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How Does Bankruptcy Law Benefit Debtors And Creditors

Does Bankruptcy Favor The Debtor Or Creditor

Should You Threaten Your Creditors with Bankruptcy?

Over the years, bankruptcy legislation in the United States has undergone a number of revisions and amendments. Some believe that these revisions have been aimed at making the law more balanced between debtors and creditors. With the passage of the Bankruptcy Abuse Prevention Consumer Protection Act of 2005 , people wonder whether current bankruptcy law favors debtors or creditors. Debt relief advocates argue that the law could do more to protect consumers from predatory lending practices. Lets examine how current bankruptcy law treats both sides with respect to the most common forms of consumer bankruptcy protection.

What Happens If My Ex

If you are owed child support and/or alimony from a former spouse, and that person declares bankruptcy, you are still entitled to receive payments, and will be considered a preferred creditor in the process. Under bankruptcy law, you can claim missed child support or alimony payments for the previous 12 months before your ex-partner filed for bankruptcy. It would be best to speak to a family lawyer or to the Licensed Insolvency Trustee handling your exs bankruptcy for more information.

Chapter 13 Bankruptcy Wage

In a Chapter 13 Bankruptcy:

  • You will propose a repayment plan for your debts based upon your disposable income

  • A typical repayment plan lasts for between three and five years

  • Over the course of your repayment program, you will repay a portion of your debts to your creditors, with a discharge of any remaining balance upon completion of the repayment plan

  • If approved by the court, a trustee will be appointed to represent your creditors, at your expense. The trustee will collect your payments, distribute them to your creditors, and to supervise your compliance with the repayment plan.

Debtors whose debts exceed certain limits are barred from seeking Chapter 13 bankruptcy. As of April 1, 2016, in order to file for Chapter 13 bankruptcy a debtor must hold less than $394,725 in noncontingent, liquidated unsecured debt, and less than $1,184,200. in noncontingent, liquidated secured debt.

You will most likely be unable to file a Chapter 13 bankruptcy if you have filed and dismissed a Chapter 13 petition within the last 180 days. If that restriction applies to you, discuss with your bankruptcy lawyer whether you qualify for an exception.

Chapter 13 bankruptcy may be particularly useful to debtors who is dealing with a short-term financial crises, and who expect their incomes to rise in the future.

Corporations and partnerships cannot file for Chapter 13 bankruptcy protection, and must instead seek relief under Chapter 11.

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Exceptions To Payment Rules

There are some exceptions to the payment rules. You can make direct payments for:

  • secured creditors, like a mortgage lender
  • debts which are not included in the bankruptcy , these are called non-provable debts
  • money owed after 19 March 2012 to the Department for Work and Pensions for budgeting or crisis loans

You must keep paying rent and any new debts after the bankruptcy. You may not need to pay bills that are unpaid at the date of your bankruptcy order. You may have to pay a deposit for future supplies of gas, electricity or other utilities. Or your utility accounts may be transferred to a spouse or partner.

A Creditor Making You Bankrupt

Does bankruptcy protect both the creditors and debtors?

Your creditors can present a creditor’s petition if you owe them an unsecured debt of over £5,000. This may be the sum of two or more debts which total over £5,000. There might be different petitioning creditors on the same petition for different debts you owe.

Once bankruptcy proceedings have started, you must co-operate fully even if it’s a creditor’s petition and you dispute their claim. If possible you should try to reach a settlement before the petition’s due to be heard – doing it later can be difficult and expensive.

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How Does An Automatic Stay Work

Its not called automatic by chance. The stay goes into effect per Section 362 of the U.S. Bankruptcy Code as soon as an individual or business files for bankruptcy. Chapter 7 and Chapter 13 which account for 99.9% of common bankruptcy filings allow for automatic stays.

Automatic stays are not one-size-fits-all debt relief. They have their limitations. but an automatic stay can provide the respite that allows debtors to work out their finances before creditors can attempt to collect on a debt.

An automatic stay can serve the interests of creditors as well as debtors. How so? It puts all creditors on a level playing field. Once an automatic stay is in place, no one creditor can attempt to collect on a debt to the detriment of other creditors.

Be sure to list all creditors in your bankruptcy filing so they are informed that the process is in effect.

Keep a copy of the bankruptcy filing case number handy should some creditors fail to receive notice of your filing and continue trying to contact you.

An automatic stay isnt permanent. But it protects debtors from further court action, foreclosure, liens against property and repossession attempts while the bankruptcy filing is playing out in court.

What Happens When You Are Declared Bankrupt

A Bankruptcy Inspector from the ISI will serve you with a copy of the Orderof Adjudication and Warrant of Seizure. The Inspector willalso give you a form to complete, requesting various details, which the ISIwill use to contact you and process your bankruptcy.

Your bank accounts will be frozen, except for one current account in whichyou can keep a balance of up to 1,000 for general living expenses.

The ISI will contact all financial institutions and inform them that youhave been made bankrupt.

As soon as your bankruptcy starts, you are free of debt. The OfficialAssignee now owns your assets and administers your estate. Your creditors canno longer seek repayment directly from you. They must deal directly with theOfficial Assignee and all correspondence should be forwarded to him.

