Bankruptcy is Federal law
and subject to the U.S. Bankruptcy Courts. Bankruptcy
law is federal statutory law contained in Title 11 of the
United States Code. Congress passed the Bankruptcy Code
under its Constitutional grant of authority to "establish. .
. uniform laws on the subject of Bankruptcy throughout the
United States. "States may not regulate bankruptcy
though they may pass laws that govern other aspects of the
debtor-creditor relationship. A number of sections of Title 11
incorporate the debtor-creditor law of the individual states.
There are four types of bankruptcy, two of which are reserved for individuals. While
some people choose to file for bankruptcy themselves, it is
generally best to have an attorney involved at some level, and preferable
to let the attorney handle it completely. If things
are not done properly, the cost of hiring an attorney could easily
be dwarfed by the resulting cost of the mistakes.
Before filing for bankruptcy,
consider whether you have any realistic alternatives.
If there is any possibility of reducing your debt and paying your
bills, you owe it to yourself to consider it before taking the irreversible
step of personal bankruptcy.
The two types of personal
bankruptcy are called Chapter 7 and Chapter 13, both named after
the statutory title of the U.S. Bankruptcy Code under which they
are organized.
Chapter 13 Bankruptcy
A
Chapter 13 bankruptcy gives you the chance to reduce the amount
you pay on debts, allowing you to keep your property that you
otherwise might not be able to afford to keep, and it protects you
from your creditors. A Chapter 13 bankruptcy should always be the first kind
of bankruptcy that you should consider.
Chapter
13 Bankruptcy Filing Requirements
Chapter
13 bankruptcy is available to individuals who do not owe more than $250,000
in unsecured debt, or more than $750,000 in secured debt. These
high limits were increased in 1994 to make Chapter 13
bankruptcy more
accessible to individuals.
- Unsecured
Debt
Also
known as uncollateralized debt. Most debts are unsecured. This
type of debt includes credit card debt, doctor and medical
bills, and signature loans. When preparing a reorganization
plan, unsecured debt is given the lowest priority for payment.
- Secured
Debt
Also
known as collateralized debt. This debt is secured with
property, such as your mortgage, car, boat, and any other
big-ticket item. If you default on a secured debt, the lender
seizes the property to recover what is owed.
How
Chapter 13 Bankruptcy Works
Chapter
13 requires you to repay your debts over three to five years. You
must begin paying on the plan 30 days after you file the petition
with the court.
There
is a move in most districts to deduct payments to the trustee from
your paycheck and send it directly to the court. However, if you
not like this arrangement, the court will sometimes allow you to
pay the trustee directly.
Repayment
Schedule
You
normally make one monthly payment to a trustee who then
distributes the money to your creditors. However, Chapter 13 can
tailor the payment schedule to suit your situation. For example,
if you are a seasonal worker, you can pay less during the slow
months and more during the months when you earn more money.
Back
to top
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, most
debts are wiped out and you never have to pay them. Once you
discharge your debts in Chapter 7 bankruptcy, you cannot file for
a Chapter 7 bankruptcy again for six years.
WHAT CHAPTER 7 BANKRUPTCY DOES
In Chapter 7 bankruptcy, you provide the court a list of all
your debts and a list of everything you own. You also answer
questions about your past financial dealings. You can claim as
exempt the property you are allowed by law. This property you may
keep. The trustee has the right to liquidate any property that
cannot be claimed as exempt and then apply to cash to your debts.
The only restriction on keeping exempt property is that you still
must pay purchase-money liens, the liens placed on property you
buy. For example, if you plan to keep your car or house, you are
still required to make the regular contractual payments to the
creditor.
CHAPTER
7 BANKRUPTCY DOES NOT FREE YOU OF ALL DEBTS
Certain
debts are not discharged in a Chapter 7 bankruptcy, which you
still may have to pay some debts, even after you declare
bankruptcy. These are:
- Debts
not listed on your petition - If you don't list the debt,
there is no opportunity afforded to the holder to dispute the
case.
- Debts
incurred through fraud. That is, you borrowed money and gave
false information on a financial statement to the lending
institution.
- Alimony
and child support payments.
- Debts
incurred when you willfully or maliciously injured someone.
- Non-compensatory
(punitive) fines. Restitution ordered by a judge in a criminal
case as well as traffic fines are examples.
- Certain
educational loans
- Debts
remaining from a prior bankruptcy
- Most
types of taxes
- Consumer
debts owed to a single creditor, that are more than $1000 for
luxury goods or services, incurred within 60 days of filing
the petition for bankruptcy
- Cash
advances that are more than $1000 and that are extensions of
consumer credit under an open-ended credit plan, obtained
within 60 days before filing the petition. These exceptions
are intended to prevent people from maxing out their credit
cards just before they file bankruptcy
- Debts
that arise from damages you caused as a result of operating a
motor vehicles while legally intoxicated.
