The Right to file bankruptcy is given by the US Constitution.
Bankruptcy is a broad and important financial help topic that is covered in-depth. It is crucial to understand everything we cover and more before you make any decision regarding bankruptcy.Consulting a bankruptcy lawyer one on one is a must.
Also understand that though this finance blog offers bankruptcy information it does not offer any legal advice.
We need to cover the following bankruptcy topics in-depth.
- Discharge in Bankruptcy
- Chapter 7 – Liquidation
- Chapter 11 – Reorganizations
- Chapter 12 – Family Enterprises
- Chapter 13 – Consumer Debt
The Basis and Basics of Bankruptcy
Sometimes borrowers who encounter hardship are faced with financial ruin. Those borrowers who are in need of serious debt relief are protected by the United States Government and have the right to file for bankruptcy, as is guaranteed by the U.S. Constitution
The federal Bankruptcy Code provides an organized procedure for insolvent debtors and this process known as bankruptcy is supervised by a federal court.
Types of Bankruptcy
- Straight bankruptcy (liquidation)
- Family farms and commercial fishing operations
- Consumer debt adjustments
- Voluntary and Involuntary Bankruptcy
All bankruptcy proceedings begin by filing a petition, either voluntary or involuntary. A voluntary petition may be filed by an individual, partnership, or corporate debtor. An involuntary petition may be filed by creditors of a debtor in an attempt to reach debtor’s assets in lieu of payment on debts.
The precise moment that a bankruptcy is followed an automatic stay is ordered and put into effect by the federal court.
The Automatic Stay
Filing a bankruptcy petition operates as an automatic stay, halting creditor action against you or your property.
The automatic stay is put in place to call off the dogs. It is intended to provide some short-term debt relief or rather breathing room for you the borrower in financial hardship.
Automatic Stay Protections
- Creditors can not call you. No more debt collection calls.
- No one can garnish your wages.
- Repossession activity is forbidden.
- No foreclosure activity is allowed to proceed.
- Bank accounts may not be accessed by third parties.
- Beginning or continuing judicial proceedings against you is not allowed.
- Actions to repossess the your property are not allowed.
- Actions to create, perfect, or enforce a lien against your property are not allowed.
- Set off of indebtedness owed to you before commencement of the bankruptcy proceeding are not allowed
- The court ordered automatic stay is not lifted until the bankruptcy case is over. If in the conclusion of your bankruptcy case the judgment discharged any debt then the automatic stay will become a permanent stay for that debt which was discharged. Meaning the borrower will not have to pay the debt.
Once a bankruptcy petition has been filed, the court must first determine if borrower relief should be ordered. This step is automatic for a voluntary petition or no-contest of involuntary petition
If debtor contests involuntary petition, then a trial is held on question of whether court should grant debt relief.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as straight bankruptcy. Straight bankruptcy as outlined in chapter 7 procedures, as a liquidation of assets and then followed by a distribution of those assets.
In a liquidation bankruptcy the assets of the one claiming to be bankrupt are liquidated and distributed to the creditors of the debtor.
Chapter 11 Bankruptcy
Reorganization bankruptcy under chapter 11 bankruptcy is for businesses who need relief from creditors but instead of a straight liquidation bankruptcy. Like in a chapter 7 bankruptcy the debtor or business is most beneficial to its creditors as well as it self if it is allowed to continue on with operations with a reorganized set of terms and financial obligations.
Chapter 12 Bankruptcy
Chapter 12 Bankruptcy is very similar to chapter 13 bankruptcy. In fact they are pretty much identical except for one major aspect.
A chapter 12 bankruptcy is specifically intended for the use of fisherman and farmers. Since this does in fact apply to some we have given it an honorable mention here on our page dedicated to bankruptcy. However given that are resources are limited and this topic is long and boring enough we are going to let our chapter 12 bankruptcy discussion end here.
Chapter 13 Bankruptcy
This chapter of the bankruptcy code is intended for folks with overwhelming consumer debt. Similar to a chapter 11 bankruptcy the ultimate goal of a chapter 13 bankruptcy is to allow the debtor to come up with a debt management plan to pay off their creditors over a period of 3 – 5 years. The plan must be designed in such a manner that it is both feasible and fair.
A Recap of Discharging Debts
A bankrupt person not guilty of dishonest acts and who fulfilled duties as a bankrupt is entitled to a discharge in bankruptcy
A discharge relieves the bankrupt person of further responsibility for debts of which were discharged. The debtor is able to obtain a fresh start towards a new life of financial freedom through the bankruptcy code.
A corporation or partnership is not eligible for a discharge in bankruptcy.
Not all debts are able to be discharged. Certain debts, including educational loans, and many tax debts may not be discharged in bankruptcy.