Bankruptcy facts


What is Bankruptcy?

Bankruptcy is a process under federal law that allows debtors who owe more money than they can pay to either eliminate their debts or work out a payment plan to pay a portion (or all) of their debts over time.

What is Chapter 11 Bankruptcy?

When a business is unable to service its debt or pay its creditors. the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11.

In Chapter 7 the business ceases operations. a trustee sells all of its assets. and then distributes the proceeds to its creditors. Any residual amount is returned to the owners of the company. In Chapter 11, in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and Jurisdiction of the court.


How does Chapter 13 Bankruptcy work?

While debtors are allowed to keep all of their property. the court approves a new interest-free plan for repayment. A written plan is created giving details of all the transactions that will occur. and the duration of the same. The repayment must begin within thirty to forty-five days after the case has started. The transitory stage of paying a trustee who then pays a creditor. as in Chapter 7 Bankruptcy is usually eliminated with Chapter 13 Bankruptcy. Although, in some cases people may involve a trustee who would take care of disbursing money to the creditors as per the plan. Also, as per the law the creditors must strictly adhere the repayment plan approved by the court and are in fact prohibited to collect any claims from the debtor. Your attorney will prepare new repayment plan to best suit your situation.

The one advantage of Chapter 13 over Chapter 13 Bankruptcy is the full discharge option which is not applicable under Chapter 7 filing. For example, if a debtor manages to complete all necessary payments in the plan, he/she is given a full plan discharge. (There are a few exceptions to this case, which your attorney will guide you about if necessary.) Yet another advantage of the Chapter 13 filing is that a repayment can be created even if creditors disagree with it, as long as it is approved by the Court. Although, in all fairness the court allows creditors also to file an objection, in case they may have any.


What is Chapter 7 Bankruptcy?

The answer to this question lies in the answer to a broader question: "What is the ultimate aim of filing for bankruptcy?"

If filing for bankruptcy is an opportunity for a debtor to emerge out of a financial crisis and start afresh, then Chapter 7 of the Bankruptcy Code is the way to achieve this end relatively faster. Under Chapter 7 of the Bankruptcy Code all non-exempt property of the debtor is sold and the proceeds of the same are distributed to the creditors. In most cases where Chapter 7 is brought into force the debtor has no assets to lose, therefore the fresh start takes place relatively faster.


How does Chapter 7 Bankruptcy work?

A trustee is appointed who collects all non-exempt property, sells the assets and distributes proceeds from this sale to appropriate creditors. Chapter 7 is different from other bankruptcy filings because the debtor needs not make a payment to the trustee. Even though in some cases this would mean that you will lose all your assets, this need not always be the case. It is strongly recommended that if you are apprehensive and feel you will lose your assets, discuss the matter with your Bankruptcy Attorney.

Under Chapter 7 Bankruptcy, the debtor receives a discharge on all dischargeable debts. There are 19 general classes of debt that are discharged under Chapter 7 Bankruptcy. An added advantage with Chapter 7 bankruptcy is that by signing a reaffirmation agreement a debtor can continue to pay for a car loan or a mortgage on their home. This agreement is in place because as per the US Government Bankruptcy Code a debtor could be allowed to retain some or all of his property.


What is the difference between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy?

Chapter 7 is a liquidation chapter. Nearly all Chapter 7 cases have no property liquidated and the unsecured debts are erased, while keeping all of the exempted property.

Chapter 13 is a reorganization chapter. A Chapter 13 Bankruptcy is filed for 3 reasons:

The Debtor(s) has/have:

  • Too much property.
  • Too much income.
  • Needs to stop a Sheriff’s Sale/Foreclosure

If I am married, can only one spouse file?

Yes; however, you must list all household income.


Will I get to keep my property?

Yes, all of the property will be protected through exemptions.

For Example: If you have a $100,00.00 house and a $80,000.00 mortgage, Bankruptcy allows you to keep your house and the equity that you incurred.


Can I keep my retirement?

Yes, nearly all retirement accounts are protected including pensions, 401(K), 403(b), 457, IRA, etc.


Can Judgments be removed?

Yes, through the bankruptcy, judgments can be made null and void thus uncollectable.


Can Student Loans be discharged?

Student Loan Debt is growing faster than career incomes can sustain; current student loans are not dischargeable. However, this is a hot button issue for bankruptcy so please stay tuned.


Will the Bankruptcy be on my credit report?

Yes, all public records can stay on a credit report for up to ten years. All negative reporting (late payments) can stay on a credit report for seven years.

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