There are a number of myths about bankruptcy and as a result many people misunderstand the process of filing for bankruptcy. Essentially, bankruptcy is a type of legal proceeding in which you legally declare that you are not able to pay all of the money that you owe. It grants consumers a fresh financial start while also providing the opportunity to potentially repay creditors in an orderly fashion. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid, while offering creditors a chance to obtain some measure of repayment based on the individual’s or business’ assets available for liquidation. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and businesses a second chance to gain access to consumer credit and by providing creditors with a measure of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
There are two kinds of individual bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy, named for the chapter number in the bankruptcy code, requires a full liquidation of all debts and cancels all no-exempt debts.
Chapter 7 Bankruptcy:
Individuals or businesses with few or no assets file Chapter 7 bankruptcy. The chapter allows individuals to dispose of their unsecured debts, such as credit cards and medical bills. Individuals with nonexempt assets, such as family heirlooms; collections with high valuations, such as coin or stamp collections; second homes and vehicles; and cash, stocks or bonds, must liquidate the property to repay some or all of their unsecured debts. Consumers who have no valuable assets and only exempt property, such as household goods, clothing, tools for their trades and a personal vehicle up to a certain value, repay no part of their unsecured debt.
Ultimately, the goal of this type of bankruptcy is to discharge your debts. In order to wipe out those debts; however, you will need to give up all non-exempt property. Exemptions will need to be applied and it is important to speak with your bankruptcy attorney ahead of time to determine exactly what property is exempt and which is non-exempt before your bankruptcy petition is filed.
Chapter 13 Bankruptcy:
Individuals who make too much money to qualify for Chapter 7 bankruptcy may file under Chapter 13. The chapter allows individuals and businesses to create workable debt repayment plans. In exchange for repaying their creditors, the courts allow these debtors to keep all of their property including nonexempt property.
Bankruptcy makes it possible for consumers to stop foreclosure on their home and provides an opportunity to catch up on payments that have been missed. It may also prevent a vehicle or other property from being repossessed. In addition, bankruptcy can stop wage garnishment and harassment by debt collectors. Bankruptcy can also provide a discharge of debts.
This is another of the most frequently asked bankruptcy questions and it is important to understand that bankruptcy will not cure all of your financial problems. It is not the right choice for everyone, so it should be understood that bankruptcy will not eliminate certain types of debts, especially those that are secured. Secured types of debt include mortgages and car loans. In addition, bankruptcy will not discharge special treatment debts such as alimony, child support, certain student loans, criminal fines and certain taxes.
Vanhemelrijck Law Offices is ideally designed for individuals who feel as though they are overwhelmed by financial problems