Bankruptcy

Sometimes people have too much debt that cannot be repaid and bankruptcy is the only and best option.  Bankruptcy is a federal law since 1800 that is premised on the belief that if it takes you more than five years to repay your debts, then it’s involuntary servitude to your creditors and you are entitled to a fresh financial start.

There are three common types of bankruptcy: Chapter 7, Chapter 11, and Chapter 13.  Knowing which one to file depends on your income, assets, and types of debts.

Chapter 7

What is Chapter 7 bankruptcy?

Learn about Chapter 7

Chapter 7 bankruptcy is a process provided for under United States federal law. Chapter 7 wipes out most unsecured debt and gives you a fresh start.

Chapter 7 bankruptcy is a liquidation proceeding in which the debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors according to the priorities established in the Code.

Eligibility to file Chapter 7 is determined by the means test instituted with the 2005 amendments to the bankruptcy code.

In most consumer cases, all the assets are exempt, and therefore there are no assets to liquidate and there is no dividend to creditors. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships.

Some common debts that are wiped out in a Chapter 7 are credit cards, medical bills, and deficiencies on repossessed vehicles. Even taxes older than three years can be discharged in a Chapter 7.

Typcially, the only debts that are not eliminated are student loans, child support, alimony, taxes incurred within the last three years, and restitution.

A benefit to filing bankruptcy is that it puts into effect something called the “automatic stay.” The automatic stay immediately stops your creditors from trying to collect money from you. At that point, creditors cannot legally garnish your wages, empty your bank account, take your car, house or other property.

It is important to meet with an attorney when filing a Chapter 7 because most people who try and file themselves are unaware that some assets, money in the bank, and tax refunds can be taken by the trustee appointed in your case. However, with proper planning, those issues can be avoided.

Chapter 11

Many businesses with serious debt problems are so harassed by creditors that they don’t have the time or peace of mind to fix their financial problems. If your business has problems with creditors, filing Chapter 11 bankruptcy can give you the breathing room you need to help your business succeed.

Chapter 11 bankruptcy is a form of bankruptcy reorganization available to individuals, corporations and partnerships.  It has no limits on the amount of debt and is the usual choice for large businesses seeking to restructure their debt.  Businesses that file for Chapter 11 are able to continue with almost normal operation as a debtor-in-possession.

Businesses can file Chapter 11 bankruptcy for a variety of reasons, such as stopping a foreclosure, renegotiating their debts, and terminated burdensome lease.  It can also be used by individuals who don’t satisfy the Chapter 13 requirements as a way to restricted mortgages, pay taxes, and eliminate unsecured debt.

The motivation to file a Chapter 11 petition is generally different than the motivation for filing a Chapter 7 petition. In a Chapter 11 proceeding the business is often profitable or could become profitable if it could simply dispose of unproductive assets, renegotiate contracts and debt obligations with onerous terms or settle actual or impending judgments in lawsuits that would jeopardize the ability of the business to continue operating.

The decision to file a Chapter 11 petition is only the beginning of the legal process. It is not the solution. There are no guarantees that a business will successfully reorganize.

To successfully emerge from Chapter 11, it is vital to have the right attorney beside you to help you make the right decisions. Unfortunately, the failure rate for Chapter 11 cases can be high. We have the expertise and experience to help a business through the process in the most effective and efficient manner possible.

Chapter 13

What is Chapter 13 bankruptcy?

Why choose Chapter 13 over Chapter 7 bankruptcy?

Although Chapter 7 is the more common form of bankruptcy, there are several reasons why people select Chapter 13 instead:

1. You can remove a second mortgage from your home if the home value is less than the first mortgage.

2. You have valuable nonexempt property.

3. You can pay your car off for what it is worth rather than what you owe.

4. You’re behind on your mortgage or car loan. In Chapter 7, you’ll have to give up the property or stay current on your payments during your bankruptcy case. In Chapter 13, however, you can repay the arrears through your plan and keep the property by making the payments required under the contract.

5. You cannot file for Chapter 7 bankruptcy if you received a Chapter 7 or Chapter 13 discharge within the previous eight years. However, you can usually file for a Chapter 13 despite having recently received a discharge.

6. You have debts that cannot be discharged in Chapter 7.

7. You have co-debtors on personal (nonbusiness) loans who need protection from creditors. In Chapter 7, the creditors will collect from your co-debtors. In Chapter 13, the creditors may not seek payment from your co-debtors for the duration of your case.

8. You make too much money to qualify for a Chapter 7, but not enough money to pay your credit cards or other bills.

Chapter 13 bankruptcy is a repayment plan that protects the debtor from collection action during the case and discharges any unpaid balance of dischargeable debts at the end of the plan.

In Chapter 13, the debtor can impose a debt management plan on creditors, which creditors must accept, stopping the running of interest on credit card debt. The court will enforce the plan against uncooperative creditors. Compare the benefits of 13 with debt management or debt repayment plans.

The discharge in Chapter 13 covers many debts that cannot be discharged in Chapter 7. It is a powerful tool for debtors to regain control of their financial lives and to get a meaningful fresh start.

To file Chapter 13, you must be an individual (no corporations or partnerships); have a regular income greater than your reasonable living expenses; have liquidated, unsecured debts not exceeding $336,900 and secured debts not exceeding $1,010,650.

While you can only file Chapter 7 every 8 years, you can file a Chapter 13 bankruptcy even if you got a discharge in a Chapter 7 case filed at least 4 years ago. Under the amended Bankruptcy Code, you can file a second Chapter 13 within two years of filing a previous Chapter 13.