Who Declares Bankruptcy?
Bankruptcy for debt relief is considered the final option for people with massive and overwhelming debt. It might seem like the easiest way out, however most any bankruptcy debt relief agency will never suggest declaring bankruptcy as the first option. This is because the consequences of bankruptcy debt may make it not worthwhile.
When Should I Declare Bankruptcy?
Bankruptcy debt relief should be your final option. This is because there are negative consequences to filing for bankruptcy. Before considering this final option of debt relief, you should consult with a bankruptcy debt relief agency. You might have other options available to you for debt relief that don’t have such negative consequences. You should only file bankruptcy for debt relief after exhausting all other available options or if your debts are so overwhelming you have no other option.
Bankruptcy in the USA
Since bankruptcy for debt relief is a legal process and the code is set forth in the U.S. Constitution, there is a legal framework for bankruptcy debts. America has 90 bankruptcy districts. Each of the the 50 states has one and some states have multiple districts. A U.S. bankruptcy judge presides over each bankruptcy and debt case and delivers the final decision. These judges will decide if a debtor will be awarded a discharge of debt and if so, what chapter will be used to declare bankruptcy for debt relief.
Steps to File for Bankruptcy
For an individual who is unable to meet their debt obligations, bankruptcy may be inevitable. However it should not be your first option, though it may seem easy and tempting to do so.
Consult with a Bankruptcy Debt Relief Agency
It is imperative that you first consult with a bankruptcy debt relief agency in order to evaluate your full financial situation. You might have other options available to you for debt relief, such as debt consolidation. Once you have exhausted all other options, or if your debts are so overwhelming, only then should you consider filing for bankruptcy.
Working with a Bankruptcy Debt Relief Agency
Each chapter of bankruptcy debt relief is different from another, however, there are certain general steps that you must take in regards to bankruptcy and debt. Most bankruptcy for debt relief deal with making a financial plan to repay creditors and these plans are very detailed. It can be very helpful to deal with a bankruptcy debt relief agency so that you don’t make any missteps during the legal process.
The Legal Process of Bankruptcy Debt Relief
As stated earlier, bankruptcy and debt is a legal process. Filing bankruptcy for debt includes some very specific steps and that includes your case being seen by a U.S. bankruptcy judge.
This judge will deliver the final decision of whether a debtor is awarded a discharge of debt or not and if so, which chapter of bankruptcy debt relief will be used to declare bankruptcy. In many cases, the debtor may not even meet with the judge. The only meeting you may have in connection to your bankruptcy and debt case is what is referred to as a 341 meeting. This meeting allows creditors to question the debtor, however, these meetings are hardly ever employed. Once the judge has made a decision to allow you to file bankruptcy for debt that judge will also decide what chapter you will be filing under. This formal declaration of bankruptcy will stop the creditor collection process and you will begin the process laid by the type of bankruptcy you are declaring, most of which include a detailed repayment plan. A bankruptcy debt relief agency is especially helpful to debtors as they can help to guide you through this detailed process.
Types of Bankruptcy
As mentioned above, there are 6 different chapters of bankruptcy that individuals and companies can choose from when declaring bankruptcy for debt relief.
Bankruptcy for Individuals and Companies
Chapter 11 – Reorganization: This is one of the most common types of filing which allows those with bankruptcy debts to reorganize. The reorganization plan that is created must be sanctioned by the bankruptcy court. The goal of this plan is to give those with bankruptcy debts some time to reorganize their finances in order to repay creditors while still being able to afford living expenses or continue business operations. If the reorganization plan is approved by the judge it will call for a repayment of a percentage of the original balances while the remaining debts will be discharged, thus giving the debtor bankruptcy debt relief.
Bankruptcy for Companies
- Chapter 12 – Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income: This chapter of bankruptcy for debt relief involves the debtor providing a plan that includes how the business will pay of debts through a schedule. Generally, these schedules may not last more than 3 years, however a judge can extend the time to 5 years if the circumstances warrant it. The bankruptcy trustee will help disburse payments to creditors in accordance with the court-approved plan. This allows the business to continue operating while making payments.
- Chapter 9 – Adjustment of Debts of a Municipality: This particular chapter for bankruptcy debts is specific to cities, towns, municipalities, etc. This type of filing for bankruptcy and debt allows the business to reorganize. With the court’s approval, the debtor is required to fulfill only a portion of its bankruptcy debt while the rest of the balance is stricken from the books.
- Chapter 15 – Ancillary and Other Cross-Border Cases: This type of bankruptcy debt code specifically deals with insolvency and bankruptcy debts that happen outside of the U.S. The objective is to apply the bankruptcy laws of the United States and those of foreign countries as needed. This allows the business to take advantage of specific bankruptcy debt relief laws.
Bankruptcy for Individuals
- Chapter 7 – Liquidation: The goal of this bankruptcy debt chapter is to liquidate all of the individual’s assets to pay off their bankruptcy debts. The court will assign a bankruptcy trustee to manage the liquidation of available assets. This first creditors in line are secured creditors where an asset was used as collateral in the loan agreement, such as a house or vehicle. However, most people who file for bankruptcy for debt relief don’t have any assets that can be liquidated since there are assets that are exempt from liquidation, such as pensions, tools of the debtor’s trade, vehicles up to a certain value, etc. When this is the case, the court will discharge any bankruptcy debts that are considered dischargeable.
- Chapter 13 – Adjustment of Debts of an Individual with Regular Income: Any individual who is not permitted to file under Chapter 7 bankruptcy debt will file under Chapter 13 bankruptcy debt. If you have a regular source of income and it falls within the middle and high income bracket, your unsecured debts will not be discharged immediately. This will allow you to keep some of your valuable assets that would have been liquidated under a Chapter 7 bankruptcy for debt relief. Instead, the debtor develops a detailed plan to repay creditors during a 3 to 5 year period. The plan must be approved by the court judge and depends on whether you can prove that you can afford to meet your payment obligations. However, if your total bankruptcy debt burden is too high, you will not be eligible. Your secured debts may not be more than $1,149,525 and your unsecured debts may not exceed $383,175. There are certain debts that are considered a priority and must be paid in full, such as child support, alimony, wages owed to employees and certain tax obligations. Your plan must include regular payments on your secured debts and that you have some disposable income after making those payments that can go toward paying your unsecured debts. While you won’t be required to pay all of your unsecured debts in full, you must show you are able to repay them with remaining income.
What are the Consequences of Bankruptcy
Bankruptcy and debt have a long history together. However, as mentioned above, filing for bankruptcy does have negative consequences. In many cases, the negative effects of filing for bankruptcy make it not worthwhile. It cause significant and long-term damage to your credit. You also lose all of your credit cards. Chapter 7 is also difficult to qualify for.
Where Bankruptcy Doesn’t Help
Filing for bankruptcy for debt relief won’t erase all of your debts. In many cases, you will be responsible for all secured debts, and collateral will be collected. However depending on your personal situation and which chapter of bankruptcy you file under, you will most likely have a portion of your unsecured debts discharged, if not all of them.
And as stated previously, Chapter 7 liquidation bankruptcy is hard to qualify for. This is because many assets are considered exempt from liquidation. Most people do not own assets that are eligible for liquidation, such as a second home or vacation home.
It is also possible to have too much debt to qualify for bankruptcy debt. To qualify for Chapter 13 bankruptcy, your secured debts may not be more than $1,149,525 and your unsecured debts may not exceed $383,175.
Because of these difficulties, it is important to consult with a bankruptcy relief agency to analyze your unique financial situation.