Talk About Bankruptcy

One of the main purposes of Bankruptcy Law is to give a person who is hopelessly burdened with debt a fresh start by wiping out his or her debts. 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.

Chapter 7 bankruptcy, which is sometimes call a straight bankruptcy, is a liquidation proceeding. A trustee is appointed. The debtor turns over all non-exempt property to the bankruptcy trustee who then sells it for cash which is then given to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose, so Chapter 7 will give that person a relatively quick “fresh start”. Chapter 7 is different from other bankruptcy filings because the debtor needs not make a payment to the trustee.

An added advantage with Chapter 7 bankruptcy is that by signing a reaffirmation agreement a debtor is allowed to keep certain property by continuing to pay for a car loan or a mortgage on their home. This agreement is possible because under the US Government Bankruptcy Code a debtor could be allowed to retain some or all of his property.

Even though in some cases a Chapter 7 bankruptcy 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 the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover (repossess) the property secured by the lien.

If you file under Chapter 7 you must undergo a “means test” to qualify for Chapter 7 bankruptcy. This is how the IRS determines who can or can’t file. Your income and expenses are examined to see how they compare to the standard for your area as set by the IRS.

For example, if you earn less than the median income for a family of your size in your state, you can file for Chapter 7 bankruptcy. However, if your income from the last six months is greater than the median income, and you can pay at least $6,000 over five years or $100 a month, toward your debt you can’t file for Chapter 7.

As soon as you file for bankruptcy, creditors are prevented from trying to collect on your debts through an “automatic stay.” The stay preserves your property and gives you a break from being sued. It’s very important to note that Chapter 7 will not stop repossession or a foreclosure. Automatic stays don’t cover failure of making back payments. Only by filing Chapter 13 can you delay a foreclosure.

Perhaps you have lost your job or have mounting medical bills, but you just can’t keep ahead of your creditors. You wonder whether filing for bankruptcy can be a viable solution and allow you to get your life back on track. You don’t know how to file for bankruptcy. You are not alone. Analysts predict that bankruptcy filings will hit 1.5 million in 2009, an increase from 1.1 million in 2008. This is below the 2005 total of two million filings, due to the fact that the 2005 U.S. Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) significantly toughened the U.S. Bankruptcy Code when it became law.

But you may have heard that to file for bankruptcy would cost you a significant amount of money in lawyers’ and court fees. Is this true? Is it possible to file for bankruptcy for free? Where do you start to learn how to file for bankruptcy?

If you are considering bankruptcy, the first thing you need to do is learn about the different types of bankruptcy that are available for private citizens. For a basic introduction, log onto www.uscourts.gov/bankruptcycourts/. This U.S. government website provides objective information free of charge about personal bankruptcy.

Chapter 7 (Liquidation) For individuals who have very few assets (these cases are often called “no-asset cases”). A court-supervised trustee assumes control over the debtor’s assets, liquidates them to cash, and makes distributions to creditors. The debtor is released from many or all of their debt obligations, but typically does not get to keep many assets aside from a short list that may include a primary residence and one vehicle.

Chapter 13 (Adjustment of Debts) For individuals who have debts but who also have a source of income and are able to make regular payments to their creditors. Under Chapter 13, as long as the debtor sticks to a three- to five-year payment plan, the debtor is often able to keep assets such as a primary residence, even when facing foreclosure.

There are other forms of bankruptcy, primarily for businesses, as well as Chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income), which is designed for family farmers and fishermen with regular income. The Servicemembers’ Civil Relief Act provides certain protections for members of the military.

Can I File For Bankruptcy For Free? If you are considering filing for bankruptcy protection, you should consult a bankruptcy lawyer. Depending upon the state in which you file, legal fees will average $1,700. But if you are truly determined to do it yourself, you need to educate yourself about the requirements for Chapter 7 or Chapter 13 bankruptcy, including how to qualify, how to file, and what may happen to you and your assets if the court grants you a discharge. For bankruptcy information, log onto the U.S. Federal Trade Commission website at www.ftc.gov. In the search box at the upper right type “bankruptcy”. You will be directed to many informative articles and resources. Topics covered include a review of alternatives to bankruptcy, an analysis of your personal financial situation, and the creation of a personal budget plan.

You will also find information on the U.S. Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which brought many changes to personal bankruptcy and made the process more complex and with more requirements. For example, BAPCPA mandates that individuals who seek bankruptcy protection must first get credit counseling from a government-approved organization. They need to do this within 180 days before they file. They are also required to complete a debtor education course.

The actual bankruptcy court fees that you are required to pay are not high; according to www.uscourts.gov, the total fees collected at time of filing Chapter 7 are $299, and for Chapter 13 the total fees are $274. If you hire a bankruptcy attorney you are required to pay the attorney’s fee in advance because attorney’s fees are not recognized by the bankruptcy court and cannot be a part of a bankruptcy discharge. Attorney’s fees are in addition to filing fees. Largely because of BAPCPA, it is very challenging for an individual to file for bankruptcy without the professional guidance of a bankruptcy attorney.

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