Tens of millions of people in this country suffer from the strains of debt: Mortgage Debt, Credit Card Debt, Auto Finance Debt, Tax Debt, Student Loan Debt!
For some of these people, filing bankruptcy may be the best option to dig out of a bad situation. A consultation with a competent attorney may be the first step in digging out.
What is bankruptcy?
Bankruptcy is a concept as old as the Bible. In biblical times, in the Jubilee Year, all debts owed to creditors would be forgiven. In our United States Constitution, the privilege of filing for bankruptcy is inscribed. While some people still perceive there being a great stigma in filing for bankruptcy protection, most people recognize that it is not only legally mandated, but is well-rooted in good ethical and moral behavior.
The term “Bankruptcy” refers to a proceeding in a special court called the “United States Bankruptcy Court” in which a person (the “debtor”) files a “petition” and obtains “relief” from the court. The petition is a document which lists four broad categories of information about the debtor:
(a) AssetsThe bankruptcy process, an overview:
(b) Debts
(c) Income
(d) Expenses
After the petition is filed with the court, the debtor is interviewed by a court-appointed trustee, who inquires as to the circumstances that led up to bankruptcy and determines whether there are any assets to administer on behalf of creditors. The end result of a bankruptcy case is the “discharge” of debts.
In order to prepare for the decision as to whether bankruptcy is appropriate, the person should assemble various documents, such as tax returns, paystubs, account statements for all debts, appraisals of property, deeds or title to property, and bank statements.
Through the bankruptcy process, the debtor may be permitted to retain property which is “exempt” from creditors. There are various exemptions under law which permit a debtor to keep property, such as household furnishings, homestead exemption in real estate, pensions, and other items. The skilled practitioner will assist in finding exemptions for most or all of the debtor’s property. If property is not exempt, then the trustee can sell it and pay over the sale proceeds to creditors.
For many people, the decision to file bankruptcy is motivated by one or both of the following two factors:
- Discharge of debt: Most debts will be discharged. This means that the debtor will no longer be obligated to repay the debts. Some debts are not dischargeable because they are exceptions to the rule, such as domestic support obligations, tax debt, or government fines. However, even some of these seemingly nondischargeable debts may still be discharged. Other debts may be “secured” on property for collateral for the loan, such as a home mortgage or auto finance loan. These debts might not be discharged because the creditor may seek to take back the property.
- Automatic stay: The other major reason people file for bankruptcy is to get the benefit of the “Stop” sign – the automatic stay. Sometimes, creditors are calling the debtor day and night to get payments on accounts; sometimes, there is a garnishment on the debtor’s wages; and sometimes, bank accounts are being seized. Once the bankruptcy is filed, creditors are “stayed” or stopped from pursuing the debtor further. For many debtors, this is quite a relief!
There are two general types of bankruptcy cases:
The first type is a Chapter 7 bankruptcy, also known as a “liquidation proceeding” or “straight bankruptcy.” In this case, the debtor turns over to the trustee all non-exempt assets, in order for the assets to be liquidated or sold by the trustee to pay creditors. It is no secret that 95% of personal bankruptcies are “No Asset” cases, in which the debtor has no non-exempt assets to turn over to the trustee.
The second type is a “Reorganization” proceeding, which can be filed under Chapter 9 (municipalities); Chapter 11 (corporate entities and larger-debt cases); Chapter 12 (family farmers); and Chapter 13 (individual wage-earner cases). In a reorganization case, the debtor has non-exempt assets he wants to keep, such as a home, and proposes a plan to repay creditors a certain amount of money over a certain term.
If you have questions concerning bankruptcy, please feel free to contact the law offices of Richard A. Klass, Esq. by phone or e-mail for more information.
— by Richard A. Klass, Esq.
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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
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