Bankruptcy Basics

What is bankruptcy?

Bankruptcy is a federal law used by debtors to obtain debt relief and reorganize their federal affairs. Bankruptcies are a necessary part of our free enterprise system.

Should I file bankruptcy? Filing bankruptcy is a serious step, not to be taken lightly. For instance, if debtors owe only a small amount to a few creditors, it might make more sense to consult a credit counseling service. Bankruptcy might be necessary however, under certain situations: For example, do you have large credit balances, and can not meet minimum installment payments? Are you borrowing from one credit card to pay another? Are you swamped by uninsured medical bills or judgments? Is there a pending or threatened foreclosure, garnishment, or repossession? Do you need a “fresh start” to relieve financial stress?

Can I keep my home and other possessions? Generally, debtors can keep their homes and possessions after filing bankruptcy. Careful planning with an attorney will maximize the end result.

What types of bankruptcy are there? Chapter 7 “liquidation” is the most common form of bankruptcy. It provides debt relief, stops creditor harassment, garnishments, and collection lawsuits. In theory your property is supposed to be sold by a trustee in a Chapter 7. However, this usually is avoided because debtors are entitled to exemptions which protect most, if not all, of their property from liquidation. Under Chapter 7, no further payments are needed, unless you want to redeem certain secured or nonexempt property, or reaffirm a debt. However, Congress is considering legislation to require debtors to use Chapter 13 to pay some of their debts if they meet certain income requirements.

Chapter 13 repayment plans will stop foreclosures and onerous tax collections and give you a chance to catch up these and other debts. It also might lower the amount you have to pay on auto or furniture loans. Under a Chapter 13 Plan, you agree to catch up, by paying a monthly amount you can afford, to a trustee, for a minimum of three years.

Chapter 11 is for business reorganizations and Chapter 12 is for farmers.

Are there debts I can’t discharge? Certain obligations are automatically not discharged. These include alimony, child support, most income taxes, most student loans, criminal fines, and injuries from DUIs. Other debts are not discharged if a complaining creditor can show he meets certain criteria (such as fraud) to justify a denial of discharge. Usually these issues can be anticipated by your attorney,

What is Pre-bankruptcy Planning? Sometimes debtors can arrange their affairs in a legal manner to ensure that after the bankruptcy is -riled, they will emerge with the most financial well being possible. A good attorney should be able to recognize when such preliminary steps are beneficial.

How do I choose an attorney? Most competent attorney’s experienced in bankruptcy can evaluate your situation and advise you as to the best solution. It is ethically and legally questionable whether attorneys may offer “no cash down” bankruptcies. If personal service is important to you, ask whether a prospective attorney uses staff people to fill out schedules, or to return phone calls, instead of handling your situation personally.

The general information contained herein may or may not be appropriate for you and laws sometimes change. Before applying anything you read to your personal or business situation you should contact an attorney.

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