What is Bankruptcy?
Bankruptcy is the legal process in relation to persons or businesses who cannot afford to pay their remaining debts. The Bankruptcy laws are designed to help debtors unable to pay their outstanding balances and help the creditors get relief from whatever kind of assets the debtor has no need for. Bankruptcies are often used as a last resort but it is a not sure way to solve all your financial problems, only certain debts are eliminated when you file for bankruptcy.
In deciding whether to file bankruptcy or not, one must first know about:
- Bankruptcy alternatives
- Kinds of bankruptcy
- Debts to discharge from declaring bankruptcy
Before filing bankruptcy, you can decide on your own to research on what remedies you can make to reduce your debts or improve the state you are in. Credit counseling may help you with advice regarding budget planning, credit report, payment plan, and even handling of an aggressive creditor collection activity that may be stressing you out. However, there are risks of availing credit counselors because some can actually be taking advantage of your situation. To prevent this kind of thing, talking to a bankruptcy lawyer is a safe way to know the possible options or remedies for your situation.
Types of Bankruptcy
There are different kinds of bankruptcy protection and depending on your circumstances, one may be a good solution for you while another may not help you at all. The Bankruptcy Code describes the four most common types of bankruptcy:
Chapter 7 – is the most common type of bankruptcy usually availed by individuals because it enables you to wipe out your debts and help you get a fresh start. A bankruptcy trustee will collect all of your assets and liquidate every asset as long as it is not exempted. Upon selling your assets, you will be paid off any exempted amount and the proceeds of the liquidation will be distributed to the creditors. However, not all debts can be discharged using chapter 7. Child support, student loans, alimony, medical bills, fraudulent debts, and certain nonexempt debts are not included. You may, however, keep your car, house, furniture and other secured items by signing a “reaffirmation agreement.” Not everyone is eligible for this kind of bankruptcy so consulting a bankruptcy attorney may enable you to open up your options.
Chapter 11 – is for troubled businesses whose properties and assets need to be reorganized or liquidated. Corporations and partnerships are the most common users of this chapter though individuals can also apply for it. The debtors will keep their businesses running most of the time and they will work through a reorganization plan to pay the remaining debts.
Chapter 12 – is availed by family farmers and fishermen. It is a relatively new type of bankruptcy wherein there is a restructuring of finances for the debtors while they continue to farming or fishing operations. Allowing them to operate their businesses will enable them to comply with the conditions they proposed in their repayment plan, a proposal to pay creditors over three to five years.
Chapter 13 – is when you have a secured monthly income. This is a viable option if you do not have enough to immediately pay your debts because this will enable you to propose a 3-5 year repayment plan while also keeping your properties. If you can stick to the terms of the monthly payments, you will be out of debt at the end of the plan. The payment will be deducted from the debtor’s future income. This kind of bankruptcy is usually used by people who want to retain their secured assets such as a house and a car. Chapter 13 may be similar to Chapter 7 because the former reorganizes while the latter liquidates.
Discharge of debts
There is debt relief once a bankruptcy discharge has been issued so the debtor is not legally bound to pay back the debts which have been discharged by the bankruptcy. Aggressive creditors are also prohibited from debt collection once the debts are discharged. However, there are exemptions to the kinds of debts and some cannot be discharged by filing a bankruptcy and only those discharged by it removes the debtor from the debts.
Are you struggling to get out of debt? Get a bankruptcy lawyer.
We at Pasadena Bankruptcy Law are experienced in handling bankruptcy cases. If you want to know how to file for bankruptcy but you are not sure of what bankruptcy type to avail or maybe you’re worried about potential liabilities, our bankruptcy attorneys can answer whatever questions you have relative to bankruptcy exemptions, debt settlement, insolvencies, mortgage payments, debt management and many more. Call us now and get free initial legal advice.