BANKRUPTCY

Bankruptcy is a Federal Court procedure. When a person or company cannot pay their debts, they ask the Federal Court to “discharge” their debts or rearrange their payments to creditors. The basic rule of thumb for qualifying for bankruptcy is that your debts must be greater than your assets.

There are two basic kinds of bankruptcy for individual debtors, Chapter 7 and Chapter 13. In a Chapter 7 or “straight” bankruptcy, most debts are generally cancelled. This case is resolved more quickly than a Chapter 13 case. Bankruptcy cases distinguish “secured” creditors from “unsecured” creditors. A secured creditor is one whom you have pledged collateral to as security for the debt. Secured creditors usually receive more than unsecured creditors . Unsecured creditors will normally receive little or nothing. Typical unsecured claims include medical bills, open accounts at stores, and credit card accounts.

Certain properties are protected and considered “exempt” from the proceeding and the trustee’s power of sale. Exempt properties include, to a certain amount, a car, home, household furnishings, clothing, and tools of trade.

The trustee will sell or “liquidate” non-exempt assets. However, most Chapter 7 bankruptcies are “no asset” cases, because there is no property other than exempt assets.

The other kind of bankruptcy, Chapter 13, is called a “wage earner plan”. It allows the debtor(s) to pay the debt over time on a schedule (often 3 years). The court must approve the repayment plan which is administered by a trustee. Some people choose Chapter 13 because they can protect more assets this way. It is possible to start out with a Chapter 13 and then convert to Chapter 7.

Some debts are not discharged in bankruptcy. These include child support payments and arrearage, taxes, governmental fines and fraudulent debts.

A Bankruptcy Petition lists all your assets and all of your debts. Therefore, if you plan to seek bankruptcy relief, you need to come prepared to a lawyer with a list of ALL your debts and accompanying paperwork, and be prepared to list all your assets and their current fair market value. It is very important to list ALL debts on the schedule, because failure to do so will cause that debt not to be discharged.

Once the bankruptcy proceeding is filed, creditors cannot attempt to collect their debts or recover their collateral from you unless they first get permission from the court. This is called a “stay”.

Generally, the filing of a bankruptcy is reported on your credit for 7 years. However, since you cannot re-file a Chapter 7 if you have completed a prior one within the past 6 years, then you are actually a good credit risk since you are then debt free.

There is also a Chapter 11 bankruptcy, but it is normally used for corporate “Reorganization”, and is rarely used by individual consumers.

If you would like to know more about bankruptcy and your options, please give us a call at 336-667-1441 or 667-6101. Our fees are very reasonable.