In these difficult economic times, increasingly people with good credit ratings are experiencing financial troubles. An unanticipated job loss, decreased earnings, increased expenses, expensive injuries or ailments can all result in financial disaster. People faced with unexpected financial consequences often experience feelings of failure, depression and hopelessness. Moreover, with increasing debt comes dunning calls from creditor on overdue accounts and the potential for mortgage foreclosures.
However, there are protections for those who find themselves headed toward insolvency. Those protections often come in the form of filing a petition for bankruptcy. Although there is no precise formula to determine when a bankruptcy is appropriate, it is an option that should be explored when:
- you are unable to budget yourself out of financial trouble within five years
- your income exceeds your monthly debt
- you receive collection notices on debts or default notices on your mortgage
- your income is restricted due to a job loss, a reduction in pay or a serious illness.
What is Bankruptcy?
Bankruptcy protection is set forth under Federal laws. Those laws allow businesses or individuals to file a legal proceeding at a time when the debtor, either an individual or a business, cannot pay their bills. Essentially, it allows the debtors a new financial start. When a bankruptcy is filed, the bankruptcy petition lists all of the creditors. Those creditors are notified of the proceeding by mail and an automatic stay of all collection efforts is put in place. That means the creditor cannot call or write to collect the debt after the bankruptcy proceeding has been commenced until repayment of those debts has been reviewed by the Federal Bankruptcy Court.
What Does Bankruptcy Do?
Bankruptcy protection may make it possible for an individual or business to :
- Stop creditor harassment and debt collection efforts until the bankruptcy is reviewed by a court.
- Eliminate the legal obligation to pay most or all of your debts. This is called a bankruptcy "discharge."
- Freeze foreclosures on your house, real estate investments or mobile homes with a potential opportunity to catch up on missed payments.
- Prevent repossession of property including vehicles.
- End wage garnishments and other collection efforts'
What Debts are NOT Dischargeable?
Certain debts cannot be discharged in a bankruptcy. Those debts generally include:
- Child support payments
- Most student loans
- Debts from intentional torts.
What are the Different Types of Bankruptcy?
There are four types of bankruptcy cases provided under the law:
- Chapter 7 is available to both businesses and individuals. It is known as a "straight" bankruptcy. It eliminates unsecured debt and/or may require liquidation of certain assets not covered by exemptions to pay creditors. Bankruptcy exemptions may include homestead residences, vehicles and other property within a certain value.
- Chapter 11 is available to businesses and some individuals who have a very large debt load. It is a form of "reorganization" where creditors are ranked according to statutory preferences the debts are often reduced to allow for payments pursuant to a repayment plan.
- Chapter 12 is a specialized bankruptcy that was created to benefit family farmers. It has specialized rules that are different than other forms of bankruptcy.
- Chapter 13 is a form of bankruptcy for individuals or married couples. Much like a Chapter 11, creditors are ranked according to statutory preferences the debts are often reduced to allow for payments pursuant to a repayment plan based on current income.
* As a debt relief law firm, we help people file for bankruptcy
under federal law.