels like it. Even bankruptcy does pass and you should never lower your head because circumstances overwhelmed you. Just learn from your experience. That’s all.
If I have a cosigner on a loan, will the cosigner be affected by bankruptcy?
You should be aware that any cosigner automatically becomes liable for the full amount of a co-signed debt. If this is not what you intend, you should not file or you should make arrangements with the court for repayment. But even debts you do not want included (such as a loan from a friend) must be included since the court does not accept any partiality
