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Bankruptcy

Did You Know?

There were 34,885 Business bankruptcies filed in 2003 according to the American Bankruptcy Institute.

BANKRUPTCY

Personal Bankruptcy may make it possible for you to:

  • Eliminate the legal duty to pay most or all of your debts. This is called a "discharge" of debts. It is designed to give you a fresh financial start.
  • Stop eviction, foreclosure, or repossession of a car or other property so you can catch up on missed payments. But, in most cases, you will still need to choose between continuing to make payments or giving the property back. Bankruptcy won't eliminate a lease, mortgage or car loan and let you keep the property at the same time.
  • Stop wage attachments, debt collection harassment, and similar creditor actions to collect a debt.
  • Restore or prevent termination of utility service.
  • Allow you to challenge creditors who have committed fraud or who are otherwise trying to collect more money than you really owe.

Personal Bankruptcy can't cure every financial problem, nor is it the right step for everyone. In bankruptcy, it is usually not possible to:  

  • Eliminate certain obligations to "secured" creditors. A "secured" creditor is a creditor that can take something (called "collateral") if the debt is not paid as agreed. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process, and bankruptcy can eliminate your obligation to pay more money if your property has been taken. But, you generally cannot keep the collateral unless you keep making payments on the debt.
  • Discharge certain debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
  • Protect co-signers on your debts. If a relative or friend has co-signed a loan, and you discharge the loan in bankruptcy, the co-signer may still have to repay all or part of the loan.
  • Discharge debts that arise after bankruptcy has been filed.

Bankruptcy is a legal proceeding in which a business that cannot pay their bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. Federal bankruptcy laws govern how companies go out of business or recover from crippling debt.

Bankruptcy Q & A

When can a business go bankrupt?

An individual can choose to become bankrupt when it owes over $1,000 and is insolvent. A business is insolvent when it is unable to make payments on its debts as they become due, or if it would be unable to pay off its debts even if the business assets were sold.

How can an individual go bankrupt?

AN individual can go bankrupt in one of three ways.

  • First, voluntarily declare bankruptcy. This is the most common filing for businesses.
  • Second, a business will become bankrupt if it makes a proposal to its creditors, which is not accepted by them.
  • Third, the creditors of a business can sometimes push the business into bankruptcy by filing a petition with the court.

Business Bankruptcy will be handled by a licensed trustee in bankruptcy who will handle the sale of the business' assets and the distribution of proceeds to creditors. Usually, the assistance of a bankruptcy lawyer is required and the situation should be reviewed with a lawyer before the trustee is engaged.

Types of Bankruptcy

  • Chapter 7 - Straight Bankruptcy. Requires a debtor to be within a certain asset limit or to give up the property over that limit to be sold by the court. Fully discharges the debts.

In order to file chapter 7 bankruptcy:

  • You must reside or have a domicile, a place of business, or property in the United States or municipality.
  • You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.
  • You must not have had a bankruptcy filing dismissed for cause within the last 180 days.
  • It must not be a "substantial abuse" of the Bankruptcy Code to grant the debtor relief. Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of the Bankruptcy Code.
  • It would not be fundamentally unfair to grant the debtor relief under Chapter 7.
  • Chapter 11 - Reorganization. Usually reserved for businesses or individuals with very large debts.
  • Chapter 12 - Reserved specifically for farmers.
  • Chapter 13 - Wage Earner Plan. This requires a debtor to file a plan to repay at least a portion of the debts from their current wages.

There are several advantages to Chapter 13 bankruptcy which include:

  • Modifying Repayment Time, Interest and Amount
  • Preventing Foreclosures
  • Discharging Otherwise Non-dischargeable Debts
  • Retaining Assets
  • Preventing Repossession
  • Protecting Co-debtors

Modifying Repayment Time, Interest and Amount

Will Bankruptcy Wipe Out All My Debts?

No. Bankruptcy will wipe out most debts, but it will not normally wipe out:

  • Money owed for child support or alimony, fines, and some taxes;
  • Debts not listed on your bankruptcy petition;
  • Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
  • Debts resulting from "willful and malicious" harm (such as damages caused by drunk driving);
  • Most student loans;
  • Mortgages and other liens, which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

Pros of Bankruptcy

  • You may not legally have to repay most or all of your debts.
  • Could stop foreclosure of your home and give you the opportunity to catch the missed payments up.
  • Could prevent repossession of your car or other property, depending on the type of Bankruptcy filed.
  • Will stop wage garnishments, debt collector phone calls, etc. to collect a debt.
  • Prevent shutoff or will reinstate utility service.
  • Lets your finally meet and challenge those creditors in court who you feel have committed fraud or are trying to collect more than the true amount.

Cons of Bankruptcy

  • Will not let you keep collateral owed to a creditor listed in your Bankruptcy unless you keep up with the payments on that collateral.
  • You cannot usually bankrupt child support, student loans, alimony, court restitution orders, certain types of taxes, or criminal fines. There are some very narrow exceptions to some of these.
  • Will put your cosigners on listed debts at risk. They are still liable for all or part of any debt you legally discharge through a bankruptcy.

Will not eliminate your mortgage or any other collateralized loan, will only stall them and give you relief from other creditor payments so that you may catch up with the collateralized loans or house payment.

How Will Bankruptcy Affect My Credit?

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.

The fact that you've filed a bankruptcy can appear on your credit record for ten years. But, since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.

Although it may be possible for some people to file a bankruptcy case without an attorney, you should not take this step lightly. The process is difficult and you may lose property or other rights if you do not know the law. Filing for bankruptcy takes patience and careful preparation. Chapter 7 cases are easier. Very few people have been able to successfully file chapter 13 cases on their own.

CONTACT A BANKRUPTCY ATTORNEY IN

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