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Bankruptcy 101
July 15, 2009 by DebtGeniusNo Comments Tweet this post
Bankruptcy 101
Bankruptcy - The last option for debt problems
Bankruptcy is a federal court procedure that is designed to aid businesses as well as the consumers to wipe out their debts or repay them under the protection of the bankruptcy court.
Why do people declare bankruptcy?
Sudden disasters: Majority of people in America file for bankruptcy due to ill or failing health.As per the Harvard Study half of the US bankruptcies were caused by medical Bills. The result of the research was published online in February of 2005 by Health Affairs. The Harvard study concluded that illness and medical bills caused half (50.4 percent) of the 1,307,857 personal bankruptcies in 2001. Other issues such as unemployment or loss of job, sudden accident, natural disasters or even crime can easily cripple any one’s bank account.
Careless mistakes or other decisions that went wrong: These are the reasons for bankruptcy that stem from our own irresponsible behavior. Loss of self restraint, gambling, extravagant lifestyle, bad investments, divorce or may be bad relationships can lead to overwhelming financial problems.
What are the different types of bankruptcies?
There are three types of bankruptcies Chapter 7, Chapter11 and Chapter 13. However Chapter 7 and 13 are the most common types of bankruptcies.
What is Chapter 7 bankruptcy?
Chapter 7 is also known as a straight bankruptcy or liquidation proceeding. As per this chapter, the debtors are allowed to keep certain type of property, this kind of asset is known as exempt property and the property they must give up is known as non exempt property. When you file a petition for Chapter 7 almost all your debts are discharged in exchange of certain property. In Chapter 7, all your non exempt property is handed over to the court appointed trustee who in turn sell some of these assets and distributes the cash to the creditors.
Non exempt property may include:
1. Pricey musical instruments provided the debtor is not a professional musician.
2. Family heirlooms.
3. Collections of valuable items like stamps and coins.
4. Bank accounts, bonds, cash and other investments.
5. A second or vacation home
6. A second car or truck.
Exempt property include:
1. Household appliances.
2. Vehicles, up to a certain value.
3. Reasonably priced requisite clothing.
4. Reasonably priced requisite household goods and furnishings.
5. Jewelry, up to a certain value.
6. Pensions.
7. A part of unpaid but earned wages.
8. Equipments (up to a certain value) that are needed in the debtor’s profession.
9. Damages awarded for personal injury.
10. A part of equity in the debtor’s home.
11. Public benefits, including social security, and unemployment compensation, public assistance (welfare) that is accumulated in a bank account.
What is Chapter 13 bankruptcy?
Chapter 13 is also known as reorganization where you file a repayment plan with the bankruptcy court proposing how you will repay your defaults to your creditors.The amount of money you’ll have to repay depends on how much you earn, the amount of debt you owe, the types of debt you have, and how much property you own. In a Chapter 13 bankruptcy, you don’t have to hand over any of your assets to discharge your debts, but you must utilize your income to pay off your debts over the due course of time – it’s usually three to five years, depending on the amount of your debts and your income.
What are the reasons to file for Chapter 7 Bankruptcy?
Usually a Chapter 7 bankruptcy case is opened and closed within four to six months.
Although you have to give up your non exempt property in Chapter 7 bankruptcy, but it lets you keep most of the necessities. Usually Chapter 7 is filed in cases where the debtor has no assets to lose.
What are the reasons to file for Chapter 13 bankruptcy?
If you are having problems in paying off the secured loans (such as cars or houses) and need to catch up before foreclosure or repossession.
It may also be appropriate if you have a tax obligation or a student loan that can not be discharged in Chapter 7. You can include these debts in the Chapter 13 repayment plan and pay them off over time.
If you want to retain the non exempt property.
If you have a co debtor on a personal loan. Filing for Chapter 7 bankruptcy will cause a big trouble for your co debtor (Incase you have a co debtor) on a personal debt. Your creditors will undoubtedly go after the co debtor for payment of the debts. If you file for Chapter 13 bankruptcy, the creditor will not disturb your co debtor for payments as long as you keep up with your repayment plan.
Who can file for bankruptcy?
Individuals as well as businesses may file for bankruptcy.
In certain incidents, a creditor (can be a person or business) who owes money through an involuntary procedure may force the filing of a bankruptcy proceeding. However, this is a very rare case.
Does Bankruptcy discharge all of your debts?
When you file for bankruptcy it will discharge all your debts, so that no further legal action can be taken against you on those debts. However, bankruptcy be it chapter 7 or 13, does not discharge all of your debts.
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Tags: Bankruptcy 101
