Bankruptcy is one of those legal and financial terms that engenders uncertainty and fear in people. The reason for all this doubt is because most non-attorneys and non-accountants don’t understand the purpose or effect of a bankruptcy filing.
The process of declaring bankruptcy has been famously described as “the place to go when you’ve had too much credit.” It’s easy for people who don’t have a full time financial staff to misread their financial situations long enough to either overextend themselves on credit or drain the value of their assets so far that the situation becomes an unsolvable math problem.
Those people eventually find they can’t pay their debts and end up with two choices. Either they can raise their income or they have to discharge the debts so they can get a fresh start. Raising income is still possible in the American economy, but it’s quite a bit more difficult now than it used to be. So, individuals are left with the process technically known as “Seeking protection from creditors under Chapter 13 of Title 11 of the United States Code.”
We talked with Fugate Law Firm about this topic who said, “There are three bankruptcy chapters most people are at least somewhat familiar with. The first is Chapter 11, because it is mentioned frequently on television and in films. Chapter 11 is the “re-organization” chapter for corporations and other businesses. It provides an automatic stay on all litigation and allows companies to restructure their debts so they can continue operating.”
Chapter 7 is liquidation. That is where everything is sold, the money is divided and everyone starts over the next day.
Chapter 13 is the individual “re-organization” provision. It gives debtors a three-to-five-year term to pay off debts under a plan approved by the court. There are a number of rules, including what property can be transferred to creditors and what property cannot.
According to the New York Times, some property, including what you may need to move forward, is generally exempt in a bankruptcy case. Knowing the precise makeup and characteristics of a particular financial situation and how it applies during a bankruptcy proceeding is a subject best addressed by a bankruptcy attorney.
The laws governing bankruptcy underwent some major changes in 2005. What may have been true prior to that may not be true now, so it is doubly important you are able to find an attorney that practices bankruptcy law on a regular basis. Some parts of the legal practice such as bankruptcy, securities and intellectual property law have all been changed dramatically in recent years due to various new laws being passed. Keeping track of these rules and how they apply is a job for someone who concentrates on that part of the legal practice. If at all possible, it’s a good idea to try and find a specialist when seeking bankruptcy protection.
There is no public policy benefit in stripping someone of all their property in order to satisfy creditors. That is the primary reason bankruptcy laws are designed to leave debtors in control of what they need in order to move forward. Your retirement accounts, home and car are often exempt. Your other property may or may not be included in a bankruptcy depending on the amount of debt, your income and several other factors.
With any major financial decision, having all the necessary information is the first step towards making good choices. The very moment you can afford it, contact an attorney and avail yourself of the credit counseling offered by the Office of the United States Trustee. These resources are there to be sure there is someone on your side and looking out for your interests.
