Bankruptcy 7, 11, 12, 13 Lawyer, Lawyers, Attorney, Attorneys, Law, Legal Court Cases

What is Bankruptcy.

Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested or initiated by the bankrupt individual or organization, or it can be requested by creditors in an effort to recoup a portion of what they are owed. However, in the overwhelming majority of cases, the bankruptcy is initiated by the "bankrupt" individual or organization.

Purpose of Bankruptcy.

The primary purpose of the laws of bankruptcy are: (1) to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and (2) to repay creditors in an orderly manner to the extent that the debtor has property available for payment.

Bankruptcy allows the debtor to resolve his debts through the division of his assets among his creditors. Additionally the declaration of bankruptcy allows debtors to be discharged of most of the financial obligations, after their assets are distributed, even if their debts have not been paid in full. During the pendency of a bankruptcy proceeding, the "Debtor" is protected from extra-Bankruptcy action by creditors by a legally imposed "stay."

Bankruptcy Proceedings.

Bankruptcy is federal statutory law (Title 11 of the United States Code) based upon the Constitutional requirement for "uniform laws on the subject of Bankruptcy throughout the United States." (Article I, Section 8). Bankruptcy proceedings are undertaken in the United States Bankruptcy Courts, part of the District Court system.

There are several types of proceedings that fit under the general category bankruptcy. The U S Bankruptcy Code has multiple chapters, each describing a different procedure available for debt resolution. Liquidation under a Chapter 7 filing is the most common form of bankruptcy. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Bankruptcy under Chapter 11, Chapter 12, or Chapter 13 is more complex and involves allowing the debtor to use future earnings to pay off creditors. In addition, there is Chapter 9 bankruptcy, available only to municipalities; perhaps the most famous example of a municipal bankruptcy was in Orange County, California. Chapter 9 is a form of reorganization, not liquidation. Chapter 12 is somewhat like Chapter 13 but is only available to farmers in certain situations. As recently as mid-2004 Chapter 12 was scheduled to expire but in late 2004 it was given a renewed lease on life.

Bankruptcy can be entered into voluntarily by the debtor. It can also be commenced involuntarily by as few as one creditor if the debt owed is large enough. An involuntary bankruptcy may be used as a collection tool but its use can be very risky and, if wielded improperly, may subject the creditor to large damages.

Some property is exempt from being sold to pay debts in a bankruptcy. The law varies greatly from state to state. In some states, exempt property includes equity in a home or car, tools of the trade, and some amount of personal effects. In other states an asset class such as tools of trade will not be exempt by virtue of its class except to the extent it is claimed under a more general exemption for personal property.

One major purpose of bankruptcy is to ensure orderly and reasonable management of debt. Thus, exemptions for personal effects are thought to prevent punitive seizures of personal items of little or no economic value (diary, toothbrush, ordinary clothing), since this does not promote any desirable economic result. Similarly, tools of the trade may, depending on the available exemptions, be a permitted exemption as their continued possession allows the insolvent debtor to move forward into productive work as soon as possible.

Not every debt may be discharged under every chapter of the Code. Certain taxes owed to Federal, state or local government, government guaranteed student loans, and support obligations are not dischargeable (but nb., guaranteed student loans are potentially dischargeable should the debtor prevail in a difficult-to-win adversary proceeding brought in the nature of a complaint to determine dischargeability that's brought against the lender; also, the debtor can petition the court for a "financial hardship" discharge, but it is very rare that such a discharge is granted). The debtor's liability on a Secured debt, such as a mortgage or mechanics lien on a home, may be discharged, but the effects of the mortgage or mechanics lien cannot be discharged in most cases if it affixed prior to filing, so if the debtor wishes to retain the property, the debt must usually be paid for as agreed. (See also lien avoidance, reaffirmation agreement)(Note: there may be additional flexiblity available in Chapter 13 for debtors dealing with oversecured collateral such as a financed auto, so long as the oversecured property is not the debtor's primary residence.)

Also, any debt tainted by one of a variety of wrongful acts recognized by the Bankruptcy code, including defalcation, or consumer purchases or cash advances above a certain amount incurred a short time before filing, cannot be discharged. However, certain kinds of debt, such as debts incurred by way of fraud, may be dischargeable through the Chapter 13 super discharge. All in all, as of 2005, there are 19 general categories of debt that cannot be discharged in a Chapter 7 bankruptcy, and fewer debts that cannot be discharged under Chapter 13.

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Bankruptcy

Bankruptcy is an individual's legally declared inability to pay back debt owed to creditors. There are several different types of bankruptcies. Most are voluntary where the individual files themselves because they are no longer able to pay back debts that they owe. Another type is involuntary bankruptcy where the creditors file a petition against the debtor to try and receive some of the money owed to them.

What are the different types of bankruptcies?

There are six types of bankruptcies in United States law and they are broken into six different chapters (7, 9, 11, 12, 13, and 15). The most common chapters filed are chapters 7 & 13. Almost 65% of all bankruptcies filed are chapter 7.

What is the outcome of a bankruptcy?

In most cases, filing for bankruptcy will stop creditors from calling, at least until all your debts are sorted out in accordance with the law. Most times filing for bankruptcy can relieve an individual from temporarily getting their home foreclosed, getting wages garnished and getting automobiles repossessed. Chapter 7 bankruptcy is the most common and it allows you to discharge most of your debts with your creditors. However, you have to liquidate your assets to be auctioned off. Some things you normally are allowed to keep are: your primary residence, car, clothing, work related tools, and basically necessities. Chapter 13 is basically a court organized payment plan and usually does not require you to liquidate your assets.

How does bankruptcy affect my credit and credit score?

Bankruptcy does not look very favorable on your credit report and should be considered a last resort for overcoming your debt. In most situations, bankruptcy will damage your credit rating so severely that you may not be get approval for credit for many years. It is one of the few items that will stay on your credit report for 10 years. All other items such as late payments and delinquent accounts stay on your credit report for only 7 years. Having a bankruptcy on your credit report for 10 years will most often than not prove to be a severe burden for most people. The severity of the damage a bankruptcy does to your credit score is right up there with foreclosure.

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About the Author:

The CreditLawGroup.com website of Smith & Gromann, P.A. is a multistate law firm whose practice is limited to federal consumer and banking law under which the credit reporting system operates. The firm provides cost efficient legal representation in disputing inaccurate, incorrect or unverifiable information contained on credit reports from the three major credit bureaus, Equifax®, Experian® and TransUnion® and their affiliates. The firm also provides legal representation to victims of identity theft. Visit http://www.creditlawgroup.com for more information.

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