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What is Bankruptcy?
If you find yourself in a serious financial situation making it impossible for you to pay your debts, your last course of action might be filing bankruptcy. Bankruptcy is a solution to help individuals get a fresh start by discharging most of their debts, allow businesses to liquidate assets or reorganize, or work out a plan to pay back what they owe.
Filing for bankruptcy can be a daunting process but working with a qualified attorney can make that process a bit easier to navigate. Your specific situation determines which type of bankruptcy you can file.
Chapter 7 Bankruptcy
The most common bankruptcy chapter used by Individuals and businesses with the desired goal being discharge of debts. If it is determined one cannot repay their debts, the courts appoint a trustee to handle the sale of assets to pay back as much of what is owed as possible and the remainder of the debt is erased. Some debts cannot be excused including student loan debt, income taxes, and child or spousal support. Chapter 7 bankruptcy will stay on your credit report for 10 years.
Chapter 13 Bankruptcy
The second most common chapter of bankruptcy for individuals that have a reliable source of income to repay at least some of their debts over a period of three to five years.
Chapter 11 Bankruptcy
An option for businesses struggling with their debts. This solution allows the business to reorganize their business affairs including their debts. The business can downsize, sell assets, or renegotiate debts as part of Chapter 11 bankruptcy. The desired result of Chapter 11 bankruptcy would be a business settling their debts and becoming profitable again.
What is the Trustee’s Role in the Bankruptcy’s Proceedings?
Chapter 7 Bankruptcy – A Trustee will help manage many crucial aspects of a Chapter 7 bankruptcy. The Trustee will first collect all information in regards to the property owned by the debtor and will be the one to administer the sale of the bankruptcy’s estate’s property. All proceeds will be distributed to creditors through the Trustee and the Trustee will mediate any challenges that surface from the creditors. If the case were to lead to a discharge, the Trustee would be the one to object to it if needed.
Chapter 13 Bankruptcy – The Trustee in a Chapter 13 bankruptcy case serves a large role in the debtor’s ability to restructure, repay or possibly challenge the sum of debt owed. The Trustee will oversee the repayment plan that the debtor proposes and will make objections if needed. The Trustee will also be in charge of collecting the payments from the debtor and will pay out thus necessary to creditors to ensure all stays according to plan.
The Ups and Downs of Bankruptcy
Benefits: There are a ton of benefits to declaring bankruptcy if you are finding yourself in financial hardship. You will take the steps to prevent creditors to repossess your assets such as vehicles, put a halt to possible wage garnishment or even simply to keep the lights on. Although the bankruptcy will stay on your credit for 7-10 years, these are the first steps to a rise in your credit score. There is even an opportunity to discharge your obligation to repay portions of your debt which will give a sense of financial relief. In the cases of Chapter 7 and 13, you will have a Trustee to help manage and guide you through your proceedings. Assistance in repayment, restructuring and overall debt management will make the process of bankruptcy very smooth.
Downsides: Although filing for bankruptcy holds the intention for a better financial future, there are many reasons why it will possibly hinder your ability to do a lot for an extended period of time. With it reporting on your credit for 7-10 years, it makes it tough to get a loan or a mortgage. Tax refunds run the risk of being denied as well as credit card companies may close your account which would lessen your chances of opening another right away. Your personal property may end up being seized in the bankruptcy and sold to the creditors to repay your debt which is a major loss. Accumulatively, this will potentially put you in another sense of financial hardship and it is not possible to file for bankruptcy for 8 years after your initial filing so it will be your responsibility to manage until another window of opportunity reopens.
History of Bankruptcy
The history of bankruptcy dates back to 1800 where Congress passed the Bankruptcy Act of 1800, the first law relating to bankruptcy but it wasn’t till 1898 until there was a permanent bankruptcy law in place. After many amendments made, the Bankruptcy Reform Act was passed bringing in the element of “Bankruptcy Code” giving a large sum of power to judges. Many years later, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed which brought in the Means Test. The Means Test was the guidelines of what qualified a debtor to file for Chapter 7 or if they needed to file for a Chapter 13 bankruptcy. With the reform in 2005, this allowed programs for debtors to educate themselves and become counseled to reform their credit and financial standings.
This article contains general legal information and does not contain legal advice.