Using Chapter 7 To Close The Book On Debt

Posted on April 5, 2010 by admin

As unemployment and home foreclosures continue to be lingering economic problems, an increasing number of people are turning to bankruptcy in order to discharge their debts. For many people, Chapter 7 bankruptcy has been very helpful in putting their financial lives back in order, but Chapter 7 bankruptcies aren’t as easy to obtain as they were in the past. Recent federal law has put Chapter 7 bankruptcy off the table for many middle and upper income Americans.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is a provision of the U.S. Bankruptcy code that discharges a debtors’ obligations by selling off any non-exempt property and putting it into the hands of a court-appointed trustee, who then uses the proceeds to pay off creditors according to a prioritized schedule set by the code.

In most personal Chapter 7 bankruptcies, all property is exempt and the proceeding acts to wipe clean the debtors slate, allowing him or her a fresh start. That’s not to say there aren’t penalties for filing bankruptcy. Individuals filing bankruptcy must pay court and attorney’s fees and their credit record will be negatively impacted for nearly 10 years.

How do you file?

Bankruptcy filings are begun by the filing of an official petition in bankruptcy court. While it is possible to represent yourself in a bankruptcy proceeding, it’s highly inadvisable. Bankruptcy proceedings are highly complicated legal matters, and recent changes to the bankruptcy laws have made the doubly onerous. The consequences of a botched bankruptcy are the possible loss of property that might otherwise have been exempt had your bankruptcy been handled by a competent professional.

In your petition, you’ll have to list all your creditors and assets. Once the bankruptcy petition has been filed, the court will issue a stay against any collection proceedings or lawsuits currently against you.

Following the filing of the petition, the court will appoint a trustee and will call a meeting of your creditors. There the trustee will ask you about your debts, and the creditors may also ask you questions as well (this seldom happens, however).

At some point in the proceedings, the court will also apply a means test to the debtor. If your income is above the state median, you may be forced to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, your debts are reorganized and you are required to enter into a repayment plan to pay back some or all of your debts.

After the first meeting of creditors, the trustee will take custody of any non-exempt property and liquidate it to repay your creditors. Once the proceeds of the liquidation have been parceled out, the remainder of the debtors obligations are discharged, except for some debts such as child support, spousal support, criminal restitution and student loan debts.

Exempt property

When filing Chapter 7 bankruptcy, some of your property will be exempt from liquidation by the court-appointed trustee. This property usually includes a portion or all of the value of your home, and certain other property such as vehicles and tools of your trade. Each state has its own guidelines regarding exempt property, and there are also a set of federal guidelines. Individuals are free to choose the guidelines they want to follow, their state’s or the federal guidelines.

Here’s the federal guidelines:

Homestead — $20,200. If state guidelines supersede this exemption, the federal government sets and absolute cap of $125,000 on the value of a home that may be exempt from being liquidation.

Life insurance policy with loan or other value — $9,850.

Household goods — $9,850, $475 per item.

Jewelry — $1,225

Motor vehicle — $3,225

Personal injury compensation payment — $18,450

Tools of trade — $1,850

Wild card — $925 of any property.

Federal exemptions also prevent the liquidation of pension plans covered by ERISA and employee contributions to deferred compensation and health insurance plans. Also exempt are certain funds contributed to a child or grandchild’s education fund.

Long term impacts

As mentioned before, there are some substantial impacts to filing a Chapter 7 bankruptcy. The bankruptcy will be listed on your credit report for 10 years, impacting your ability to get loans or get loans at good interest rates. The negative impacts of the bankruptcy usually dissipate before the 10 year period does, however. Also, once you file a Chapter 7 bankruptcy, you won’t be able to file another bankruptcy for eight years.

More than 1 million Americans filed for bankruptcy last year, many of whom were swamped with excessive medical bills. While filing for bankruptcy can be a traumatic process, it can help individuals rebuild their finances and their lives. Understanding your bankruptcy options will help you choose the bankruptcy plan most likely to help get you back on your feet as soon as possible.

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Filing Chapter Eleven

Posted on June 18, 2008 by admin

How To File Chapter 11 Bankruptcy?

To file Chapter 11, you need to take into consideration the appropriate process for doing so.  Chapter 11 is the process of filing bankruptcy for businesses or organizations.  In this process, your debts are forgiven, but reorganizing the debt first and repaying it in this manner is also a possibility.

With Chapter 11, the debtor, which is the business or the business owner, can enter into an agreement with the creditors that will help him keep the business moving forward, while still working to pay down debts.  Much like Chapter 13 works for a person, Chapter 13 bankruptcy is designed for rebuilding a business’s credit situation.

Who Qualifies?

