Bankruptcy Information


Bankruptcy Information | Filing, Avoiding Personal Bankruptcy

Bankruptcy Information

Learn important bankruptcy information and discover the advantages and disadvantages to this filing. In short, bankruptcy occurs when an individual, corporation or other entity is unable to pay back their creditors. In some cases, the creditors themselves can request a state of bankruptcy to attempt to receive monies or assets owed them. The majority of bankruptcy filings, however, are implemented by the person or entity declaring chapter 7, chapter 13 or other type of bankruptcy.

Bankruptcy & the Law

Their are several reasons that bankruptcy laws were created. The first was to alleviate the undue burden of debt from an individual so as to provide them with a "second chance." The second reason was to help creditors recoup what is owed them from a debtor who is able to pay back monies or debt. According to bankruptcy law, once bankruptcy is declared, the debtor "releases" non-exempt assets to creditors. In exchange, their debt is "forgiven" under the law -- even if it is not repaid in full, which is the typical situation. When a bankruptcy is pending, the debtor is given a stay from debtors trying to collect money or assets owed through phone demands, wage garnishing, legal action, etc. The following types of bankruptcy filings are the most common and will therefore be covered in some detail.

Chapter 7 Bankruptcy

Chapter 7 (personal bankruptcy) is also referred to as liquidation bankruptcy or straight bankruptcy. In some cases, the debtor is required to turn over property to a trustee when the bankruptcy petition is filed. These assets are then sold to pay back creditors. In many cases, however, the debtor is allowed to keep their primary residence, as well as many other assets that are deemed off limits due to exemption statutes. These exemption statutes are determined on a state by state basis. If you are facing bankruptcy, it is strongly advisable to consult with a bankruptcy lawyer in your state to determine non exempt assets.

Ninety days after the bankruptcy filing, a discharge order is issued by the court that disallows creditors to take any action to try and recoup what is used to them. Items that are most likely to be discharged include medical bills, credit card bills, breach of contract liability, negligence liability, and personal loans. Items that will most likely NOT be discharged include student loans, child support, spousal support, government fines or penalities, certain taxes owed to the government and personal liability for driving while intoxicated.

Chapter 13 Bankruptcy

Chapter 13 is a less drastic type of bankruptcy, one that does not involve liquidating the debtors assets. Under this plan, the debtor retains their property and assets and instead pays a trustee each month, who then pays the creditors with these funds. Many of these plans last between 3 and 5 years. At the conclusion, any remaining and eligible debt is discharged, although the definition of dischargable debt was restricted under a 2005 law. In order to be eligible for Chapter 13 bankruptcy, creditors are required to receive the same amount under this plan as they would have under a Chapter 7 filing. In order to qualify for Chapter 13, an individual has to have secured debts under $807,750.00 and unsecured debts under $269,750.

Avoiding Bankruptcy

If possible, it is advisable to avoid bankruptcy. There are steps you can take in order to find a bankruptcy alternative -- the first step is to understand your situation and to get in touch with your mortgage lender to find out what steps you can take to find a desirable outcome for everyone. It is still possible to acquire a mortgage after bankruptcy, although most lenders will understandly be more cautious lending money and will often charge higher rates and more restrictive terms.