Bankruptcy – The Truth Behind

The mere mention of the word Bankruptcy scares most people and businesses. With the negative stigma associated with no paying our debts, is no surprise that most people have no idea of the benefits of filing bankruptcy. Just like a sickness that is not taken care of and it gets worse, are debts that simply accumulate or are not paid with a clear plan of elimination and in time simply get out of control financially. In this short article I will present what is Bankruptcy Law in the United States and why so many are finding a new opportunity to rebuild their finances after relying on it.

Bankruptcy is an opportunity that the United States through the Bankruptcy Federal Court offers to people and businesses to clean, control or modify their finances in a comfortable controlled reasonable setting for the debtor and the creditors. Any person or entity domiciled or located in the United States can file for bankruptcy in the United States. The location in specific for the Bankruptcy court where the person or entity should file depends in the location where the majority of the time in the last six months the person has reside or the business had the principal office.

There are three main Bankruptcy chapters that most entities and people consider when filing; Chapter 7, 13 and 11.

Depending in the types of debts to be discharged, the amount of dependents and the financial income of the person or entity is the Chapter that mostly benefits the filer.

For married couples the income to be considered is the gross household income adjusted depending on the amount of dependents for the specific jurisdiction that they should file at, regardless of one or both Partners filing for bankruptcy. One spouse can file independent of the other to eliminate that spouses liabilities alone while the non-filing spouse liabilities remain intact. In the discharge of debts in a Chapter 7 all the property with significant value that is not exempt is distributed to the creditors while the debtor’s responsibility to pay any of the debts gets discharged. Some debts, such as child-support, recent taxes, and most student loans are not dischargeable and the debtor continues to be responsible for paying those even after bankruptcy. From the beginning of the Chapter 7 Bankruptcy, with the filing of the bankruptcy petition in the Bankruptcy court until its conclusion usually 3 to 4 months later, each step in the process is directed to one of these purposes. If the debtor does not have any property that is not protected under the code then the case is labeled a non-asset case and all non-priority debts are discharged. Debts with collateral, such as mortgages and auto loans, can be eliminated as long as the collateral is surrendered or under a chapter 13 or 11 the debt is re-structured.

Chapter 13 is very beneficial for people that wish to remain in possession of property, especially when facing foreclosure or repossession, despite being behind on payments because of a difficult financial situation but now could re-commence with the payments and just need time to catch up with the arrearages. Under a Chapter 13 process it is also possible to discharge second liens on property when the value of the property is not enough to cover any part of those second liens. Chapter 13 is also the Bankruptcy Chapter to file when the household income is above the jurisdictional guidelines. Under a Chapter 13 process the debtor makes payments to the court for a specific period of time. Creditors will receive at the very least what they would have received under a Chapter 7 Bankruptcy.

Chapter 11 is for businesses that need to re-organize to be able to meet the financial demands of the business and need time to do so while remaining in possession of the business property facing the creditor’s harassments, and debtors that do not want to file Chapter 7 or that owe above the Chapter 13 guidelines of maximum secured and unsecured debt. Under a Chapter 11 a business can continue operating while a payment plan is designed and approved by the court to cover some or all of the liabilities.

Bankruptcy can remain in your credit for a maximum of 10 years and could affect some employment especially those associated with national security or money management. Each business, person and entity has a different credit history and financial map that merits a specific consultation with a Bankruptcy attorney to find the best solution to be re-structure the finances for a better brighter financial situation. If you or someone you know is going through difficult financial times, is contemplating a loan modification, a short sale, credit card settlements, auto repossessions or foreclosure, it is recommended to have a consultation with an attorney as soon as possible to be able to prepare to file if so is determined to be the best solution for them. Most filers today are due to loss of employment, medical bills, and divorce, as well as second mortgages not discharged in a foreclosure or short sale and overwhelming credit card debts. The sooner you consult an attorney the sooner you will find a solution to your financial difficulties.

There are notaries that help prepare bankruptcy petitions however those cannot provide legal advice or represent you in court, as only attorneys in the United States can do so. If you are going through difficult financial times consult an attorney to figure if bankruptcy is a viable solution for you to eliminate the financial problems and commence building a new solid financial future for you and yours.

June 2010

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