To file bankruptcy of any type, it is important to talk to your attorney about the process.  They will help determine if you qualify for filing bankruptcy or if you may need to work through other forms of repayment instead.  Many businesses will qualify for this type of business bankruptcy.  Chapter 11 is designed to provide help for debtors that have a limited liability, corporation or partnership.  No government entity can file this type of Chapter 11 case, though.  With the help of your attorney, you can determine the best route to take.

To file chapter 11, you will need to file a voluntary petition with the court.  This petition is designed to explain your situation and to outline what your goals are.  For example, all assets and liabilities are outlined.  In addition, a statement of financial affairs is considered.  Filing this is a mandatory element because it will outline your financial status and provide the court with information on whether or not they should consider filing bankruptcy for you.

The goal of filing this type of bankruptcy is to adjust and then reorganize the debts that you have that relate to the business, the business’s property or other assets.  The goal is not to close the business, nor is it to have the business go under.  Rather, the goal of Chapter 11 is to reorganize the obligations you have so that the business can continue to operate.  During the process, the debtor, or business owner, will remain in possession of all of your property and you, with the help of your lenders, will develop a plan to keep the business functioning so it generates money to help repay the debts.  In some situations, a trustee is appointed to manage the filing.  If there is any indication of fraud or mismanagement, the trustee may be needed (and is generally requested by the lender) to insure that repayment of the loans and debts is done correctly.

Should I File Bankruptcy?

Should you file bankruptcy?  If you have personal debt, then you will need to file Chapter 7 bankruptcy for total discharge of your debts or file Chapter 13 bankruptcy to reorganize your debts and to continue to repay them.  If you have business debt, then filing Chapter 11 is a better solution.  Making the decision to file bankruptcy, or not, is one that has to be a personal decision.  The fact is, knowing when to file bankruptcy is something you need to consider in terms of keeping your business up and running or knowing when there simply is not a way out.

For those that are unsure about how they should file bankruptcy, or when they should file, work with an attorney that specializes in Chapter 11 bankruptcy.  The attorney will help you consider all of your debts, all of your plans and help you to work with lenders to minimize the costs and to get a plan of reorganization in the works.

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Filing Chapter Seven

Posted on June 18, 2008 by admin

Should You File Chapter 7 Bankruptcy?

If you are considering filing bankruptcy, you may want to consider the benefits when you file Chapter 7 bankruptcy.  This term is in use to describe the area of the law that describes

the process for filing bankruptcy.  If you are a person or a couple, you may want to consider this type of filing.  In this situation, your debts are discharged fully, which means you do not have to repay them once the process goes through.  There are good and bad aspects of filing Chapter 7 bankruptcy, though.  You should consider both before you start the process.

What Happens?

If you consider the difference between when you should file Chapter 7 and when you file Chapter 13 bankruptcy, you will see why so many people go with this route.  In Chapter 7, your debts are completely forgiven and you do not have to repay them at any time after they are discharged legally.  In Chapter 13, the same is not true.  Rather, in this arm of the legal system, your debts are restructured so that they are easier for you to repay.  For example, your credit card debt will have interest rates halted or lowered and your monthly payments will have a design to fit within a specific budget.  In Chapter 13 bankruptcy, you still have to repay your debt, but you may have an easier time of doing so.  Chapter 7 is more drastic and therefore harms your credit more so, and for longer periods, than Chapter 13 will.

Qualifications and How to File Bankruptcy

The legal system has changed somewhat in the way that bankruptcies are filed.  It used to be that to file bankruptcy, you simply needed to file a few forms, state that you could not repay your debt and you were on your way.  Now, you have to go through a much more complex type of filing process, often with a range of requirements that make it harder for you to qualify.  In this process, the goal is to help you file bankruptcy, but also to protect the credit lenders who were being taken advantage of when people filed bankruptcy by abusing the system.

Here are some of the aspects of filing bankruptcy will be required of you.

  • Pass a bankruptcy qualification test which outlines if you have the assets to repay your debts, if you have worked hard enough to repay debts and other aspects
  • Work through Chapter 13 or consumer credit counseling first, in some situations, in order to help creditors get the funds they are entitled to whenever possible
  • Take financial management courses to insure that you have the necessary knowledge and skills to manage your debts after you file chapter 7.

Businesses

If you are a business, and you need to file for bankruptcy, Chapter 11 is an option for you.  In this type of bankruptcy, you will go through the same structure as Chapter 7, but it has a design for businesses rather than individuals.  Your business likely will need to go through the process to file Chapter 13 bankruptcy before you will be able to file Chapter 11.  Again, this is to help protect credit lenders.

If you are considering if you should file for bankruptcy, a good place to start is with the information provided to you by an attorney.  They will help you follow the letter of the law so that you qualify to file for bankruptcy and to insure that every aspect of the process is met.  A qualified professional will be able to get you through the process faster and with less trouble along the way to filing.

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