It should be avoided if at all possible but in these fast moving modern days bankruptcy is commonplace and actually rising as the struggling economic climate continues to struggle. This is a way for people or businesses who have too many debts to handle, either to work out a plan to repay the money they owe, or to eliminate their debts entirely.
This can happen for a number of different reasons of course and some of those reasons are very genuine, though it should always be the worst case scenario it can help individuals back onto a straighter path and give them a fresh start. This article will give a brief overview of the process in very simple terms and hopefully give you some great advice along the way! Bankruptcy doesn’t have to be the end of the world but you’ll need the best possible help.
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Chapter 13 Bankruptcy
Under bankruptcy laws this is a well thought out plan for individuals to repay some or all of the money owed over a long period of time. In America this is the first route anyone should go down as it can give you very valuable breathing space.
The downside is this makes it very difficult for people to get any credit in the future, so you should always be very clear about this. Before anyone files for bankruptcy, and again before the Chapter 13 bankruptcy is finally discharged, you must obtain credit counselling from a non-profit credit counselling agency registered under the federal bankruptcy reform of 2005. This is to both give good advice and help you in the future.
The debtor starts the process by filing a petition with the bankruptcy court in their home district. Bankruptcy forms can be purchased at most stationery stores, or a bankruptcy attorney can help you prepare the forms. A confirmation hearing will eventually be held in court, and the bankruptcy judge will determine if the plan is feasible, and meets all Bankruptcy Code standards.
Creditors will be told of the hearing, and they may object to confirmation so be prepared to accept this as part of the ongoing scheme of things. Put yourself in their position? But get full advice from experts before even going down this road as filing bankruptcy can be a complicated affair.
Also remember the chapter numbers are different for farmers and corporations, and are taken from the sections of the Bankruptcy Code describing these procedures in much greater detail. If you fall into one of these categories you’ll need specialist advice!
Chapter 7 Bankruptcy
If any payments cannot be paid over any length time, an individual or a corporation can file a bankruptcy under this particular chapter, where assets are liquidated and most debts are discharged. This will make it even tougher for you to get credit in the future and should only come into play when no other road is open to you.
In order to file the debtor files a petition with the bankruptcy court serving the area where the debtor lives, or where the business debtor operates the business or keeps most of their assets. Once this has taken place most legal actions are what we call “stayed”, and creditors cannot start or continue lawsuits or make telephone calls demanding payment. In other words the creditors must stop chasing the individual involved!
20 to 40 days after the petition is filed a meeting of creditor’s takes place and the debtor must attend the meeting. The creditors will ask questions regarding both the debtor’s financial affairs and property. You need to take a thoroughly professional approach in this situation and prepare well for any such meeting so you have the answers they may need to hand.
Bankruptcy chapter 7 will conclude with the debtor being discharged. They are no longer liable for discharged debts, and creditors are prevented from taking any action against them. Again take the best possible advice before embarking on this road. A good bankruptcy lawyer will help!
Chapter 11 Bankruptcy
This all important bankruptcy Code is frequently referred to as a “reorganization” bankruptcy. Another technical term for a fresh start if you like! A person cannot file under this chapter or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed.
This could be due to the debtor’s failure to appear before the court or comply with orders of the court. It could also be down to the debtor being voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property. Hopeful you won’t ever find yourself in this position.
A relevant case begins with the filing of a petition with the bankruptcy court serving the area where the debtor resides. A disclosure statement or document containing information concerning the assets, liabilities, and business affairs of the debtor will be produced.
Let’s Be Clear About This!
Unless the court orders otherwise, the debtor must file with the court:
- Schedules of assets and liabilities;
- A schedule of current income and expenditures;
- A schedule of executory contracts and unexpired leases;
- A statement of financial affairs.
This will be sufficient to enable a creditor to make an informed judgment about the debtor’s plan of reorganization and then act on this. A debtor will remain a debtor in possession until the debtor’s plan of reorganization is formally confirmed and rubber stamped.
The same applies until the debtor’s case is dismissed or converted to another chapter or a chapter 11 trustee is appointed. Bankruptcy lawyers should really be consulted as again, this can get extremely complicated depending on each individual’s circumstances and you can easily get bogged down in the scheme of things!
The experts will be able to hone in on your situation extremely quickly and come up with the best form of action. The truth is it will also make you feel a little better knowing you’re taking direct action and attempting to do something about the situation.
You must be aware this is a very complicated area and each case will vary, but there are many experts out there to help you. It’s understandable to feel confused, lost or even overwhelmed at times when financial burdens become too great to bear. The system is there to help people out of trouble and try to satisfy everyone involved, though of course it’s sometimes not possible to fully satisfy all the parties.
In a great many cases it’s really all about reaching a compromise. There’s a wealth of specialist reading on the subject across the internet so even though it may take a little while, become fully informed and up to date with the process. This is a form of action you simply can’t afford to rush as it has long standing consequences for everyone involved.
If you know you’re getting into trouble take advice as quickly as possible and even though the temptation may be there don’t bury your head in the sand. Remember, a problem is just an opportunity turned around and it doesn’t have to be a sad end. Some great success stories have come from bankruptcy! good luck!