Types of Bankruptcy

There are several types of bankruptcy, each is addressed in a separate chapter of the federal Bankruptcy Code.Chapter 7 and chapter 13 are the two types which are available for individual consumers. Chapter 9 involves bankruptcies filed by cities and towns. Chapter 12 deals with the special cases of family farmers. Chapter 11, Also called reorganization, is used primarily by commercial businesses that are restricting or liquidating while containing operations. While an individual not engaged in business may file for chapter 11 bankruptcy, such proceedings are expensive and complex.

Proceeding’s under chapter 7 involve the borrower surrendering most of his or her nonexempt assets (if any) and distributing them to the creditors or proceeds from liquidating (selling) them. However, some assets are exempt depending upon specific federal law.

The purpose of filing a chapter 7 case is to obtain a discharge of your existing debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny your discharge and, if it does, the purpose for which you filed the bankruptcy petition will be defeated.

Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you may still be responsible for most taxes and student loans; debts incurred to pay non-dischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.

Under chapter 13 (so-called wage-earner bankruptcy), proceedings require the debtor to propose a repayment plan to pay back his or her debt. This is usually carried over a 3 to 5 year period. This is based upon his or her future income.

Ordinarily you cannot discharge debts such as fines, penalties imposed for violating the law such as court fees and restitution, student loans, child support alimony, property settlement, fraudulent debts, personal injury or death, or recent income tax debts, in general, the new law narrows the requirements for chapter 13 discharge.

Only farmers and fishermen acting in good faith have the right to adjust their debt under chapter 12. In order for a petition to proceed quickly, the debtor must submit to the bankruptcy court a list of creditors, a list of assets and liabilities, and a statement of financial affairs.

The consequences of having a bankruptcy on your credit record can be severe. Creditors may deny your credit in the future or charge you significantly higher interest rates. This may cause you to have future credit difficulties. But there is also a chance that bankruptcy may improve your chance for credit.

The Filing Process For Bankruptcy

It is perfectly legal to file your own bankruptcy petition without a lawyer. However, careful consideration is needed if your situation is complicated. If you decide to file on your own be aware of the changes in law made in 2005.

If you decide that you want to file for bankruptcy on your own, the first decision you have to make is which kind of bankruptcy you should file for. These decisions cannot be made fast. So it would be a good idea to visit your local library and talk to a few people who might know more technical information about filing for bankruptcy.

On the other hand, it might be a safer option to get in touch with a bankruptcy lawyer who can guide you through the complicated procedure of filing for bankruptcy. You will have to provide you bankruptcy lawyer with all your personal information in order to put together and file your voluntary petition. Once the documents are filed at the bankruptcy court, you will be assigned a trustee who will see to it that all the information that is needed is collected from you and that all the information provided is accurate. The next step would be to notify your creditors that you will be filing for bankruptcy so that they will have to stop all actions they might be taking up against you to get your payments. The later procedures include meeting the various parties who are involved in your bankruptcy case, together with your creditors and if possible your creditors’ lawyers.

Before choosing a lawyer make sure he or she is familiar with the laws and procedures and is represented with a good reputation. Its crucial that he or she understands your financial (and emotional) problems and offers helpful solutions.

You can, and should, discuss your lawyers professional fees in advance and fully understand what procedures are included in the fees. This will give you a clear idea of what the bankruptcy procedure will cost.

In addition, discuss with your lawyer whether or not there will be additional fees if there are proceedings required other than the filing of the case. Your lawyer’s responsibilities will include preparing and filing petitions and additional schedules and attending the creditors meeting.

In some states, filing for bankruptcy may also include preparing and filing a homestead deed. In addition, in the case of a chapter 7 bankruptcy, there may be a reaffirmation agreements to be negotiate sign, and file; objections to exemptions, homestead declarations to complete; or objections to the discharge of some or all of the debts. In a chapter 15 case, your lawyer may have to deal with objections to approval of your repayment plan or the way you have valued your assets. In either case your lawyer may have to respond to your creditors’ motions for relief from the automatic stay, which seek court approval to repossess property or foreclose on real estate.

In some chapter13 cases, you can pay your lawyer from the assets of your estate. This is not the case with lawyer fees under chapter 7. Bankruptcy can be very intimidating but it also can be quite beneficial with the right care and expertise.

Types of Personal Bankruptcy

Bankruptcy laws are uniform throughout the United States since they are created under federal laws, and are administered by the US Bankruptcy Courts. Approximately 1.6 million individual Americans file for bankruptcy protection each year. Pertaining to individuals, there are two (2) types of personal bankruptcy laws. They are called Chapter 7 and Chapter 13, named after the chapters of the US Bankruptcy Code in which they are defined and detailed. Individuals can also qualify under Chapter 12 if the meet the requirements defined for a Family Farmer or a Family Fisherman.

When an individual files for bankruptcy under Chapter 7, the individual gives the court a list of all owned assets, and with the exception of certain specified assets, a trustee will sell the assets and pay off as much of the debt as possible. Under Chapter 7, most but not all of the individuals debts are wiped out. Some of the debts that cannot be wiped out include most taxes, alimony/child support, student loans and debts that are not specifically mentioned in that particular bankruptcy filing.

An individual is allowed to file for bankruptcy under Chapter 7 once every six years. The filing fee is $299.When an individual files for bankruptcy under Chapter 13, the amount of the debt is reduced but the debt is not wiped out. A repayment schedule is created by the trustee and the debtor may be allowed to keep assets that would have automatically been sold if Chapter 7 had been filed. The repayment period specified by the trustee usually ranges from three to five years. The court typically has the individual makes monthly payments to the trustee and the trustee in turn makes the payment to the creditor.An individual can file under Chapter 13 only if the person owes less than $250 thousand in unsecured debt and less than $750 thousand in secured debt.

Secured debts are debts for which the individual has provided collateral, such as a mortgage on a house. If a person does not pay a secured debt, then the creditor can take the collateral. Unsecured debts are debts for which the individual has not provided collateral such as credit card debts, medical bills, etc.Under Chapter 13 creditors who have secured debt will get paid before any of the unsecured creditors get paid.

The financial impact on the individual who files under Chapter 7 is much more sever than had the person filed under Chapter 13. An individual who filed under Chapter 7 will find it extremely difficult to obtain credit for many years after the filing. Additionally, any credit that the person does obtain will have a very high interest rate. Much higher that had the individual filed under Chapter 13.