What Is Bankruptcy Different Types And Why People File
Bankruptcy is usually seen as such an extreme situation, mostly associated with a failing business being forced to close down than anything else.
But as the amount of debt individuals and families are forced to accrue in order to survive increases, bankruptcy has become more common. A recent study showed a large increase of older Americans filing for bankruptcy, as different combinations of loans continue to put the average household in tens of thousands of dollars of debt.
It’s important to consider before filing: What is bankruptcy, what different types are there, and what could cause someone to file for it?
Filing For Bankruptcy In Canada
The definition of bankruptcy can be a little tricky because it has multiple uses.
People, especially professionals involved in the process, will use the term to describe both a legal status and a process.
Under Canadian bankruptcy law, you must go through two stages to complete bankruptcy.
The first is when you are in bankruptcy.
This phase can be as short as nine months if you perform all your duties correctly.
The second is when youre declared bankrupt.
At this stage, creditors can no longer attempt to recoup any of the money you owe, and it managing your debts becomes the responsibility of your trustee.
During the bankruptcy process, your trustee will create something called your bankruptcy estate.
You can think of this financial object as a box containing all of your unsecured debt, such as credit card debt, personal loan debt and unpaid income taxes.
When you complete the process, you no longer have to repay your creditors.
You hand this box over to your trustee, and they take over all further correspondence with your creditors.
Youre then free to take back control of your life.
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How To File For Bankruptcy
Filing for bankruptcy is a legal process that either reduces, restructures or eliminates your debts. Whether you get that opportunity is up to the bankruptcy court. You can file for bankruptcy on your own, or you can find a bankruptcy lawyer, which most experts regard as the prudent avenue to pursue.
Bankruptcy costs include attorney fees and filing fees. If you file on your own, you will still be responsible for filing fees. If you cant afford to hire an attorney, you may have options for free legal services. If you need help finding a lawyer or locating free legal services, check with the American Bar Association for resources and information.
Before you file, you must educate yourself on what happens when you file for bankruptcy. Its not simply a matter of telling a judge Im broke! and throwing yourself at the mercy of the court. There is a process a sometimes confusing, sometimes complicated process that individuals and businesses must follow.
The steps are:
What Bankruptcy Can Do
Bankruptcy allows people struggling with debt to wipe out certain obligations and get a fresh start. The two primary bankruptcy types filedChapter 7 and Chapter 13 bankruptcyeach offer different benefits and, in some cases, treat debt and property differently, too. You’ll choose the chapter that’s right for you depending on your income, property, and goals.
Here are some of the things you can expect regardless of whether you file for Chapter 7 or 13.
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How Does A Bankruptcy Filer Get A Fresh Start
A bankruptcy discharge ends your legal obligation to pay certain debt. The bankruptcy discharge means that you no longer owe the debt â whether it is paid or not. Qualified judgments, garnishments, and collection actions related to the bankruptcy case permanently stop as soon as the case is filed and can never resume once a discharge has been entered. The discharge also protects the filer from employment discrimination.
What Debts Are Forgiven In Bankruptcy
Generally, both Chapter 7 and Chapter 13 bankruptcies for individuals eliminate unsecured debt such as credit cards. They can also potentially prevent foreclosures, wage garnishments, debt collection, and utility shut-offs. However, they cannot normally eliminate certain types of debt, such as:
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The Advantages And Disadvantages Of Declaring Bankruptcy
When your debt exceeds your assets and your ability to pay your creditors, bankruptcy can offer you a financial lifeline. Filing for debt relief through bankruptcy can have many advantages and disadvantages. Advantages of bankruptcy protection include:
- A new start that can help you create a healthy financial future
- The ability to retain much, if not all, of your personal property and assets
- Your creditors will be required to cease all debt collection actions
In addition to putting a stop to relentless phone calls and other debt collection efforts, filing for debt relief through bankruptcy can also have disadvantages that you should be aware of. Disadvantages of filing for bankruptcy protection include:
- Filing for bankruptcy stays on your credit profile for 7 to 10 years
- Filing for bankruptcy can lead to higher interest rates when you are eventually able to obtain financing
- You can be ordered to undergo court-approved credit counseling
- You cannot use bankruptcy to discharge overwhelming debt, again, for at least four to eight years, depending on what type of bankruptcy you had filed.
