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Chapter 7 Bankruptcy – Overview

July 22nd, 2007 by Shenron

When you file for Chapter 7 bankruptcy, you are basically handing over your debts and your properties to the bankruptcy court. While your debts may be cancelled, the court will order the liquidation of some of your property in order to pay off your debts. You can’t sell or give away any of your property without permission from the court although in some cases, the court may give you limited freedom to handle properties and income you acquired after you filed for bankruptcy.

The court will assign a bankruptcy trustee to your case. The responsibilities of this person include determining which of your properties are exempt (that which the court allows you to keep) and nonexempt (those that will be taken to pay your creditors). You are required to surrender nonexempt properties to the trustee or you may provide its equivalent value in cash. The trustee may decide that a property is not worth selling so you get to keep it even though it is nonexempt. In most Chapter 7 cases, the properties are either exempt or are basically worthless in terms of raising money for the creditors. If the trustee has determined that all properties are exempt, a no distribution report will be submitted to the bankruptcy court. If there are nonexempt properties, the trustee will collect and sell these and give the proceeds to your creditors. The trustee should also ensure that you have properly reported all your assets. If your creditors think that you have not been truthful in declaring your financial status, it is the duty of the trustee, as the representative of your creditors, to ask the judge to deny your discharge.

Not everybody however can file for Chapter 7 bankruptcy. In the new bankruptcy law, you will be required to take the “means test” before filing. This is to determine if you have enough disposable income (income after expenses for the basic necessities and other debt repayments has been deducted) to repay your creditors. If the court has determined that you have a stable and adequate income to pay your creditors, you will be forced to use Chapter 13 bankruptcy if you insist on filing. You also will not be allowed to file if you have been granted a discharge from your debts within the last eight years if the bankruptcy was filed under Chapter 7 and within the last six years if it was filed under Chapter 13.

When the court has recovered evidence that you tried to defraud your creditors or that you have not been truthful in reporting all your assets, it may dismiss your case and the creditors may continue the process of collection before you filed for bankruptcy. Worse, you may be charged and prosecuted for fraud.

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What you need to know about chapter 13 Bankruptcies

July 22nd, 2007 by Shenron

Chapter 13 Wage Earner Bankruptcy lets you repay your debts without the need to turn over any property as is usually the case with Chapter 7 Bankruptcy. Under this chapter, you are allowed to use any income you may obtain in the future in order to pay off your creditors. The court approves a payment plan which may last from three to five years, depending on your income.

Eligibility

Since Chapter 13 requires you to pay off your creditors using your income, the most important criteria for filing bankruptcy under this chapter is to have a stable income and an adequate disposable income. If you don’t have a regular income or if it’s too low, you may not be allowed to file for Chapter 13. Likewise, if your debts are too large, you are ineligible. Your secured and unsecured debts must not exceed certain amounts which are adjusted regularly based on the consumer price index.

How Does It Work?

You will be allowed to keep all of your property but upon declaring bankruptcy you have to include a plan to pay your creditors over three to five years. Such plan is distributed to creditors who have the right to make objections if they think it is unjust. When the court approves the plan, you will have to commence monthly payment to your creditors. A bankruptcy trustee appointed by the court to collect your payment and distributes these to your creditors, may or may not be involved in a Chapter 13 bankruptcy although it is a must for Chapter 7. Either way, creditors are prohibited to collect any claim from you if it is not according to the plan. If you are able to complete the plan as is ordered by the court, you will be discharged from all your debts. If not, the plan may be modified depending on your reasons for non – completion. If your reasons are unjustifiable, your creditors may request the court to have the Chapter 13 proceeding terminated. If this is approved, your assets may be collected as before you filed for bankruptcy.

Advantages

Those who apply for Chapter 13 bankruptcy gets to keep all of their properties. If you think that you have a lot of property to lose but you have enough monthly income to pay off your debts, then Chapter 13 is a better option than Chapter 7. Furthermore, as long as you follow the payment plan ordered by the court, you will be given a full plan discharge. Another advantage of filing under this chapter is that the payment plan may be approved and enforced by the court even if your creditors object to it. But of course, the court also allows them to file any objections, if they have any.

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The Bankruptcy Process

July 22nd, 2007 by Shenron

Filing for bankruptcy can be disheartening because in a way you will be admitting to failure and whatever you have worked hard for, for many years might be lost. However, what needs to be done should be done. You may have fallen at this time but it doesn’t mean you can’t rise up again. Here are a few tips on how to proceed with bankruptcy declaration:

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The Pros and Cons of Bankruptcy

July 22nd, 2007 by Shenron

The decision whether to file for bankruptcy can be difficult and distressing. While you will be relieved of the stress of dealing with so many creditors and you will be given a fresh start, your credit file will be marred by the bankruptcy record. So if you’re thinking about declaring bankruptcy, take time to reflect and use your good judgment when deciding. Meanwhile, here are the list of advantages and disadvantages of bankruptcy to aid you in making the correct choice:

ADVANTAGES

DISADVANTAGES

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Alternatives to Bankruptcy

July 22nd, 2007 by Shenron

When you are experiencing financial difficulties, it can be very tempting to file for bankruptcy. Remember however that bankruptcy should not be taken as an immediate answer but as a last resort. After all, records of bankruptcy will remain on one’s credit file for up to ten years. Try to consider the following options first before you finally decide on filing for bankruptcy:

There are effective ways for you to lessen your debt. For one, you have to cut monthly expenses in order to allow more cash flow that will be used to pay off debts. Analyze your personal budget and find areas where expenses can be lessened. Luxuries will have to take a backseat to the needs. Impulse purchases and frequent dining out can be done away with. Little steps taken everyday can have a huge impact on your overall financial health. You could also consider other ways of earning money – a part time job or a better – paying primary job for example.

It is always better to negotiate with creditors first before taking any legal action. This avoids disputes which could turn really ugly. Creditors understand that while bankruptcy is an option for the debtor with excessive debts, they risk losing everything when it is filed. Most would rather settle on a plan that would enable them to get back a portion of their money. Professional help should be sought in order for the negotiations to be handled properly.

Participating in a debt counseling service is a good start in addressing your financial difficulties. A little bit like filing for Chapter 13 bankruptcy, debt counseling agencies will help you come up with a plan to pay your creditors. This option both has its advantages and disadvantages: no bankruptcy record will appear on your credit file (a good thing of course), but you will not be protected from harassing creditors if you miss a payment. A creditor may not honor your plan and you therefore have to resort to other measures.

If you are buried in debt but are living a relatively simple life, you can do nothing about your excessive debts. Anybody who sues you will most probably take nothing from you because you do not have anything they can legally take in the first place. In ordinary cases, you can’t be thrown into jail for your inability to pay debts (except if you’ve defrauded your creditors, refused to pay taxes or willfully failed to fulfill child support obligations). So you may not file for bankruptcy if you do not have a steady income or properties your creditors can repossess. Most probably, they’ll just write off the debt and treat it as deductible business loss. After several years, the debt will become legally uncollectible and after seven years will disappear from your credit record.

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