About Bankruptcies
The intention of bankruptcy is to allow a person to delete their debts and get a fresh start while at the same time repaying creditors the largest amount possible by distributing the debtors finances and non-exempt assets. Bankruptcy legally discharges a business or person of their previous debts regardless of whether they were fully paid off, and also guards the debtor from being harassed by any additional collection attempts on the debts.Bankrupcy is basicly declaring that you arn't able to pay off your existing debts and you'd like to start from scratch. If only it was that easy.
In the United States, bankruptcy is looked after primarily under the federal Bankruptcy Code; found in Title 11 of the United States Code. State law does intervene in some states, so while some generalizations can be made about the process - specifics may change from state-to-state. Regardless of location however, bankruptcy cases are consistently filed in United States Federal Bankruptcy Courts.
Bankruptcy Chapters:
There are 6 different types of bankruptcy in the United States Bankruptcy Code, though Chapters 7 and 13 are typically used for individuals.
Chapter 7 Bankruptcies
Chapter 7 is commonly called "straight" or "liquidation" bankruptcy. By going through a Chapter 7 a debtor will typically be made to give up their assets to a trustee, that are then sold to raise funds that are used to pay off present debts with creditors. What assets are allowed to be sold changes from state-to-state, certain 'necessities' such as a vehicle and primary home are exempted most times, along with tools and equipment that to continue working afterwards.When a petition for bankruptcy is filed, what is referred to as a bankruptcy estate will be formed. The debtors assets (with the exception of exemptions) are moved to this estate for liquidation. A trustee will be appointed to represent this estate and determine the distribution to those creditors who are owed money, though technically the trustee doesn't represent either party particularly.
Generally it takes around three months after filing a Chapter 7 before what's usually called a discharge is entered. That is a court order that stops creditors from any more collection attempts on non-secured debts that were owed on or before the original Chapter 7 filing date.
Not all debts can be included, notably what is owed to the government and family court orders. Debts that are normally not included for discharge are:- Student loans
- Back Taxes
- Child and spousal support
- Government fines and penalties
- Credit cards
- Medical bills
- Personal loans
- Breach of contract or liability for negligence
Chapter 13 Bankruptcies
Chapter 13 bankruptcy is the same as a government planned debt management method for individuals. To qualify, a debtor has to have secured debts that add up to no more than $807,750 and unsecured debts lower than $269,750 - and In most cases is required to still be bringing in an income to make this an worthwhile alternative to Chapter 7.Under a Chapter 13 an individual keeps their assets as opposed to giving them over to an estate, but must make regular payments to a trustee, who gives the money to owed creditors. These payment plans usually stretch out over three to five years, with any kind of residual debt discharged after that. In most cases, a Chapter 13 will not be approved if the creditors would otherwise receive more under a Chapter 7 arrangement.