Bankruptcy laws have changed over the last decade. But despite the changes, bankruptcy is defined as a tool designed by the government to help individuals and businesses overwhelmed by debt. It is a process which allows debtors and businesses to regain control of their finances by eliminating or reorganizing their debt.
Filing for bankruptcy doesn’t always mean all of ones debts will be absolved under the bankruptcy code. Items such as back taxes, student loans and child support cannot be waived.
Bankruptcy is often considered by those who are unable to pay their minimum monthly payments on their debts. People considering bankruptcy are usually people who are receiving numerous letters and phone calls from bill collectors, have lost their income, have been diagnosed with a serious illness and have mounting hospital bills, or are experiencing a family emergency.
Each state has its own bankruptcy filing procedures and unique laws. Typically, bankruptcy for consumers is divided into two categories, Chapter 7 and Chapter 13.
Chapter 7 bankruptcies may be the most common form of bankruptcy as the filer’s slate is usually wiped completely clean and they are able to start all over again. This type of bankruptcy is called liquidation. A trustee is appointed to the filer and this person collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors.
With Chapter 13, or even Chapter 11 or 12, the filer has the opportunity to use future earnings to pay off creditors and reorganize their debt.
One either files for bankruptcy voluntarily or a bankruptcy can be initiated by a creditor. Once one has filed for bankruptcy, all creditors must stop harassing the debtor and cannot seek to collect payments outside of the proceeding. The debtor meanwhile is not allowed to hide assets, transfer property or secure interests. There are certain assets that cannot be touched by bankruptcy, depending on the situation and state. Such assets often include one’s Individual Retirement Account. One’s home is also another item one can possibly keep after filing for bankruptcy, if that home’s mortgage has been paid on time and is not late. The lender of the loan also must agree to the bankruptcy. Other items states allow individuals to keep include one vehicle, clothing, and personal items that have low monetary value.
Since the April 2005 change in bankruptcy law, those filing for bankruptcy have been given additional responsibilities. These include credit counseling and financial education requirements for individuals before they are discharged of their debt.
Other changes include your income. If a person makes a certain amount of income, they may not be able to file for Chapter 7 but may have to opt for Chapter 13. With Chapter 13 your debts are reorganized and you are to make monthly payments to your creditors for 3 to 5 years. How much one has to pay back and what those monthly payments are will depend on the bankruptcy court, how much you owe, how much you can afford to pay, and how much your creditors would have received had you filed Chapter 7.
As each state differs regarding bankruptcy law as does each individual’s unique situation, it is advisable to consult an attorney for more information.
Steven Medvin is the Executive Director of SMP Advance Funding, LLC, which provides lawsuit funding to individuals who need a lawsuit loan for pending lawsuits. For more information please visit: https://www.smpadvance.com