You must contribute any surplus income to the Official Assignee.

Your name will appear in the Bankruptcy Register, which is kept in the Officeof the Examiner of the High Court. Anyone can check this register.

Read more in the ISIs guide Afteryou are made bankrupt .

Income

The Official Assignee will negotiate an Income Payment Agreement or seek anIncome Payment Order for the surplus of your income over the reasonable livingexpenses for your situation, based on the ISIsguidelines. The agreement or order will last up to 3 years. Act 2015 reduced this period from 5 years, with effect from 29January 2016.)

No deductions will be made from social welfare payments.

Assets

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Chapter 13 Eliminates Some Debt While Less Severely Harming Your Credit

This form of bankruptcy protection is also known as wage-earners bankruptcy, as consumers with significant income often opt for Chapter 13, thereby attempting to repay some or all of their debt through a repayment plan. Chapter 13 may also allow consumers to keep their property while they make payments under the plan. Depending on the type of debt, creditors may not receive the full amount that they are owed. Still, this form is preferred by creditors over Chapter 7 which may include a complete deletion of the debt. Although not as severe as Chapter 7, Chapter 13 will still negatively impact the consumers credit score.

Do I Need An Attorney For A Chapter 11 Case

Creditor Objections in Your Chapter 7 Case

A Chapter 7 vs. Chapter 11 bankruptcy filing is very different. Chapter 11 cases require an extensive knowledge of the Bankruptcy Code.

Individual debtors who file for Chapter 7 bankruptcy donât have to hire an attorney for their bankruptcy case, but given the complexity of the bankruptcy proceedings under Chapter 11, your case is significantly more likely to result in a favorable outcome if you hire a law firm to help you. Interestingly, after a Chapter 11 bankruptcy is filed, the law firm or lawyer that represents the individual debtor now has a duty to act in the best interest of the bankruptcy estate and the unsecured creditors.

Business entities have to hire a lawyer to participate in a bankruptcy proceeding, either as a debtor or as a creditor.

You can file a Chapter 7 case without an attorney. Upsolve can help you complete the forms to file a Chapter 7 case. We are a non-profit company that helps individuals who need a fresh start, but who canât afford an attorney.

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What Happens To Your Information

Any previous name included in the bankruptcy petition will appear on the bankruptcy order, and in the:

  • notice of your bankruptcy, which is permanently recorded in the Gazette but excluded from search engine results one year and three months after publication
  • Individual Insolvency Register which will be removed within three months of your discharge

Who Will Know I Filed For Bankruptcy

Bankruptcy is a legal process and your documents are filed with the federal government, specifically the Office of the Superintendent of Bankruptcy. People can search the government records, but they must first know the name of a person to search and must pay a fee before any information is provided.

Your creditors will also be notified that you filed for bankruptcy.

A creditor is an individual or business that is owed money by the debtor. There are two major types of creditors: secured and unsecured. A secured creditor is one that holds a right or claim against the debtors property. An unsecured creditor does not have a direct claim on the debtors property.

A creditor must file a proof of claim to participate in any dividend distribution from your bankruptcy. They can also request a creditors meeting to review the affairs of the bankrupt, although this rarely happens in most personal bankruptcies in Canada. The creditors role also includes informing the trustee of any irregularities before or during the bankruptcy filing.

Your employer is not notified that you filed bankruptcy unless you have a wage garnishment. In that case, your trustee will notify the payroll department to ask them to stop taking money from your pay.

The OSB will also notify the credit bureau when you file including the date of filing and type of proceeding . They update the credit reporting agencies at the end of your bankruptcy with the date of discharge.

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Prospect Theorya Lens To Understand How Entrepreneurs View The Downside Risks Of Bankruptcy

Expected utility theory is the standard approach to decision-making under uncertainty . However, Kahneman and Tversky have argued that this model does not capture the behaviour that we actually observe. In expected utility theory, alternative choices are evaluated according to the sum of the returns under different outcomes, each weighted by the probability of that outcome taking place. Yet, this view of decision-making under uncertainty does not account for the way that peoples choices are influenced by all sorts of cognitive biases. For example, in expected utility theory, the utility of gaining US$50 is equivalent to the loss of utility from losing US$50. In experiments, this prediction is not supported.

The second fundamental proposition of prospect theory is that …losses loom larger than gains. The aggravation that one experiences in losing a sum of money appear to be greater than the pleasure associated with gaining the same amount . This again implies that the initial position matters, as both gains and losses are evaluated with respect to it a phenomenon that Thaler labelled as endowment effect.

Will Filing For Bankruptcy Affect My Spouse

How Long Does a Bankruptcy Filing Stay on My Credit Report?

If you file for bankruptcy, it will not go on your spouses credit report or affect their credit rating. However, if you have co-signed any loan agreements with your spouseor anyone else, for that matterthat person will then assume full responsibility for repaying the loan if you file for bankruptcy. In these circumstances, it is best for you and your co-signor to seek the help of a Licensed Insolvency Trustee at the same time, to make sure both of your needs are addressed.

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How Long Does An Automatic Stay Last

The automatic stay remains in effect until your case is closed. But, of course, it isnt always that simple.

