Important Things You Need To Know About Bankruptcy Laws

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What is Bankruptcy?

Bankruptcy allows businesses, individuals and married couples to be excused from being required to repay all of their debt or some of it when they cannot keep up with all of the financial obligations that they have. Bankruptcy has been in existence since ancient times. Federal laws govern the procedures and rules for filing bankruptcy in the United States. In this specific area of law, states are prohibited from doing any legislating.

What types of bankruptcy are there?

In general, there are two major kinds of bankruptcy. A debtor is required in a liquidation bankruptcy to surrender all of their property. Then the property is sold and the money raised from the sales are then distributed to the debtor’s creditors. All of a debtor’s debts are discharged permanently in exchange. In a reorganization bankruptcy, a debtor is allowed to keep his or her property. The debtor, however, is required to agreement and also follow an installment plan that involves repaying creditor part of the money that they owe them.

Image result for bankruptcyWhat is involved in filing a bankruptcy?

To file for bankruptcy you must submit a fee and petition to the bankruptcy court. For a majority of personal bankruptcies the fee is around $300. The petition contains sworn statements from the debtor that details the amount of money the person owes, along with their expenses and income and complete listing of all of the assets they own. Once a bankruptcy is filed, a court hearing will be held and the information contained in the petition will be reviewed.

You don’t have to retain representation, but hiring a great bankruptcy lawyer is one of the easiest ways to streamline the filing process.

Chapter 7 Bankruptcy

The most common type of bankruptcy by far is the Chapter 7 bankruptcy. They are liquidation bankruptcies where the debtor is required to turn all of their non-exempt property over to a supervising officer called a bankruptcy trustee. Exempt property refers to property that falls in certain categories of assets that a debtor is allowed to keep, like tools for work, certain amounts of household items or clothing, and in some cases, the family home and vehicles.

The Chapter 7 trustee then takes the non-exempt property of the debtor’s (if they have any) and sells it. The proceeds are then paid to the debtor’s creditors. That might result in the creditors getting a small fraction of what is owed to them. The rest of the debtor’s obligations and loans are forgiven and cannot be collected ever in the future. Under federal law, if a creditor tries to collect a debt that have already been discharged can face serious penalties.

What is a Chapter 13 Bankruptcy?

Given that debt is wiped out completely by a liquidation bankruptcy, it can be very beneficial to anybody who is unable to afford to pay all of their bills. But what about individuals who do have non-exempt property that they don’t want to have to give up? In these situations, they might want to consider a Chapter 13 bankruptcy, which is called a reorganization bankruptcy. They enable a debtor to retain his or her property in exchange for agreeing to make monthly payment for three to five years on their debt.

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There are a number of different benefits that are provided by a Chapter 13 bankruptcy in addition to enabling a debtor to keep his or her property. For instance, there are certain types of secured debt, like auto loans, that may be restructured through the principal being reduce to the collateral’s market value, and then payments being lowered through extending the period of repayment to 60 months. There can be modifications made to other obligations also, such as tax liabilities, student loans and mortgages. Credit are not given a choice in these matters.

Can anyone file for bankruptcy?

No bankruptcy isn’t available to everybody. Anyone who has had their debts discharged with a Chapter 7 bankruptcy within the last eight year is unable to re-file. The waiting period for a Chapter 13 bankruptcy is six years. Another problem is having too much disposable income. A “means test” has been established by Congress for this purposes. If a debtor makes enough money to be able to repay his or her debtors, the person will not be allowed to file a liquidation bankruptcy. However, a reorganization might still be an option.