Bankruptcy

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What is bankruptcy?

Definition (Law) A person who, in accordance with the terms of a law relating to bankruptcy, has been judicially declared to be unable to meet his liabilities. [source]

When a person files for bankruptcy a federal court grants them a stay preventing creditors from collecting outstanding debts.

Bankruptcy adjudication at the end of the proceedings discharges the individual's debts. Once completed creditors have no claim on future properties and income.

The trade is that the debtor will turn over all non-exempt properties to a court trustee who will sell the properties and pay the creditors. However some debts can never be discharged such as child support and alimony, taxes and student loads, and any debt acquired through fraud.

Different Chapters

There are several different types of bankruptcies. They are based on the types of properties and the amounts owed by the debtor.

Chapter 7 or a “simple seven”

In a Chapter 7, all properties are turned over to a court-appointed trustee and are then liquidated to pay off the creditors. The debtor is discharged of debts (except those mentioned above). All states allow the debtor to keep some property. Chapter 7 bankruptcies discharge once every seven years.

Chapter 13

Chapter 13 debtors pay their debts through future income rather than liquidation of their current assets. This chapter usually allows the debtor to keep much of his or her property. Under Chapter 13, the debtor presents a plan for repayment, which is reviewed by the trustee, the creditors, and the Court. Debtors remain under court supervision for the life of the plan (up to five years), and are forbidden to make new debts or sell assets without court permission.

Chapter 11

Chapter 11 is a reorganization proceeding, usually involving corporate debtors. It's also available to individuals who have engaged in commercial enterprises. This chapter is used when the owner desires to stay in business, restructure existing debts, retain assets, and attempt to reorganize under court supervision.

Filing Bankruptcy and your credit.

After a debtor receives a discharge in bankruptcy, creditors whose debts are discharged are required to report that the account has a zero balance. The fact of the filing itself can remain on the credit report for 10 years from the date it was filed. A debtor interested in re-establishing credit after bankruptcy should obtain credit reports from the 3 largest credit reporting agencies, (Experian, Equifax, and Trans Union) and ensure that the account balances have all been zeroed out. If they have not, the debtor should contact the credit reporting agencies and ask that the record be corrected.
What If You Need To File?

It is always suggested that you use a lawyer. The system is complicated and your creditors want their money. Having someone on you side can give you the piece of mind that you need in times such as these. Please give us a call for a free consultation @ (530) 223-5100