Bankrupcty

What is Bankruptcy?

Bankruptcy is a legal process by which money owed, will be distributed back to lenders over time, whether in assets, or with a new repayment agreement. Filing a bankruptcy can be a solid alternative to drowning in debt, and obtaining some relief with financial obligations.

Bankruptcy allows individuals, couples, and businesses that cannot meet their financial obligations to be excused from repaying some or all of their debt. Bankruptcy has been in existence since for centuries.

In the United States, the rules and procedures for filing bankruptcy are governed by federal law. States are prohibited from legislating in this area of the law.

Generally speaking, there are two types of bankruptcy. Both types of bankruptcy are designed to help borrowers manage their debt with multiple or a single creditor. An individual could have a mortgage, a car loan, 10K in credit card debt, student loan debt, and not be able to manage their repayment requirements; If the financial circumstances are predominantly on the negative side, Bankruptcy should be considered. In many cases, Bankruptcy may exclude fines, child support, child support, and certain student-loans. Mortgages may also be excluded from bankruptcy.

Liquidation Bankruptcy

In a liquidation bankruptcy, debtors must surrender their property over to a person who would be in charge of selling said properties, and after collecting the entire cash value, subsequently proceeds to distributed the funds to creditors. In return, all debts are permanently discharged. An individual must not make more than the State’s Median Annual income, which on average is around 85K. 

Reorganization Bankruptcy

In a reorganization bankruptcy, debtors are allowed to keep their property. But the debtors must agree to an installment plan to repay creditors a portion of the amount they owe.

Legal Process

Filing for bankruptcy involves submitting a petition and fee to the bankruptcy court. The fee is close to $300 for most personal bankruptcies. The petition will contain sworn statements by the debtors concerning the amount of money they owe, their income and expenses, as well as a complete list of all of their assets. After filing, a court hearing is held to review the information in the petition.

Bankruptcy is not available to everyone. Those who have had their debts discharged in a Chapter 7 within the past eight years cannot re-file. For Chapter 13, the waiting period is six years. Too much disposable income is also a problem. Congress has established a “means test” for this purpose. Debtors who make enough money to repay their creditors will be barred from filing a liquidation bankruptcy, though reorganization may be an option.

Businesses that have become insolvent but want to stay in business may be able to file a Chapter 11 bankruptcy. Like a personal reorganization, Chapter 11 allows businesses to obtain protection from their creditors while they put together a repayment plan. Liabilities can be reduced and restructured to give the business another chance at achieving profitability. [rephrase]

Whether a debtor is considering filing under Chapter 7, 11, or 13, they must comply with a vast number of federal laws and regulations. An error at any step of the process can result in the court refusing to discharge the debtor’s liabilities. When the bankruptcy process ends this way, the consequences are disastrous. With so much at stake, hiring a licensed bankruptcy attorney at the outset is wise investment.