Each individual or business debt load is unique and requires close scrutiny and careful debt reduction planning. Your lawyer can take a clear, objective, and comprehensive view of your financial situation and help you create a plan to reorganize, reduce, or eliminate your debt.
For a legal consultation, call
What Does It Mean To Declare Bankruptcy Anyway
If youre struggling to pay your debts, you may be considering the advantages of filing bankruptcy.
So, what does it mean to declare bankruptcy anyway?
Bankruptcy is a legal proceeding involving an individual or business that is unable to repay outstanding debts. Bankruptcy offers an individual or business a chance to start over by having debts forgiven those debts that just cant be paid.
Bankruptcy helps creditors by giving them some repayment of what is owed them, based on the business assets of the individual or business those assets that can be evaluated and liquidated.
So bankruptcy helps both debtor and creditor.
Lets take a closer look
In this article:
Alternatives To Chapter 7
Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.
In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707.
Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.
If You Have Good Credit It Will Likely Take A Temporary Hit
Those that are able to maintain their monthly payments and keep their credit score high before filing their bankruptcy petition will see their score drop initially. But, a bankruptcy filing often does more good than harm to the filerâs credit score. Plus, once their bankruptcy discharge is granted, they can begin increasing that pesky credit score immediately.
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You Cant File Chapter 7 If You Make Too Much Money
If youâre making less than the median income, youâre probably wondering how thatâs even possible. Donât fret this is not about you. This is about folks who have money they can put into savings after paying their main living expenses.
Thatâs called having disposable income and itâs calculated by the means test. Having too much disposable income means youâre not eligible to simply walk away from your debt. But, while you canât file Chapter 7, you can still get a bankruptcy discharge after completing a Chapter 13 repayment plan.
Where Do Bankruptcy Cases Come From
The source of bankruptcy law is found in the United States Constitution Article 1, Section 8 which authorizes the United States Congress to establish uniform bankruptcy laws. As a result, the statutes that make up the Bankruptcy Code are found in federal law the United States Code. More specifically, the Bankruptcy Code is found in Title 11 of the United States Code.
While the Bankruptcy Code contains most of the laws that relate to bankruptcy, most states have some laws that are involved with bankruptcy cases, especially laws around what property is exempt from bankruptcy cases. So, in each bankruptcy case, there is an interplay between federal and state law.
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Stop A Foreclosure Repossession Or Eviction
The automatic stay will stop these actions as long as they’re still pending. Once complete, bankruptcy won’t help.
- Evictions. An eviction that’s still in the litigation process will come to a halt after a bankruptcy filing. But the stay will likely be temporary. Keep in mind that if your landlord already has an eviction judgment against you, bankruptcy won’t help in the majority of states. Learn more about evictions and the automatic stay.
- Foreclosure and repossession. Although the automatic stay will stop a foreclosure or repossession, filing for Chapter 7 won’t help you keep the property. If you can’t bring the account current, you’ll lose the house or car once the stay lifts. By contrast, Chapter 13 has a mechanism that will allow you to catch up on past payments so you can keep the asset. Find out more about bankruptcy’s automatic stay and foreclosure and car repossession and bankruptcy.
What Does Filing For Bankruptcy Mean For My Business
Bankruptcy under Chapter 11 of the Bankruptcy Code is designed to give businesses a fresh financial start. However, despite the regularity with which companies file for bankruptcy, confusion still surrounds this legal process. Read below to learn more about what filing for bankruptcy may look like for your business and how a bankruptcy attorney can help your business survive. For businesses based in Texas, you can rely on Dallas commercial business attorney, David Ritter, to develop a bankruptcy plan that meets your businesss needs.
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Choose The Right Bankruptcy Filing For You
We are proud to represent our clients in four primary areas of bankruptcy relief. Called Chapters, each of these forms of bankruptcy has its own advantages and disadvantages. The four Chapters used for filing for bankruptcy, where we help clients find debt relief, include:
- Chapter 7: Straight bankruptcy, where debts are fully forgiven
- Chapter 11: Complex business bankruptcies with debt reorganizations and restructures
- Chapter 12: Debt relief and repayment plans for family farmers and family fishermen
- Chapter 13: Debt relief for income earners that can help stop foreclosures and other looming debt recovery efforts
When you decide to declare bankruptcy, your lawyer will help you choose the right Bankruptcy Chapter for your financial situation. Filing for bankruptcy is a complex, time-consuming procedure. Your lawyer can help you understand and navigate the filing process from your initial petition to final discharge.