For Chapter 7, its often the case that a stay will last the 3-5 months the court case is open. For Chapter 13, bankruptcy cases could take anywhere from 3-5 years.

Again, multiple filings can also affect the length of an automatic stay. More than one bankruptcy filing in a calendar year could limit the stay to 30 days. A history of bankruptcy filings could completely eliminate an automatic stay from consideration.

So can a motion to lift the stay Creditors can file a motion to remove the stay before the bankruptcy case is closed if they can prove the stay hurts their business or prove the likelihood that the assets will no longer be worth enough to cover costs after the bankruptcy case is complete.

If the court agrees, it may grant their request but its a creditor-by-creditor decision, and not all courts approve lifting an automatic stay.

Some instances that could lead to a stay being lifted include a landlord-tenant dispute, a foreclosure action or a lawsuit in another court.

How Much Does Bankruptcy Cost

The cost of bankruptcy will vary substantially, depending upon the complexity of the case and the type of bankruptcy that is filed. You may be able to obtain a Chapter 7 personal bankruptcy for a relatively modest flat fee, while the cost of a Chapter 11 bankruptcy can easily exceed $15,000 in the first year. Some business bankruptcies cost hundreds of thousands of dollars to complete.

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How Do I Claim Or Declare Bankruptcy

Before you file, the trustee will review all your debt relief options so you can .

The trustee will ask questions about your income, assets, and debts . If you cannot afford to repay your debts in full, the trustee may recommend bankruptcy, but they might also suggest you consider filing a consumer proposal as an alternative to bankruptcy if this makes more sense for your financial situation.

If you are considering bankruptcy, talk with a Licensed Insolvency Trustee today.

How Does Bankruptcy Work

How Are Creditors Notified of a Bankruptcy?

Bankruptcy in Canada is a legal process, legislated under the Bankruptcy and Insolvency Act . If you owe at least $1,000, reside or have assets in Canada and are insolvent , you may file for bankruptcy.

When you file bankruptcy in Canada you assign non-essential assets and surplus income to your creditors in exchange for which your debts are released.

A bankruptcy can only be filed with a Licensed Insolvency Trustee. An LIT is a federally regulated debt professional, licensed to administer both bankruptcies and consumer proposals in Canada. As an officer of the court, the trustees role is to ensure that all bankruptcy laws are applied equally and fairly to both the debtor and creditors.

One of the advantages of bankruptcy is that it is a legal proceeding. If creditors are taking you to court or garnisheeing your wages, bankruptcy law provides a mechanism to stop these types of aggressive collection actions.

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State Law Often Is Key To Protecting Wages From Garnishment

A creditor that obtains a judgment on a debt can garnish the consumers wages, meaning that it can obtain an order requiring the consumers employer to send a portion of the consumers wages directly to it. Federal law protects from garnishment 75% of a consumers disposable earnings or 30 times the federal minimum wage , whichever is greater. The creditor can seize the balance.

Disposable earnings are the employees earnings after deduction of amounts required by law to be withheld. Amounts withheld include federal, state, and local taxes, Social Security, and contributions to other governmental retirement programs that are required by law. See NCLCs Collection Actions § 14.2.1 for more on the definition of disposable wages, what income is protected, the treatment of multiple wage garnishment orders, and all other aspects of the federal wage garnishment protections.

Ten states protect both a higher percentage of wages and a higher amount per week than federal law requires:

  • California, which protects 40 times the state, federal, or local minimum wage and allows garnishment of just 50% of the debtors wages in excess of that amount
  • Colorado
  • Illinois
  • Massachusetts
  • Nevada
  • New York )
  • South Dakota
  • Vermont
  • Washington and
  • West Virginia .

Thirteen jurisdictions protect a higher flat amount per week, but do not protect a higher percentage of wages than the federal minimum. These states are:

Suspended Income Tax Payments

HMRC will apply a nil tax code when youre bankrupt. This tells your employer not to take any further income tax from your wages for the rest of the tax year . The extra money in your pay that results from this can be claimed by the trustee to form part or all of an IPA or IPO. If the IPA or IPO is wholly paid out of this extra income, it will stop when you start paying tax again.

The NT wont tell your employer youre bankrupt as an NT can be applied for a number of reasons.

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Chapter 7 Vs Chapter 11 Bankruptcy In 2021

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In a Nutshell

Chapter 11 bankruptcy can be quite similar to Chapter 7 bankruptcy. But it’s also really different. Learn how each type of bankruptcy can provide you with debt relief.

Written by Attorney Jonathan Petts.

For many people, filing for bankruptcy relief is a difficult decision. Once the decision is made, however, itâs time to decide what type of bankruptcy to file. If you’re not eligible to file for Chapter 13 bankruptcy, it helps to understand the difference between Chapter 7 vs. Chapter 11 bankruptcy before making a decision.

The United States bankruptcy laws have the goal of giving the unfortunate but honest debtor a fresh start. One way that can be accomplished is by having a bankruptcy trustee liquidate the debtor’s assets for the benefit of creditors as part of a Chapter 7 bankruptcy proceeding.

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