What Bankruptcy Can’t Do
Bankruptcy doesn’t cure all debt problems. Here’s what it can’t do for you.
Prevent a secured creditor from foreclosing or repossessing property you can’t afford. A bankruptcy discharge eliminates debts, but it doesn’t eliminate liens. A lien allows the lender to take property, sell it at auction, and apply the proceeds to a loan balance. The lien stays on the property until the debt gets paid. If you have a secured debta debt where the creditor has a lien on your propertybankruptcy can eliminate your obligation to pay the debt. However, it won’t take the lien off the propertythe creditor can still recover the collateral. For example, if you file for Chapter 7, you can wipe out a home mortgage. But the lender’s lien will remain on the home. As long as the mortgage remains unpaid, the lender can exercise its lien rights to foreclose on the house once the automatic stay lifts.
Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy, so you’ll continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, you’ll have to pay these debts in full through your plan.
Eliminate most tax debts. Eliminating tax debt in bankruptcy isn’t easy, but it’s sometimes possible for older unpaid tax debts. Learn what’s needed to eliminate tax debts in bankruptcy.
Eliminate other nondischargeable debts. The following debts aren’t dischargeable under either chapter:
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Wipe Out Credit Card Debt And Most Other Nonpriority Unsecured Debts
Bankruptcy is very good at wiping out unsecured , medical bills, overdue utility payments, personal loans, gym contracts. In fact, it can wipe out most nonpriority unsecured debts other than school loans.
The debt is unsecured if you didn’t promise to give back the purchased property if you didn’t pay the bill. By contrast, if you have a secured credit card, you’ll have to give the purchased item back. Jewelry, electronics, computers, furniture, and large appliances are often secured debts. You can find out by reading the receipt or credit contract.
Do You Qualify For Chapter 7 Bankruptcy
To qualify for Chapter 7 bankruptcy you:
Must pass the means test, which looks at your income, assets and expenses.
Cannot have filed a bankruptcy petition in the previous 180 days that was dismissed because you failed to appear in court or comply with court orders, or you voluntarily dismissed your own filing because creditors sought court relief to recover property they had a lien on.
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Filing For Chapter 13 Bankruptcy
For people who have property they want to keep, filing a Chapter 13 bankruptcy may be the better choice.
A Chapter 13 bankruptcy is also known as a reorganization bankruptcy. Chapter13 enables people to pay off their debts over a period of three to five years. For individuals who have consistent, predictable annual income, Chapter 13 offers a grace period. Any debts remaining at the end of the grace period are discharged.
Once the bankruptcy is approved by the court, creditors must stop contacting the debtor. Bankrupt individuals may then continue working and paying off their debts over the coming years, and still keep their property and possessions.
The Steps Involved In Chapter 11
- The filing of a petition with the bankruptcy court where the company is incorporated.
- Chapter 11 can be a voluntary filing, where companies seeking relief take the initiative for filing, or involuntary, where creditors can join hands to file against a defaulting company.
- The defaulting company that has filed for Chapter 11 can run its business as the debtor-in-possession, or DIP, and usually no trustee is appointed. However, if fraud or incompetency is involved, the court usually appoints a trustee to run the company through the proceedings.
- All significant decisions taken during the period should be approved by the bankruptcy court.
- Stakeholders such as creditors and shareholders have the right to accept or oppose decisions that require the courts approval. The court hears their argument before making its decision in this regard.
- The company is usually notified regarding the period within which it has to file the reorganization plan. This period usually ranges from four months to up to 18 months.
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Discharging Debt Through Bankruptcy
When you file for bankruptcy protection, a discharge from the court will relieve you of your obligation to repay your creditors for certain debts. Once your debt is discharged, your creditors cannot contact you or attempt to collect the debt in any way. A discharge of your debt is also permanent and final for all unsecured debt you include in your bankruptcy filing.
The timing of your discharge will vary according to the type of bankruptcy you filed. A Chapter 7 bankruptcy discharge order can take as little as four months while a Chapter 13 bankruptcy discharge can take three to five years.
If you are represented by a lawyer in your bankruptcy filing, you and your lawyer will each receive a copy of your debt discharge order. Your lawyer will help you understand what happens if you declare bankruptcy and which debts were discharged by your bankruptcy filing as well as those you might still be obligated to pay.