Federal bankruptcy laws are intended to provide honest Americans who are over their heads in debt the chance to start over. However, not all types of debt can be completely expunged, and most Americans who go through bankruptcy retain some repayment obligations after the process is completed. Bankruptcy can be straightforward or complex, depending on the debtor’s situation, and seeking the help of a qualified and experienced bankruptcy attorney is without exception the best way to ensure optimum results.
Six standard forms of bankruptcy include:
• Chapter 7 – liquidation of debt
• Chapter 13 – individual wage earner’s adjustment of debts
• Chapter 11 — reorganization
• Chapter 12 – debt adjustment for professional fishermen and farmers
• Chapter 9 — adjustment of municipal debt
• Chapter 15 — ancillary and cross-border insolvency
The majority of individuals file Chapter 7 bankruptcy, although Chapter 13 may be a better choice for debtors who wish to retain certain valuable properties that may be subject to forfeit in Chapter 7. This is one reason that consulting with a bankruptcy attorney can be critical in determining how much debt can be eliminated while retaining the maximum in assets.
Those pursuing bankruptcy must include the following documents with their filings:
• A complete list of creditors with account numbers, phone numbers, and current amount owed
• Details regarding all forms of income
• Records of all property owned
• An itemized list of living expenses
Chapter 7 is also known as “liquidation” or “straight” bankruptcy. Individuals, married couples, plus corporations and partnerships all may be eligible to complete this type of filing. To qualify for Chapter 7 relief, filers must pass a means test that compares their income and expenses to the standards in their region. Those who fall below the income standard will qualify for Chapter 7, while those whose incomes are above the average may have to file under other chapters. Chapter 7 filings require the debtors to complete a credit counseling session as well as a budget analysis. An experienced bankruptcy attorney can assist during this part of the process.
Private individuals can file for Chapter 13 debt relief, as can individuals who wish to discharge indebtedness related to business expenses, but a business entity must file under another chapter, such as Chapter 11. Eligibility for Chapter 13 includes:
• Enough income to fully repay specific debts
• Secured debts not in excess of $1,081,400 (as of 2011)
• Unsecured debts that do not exceed $360,475 (as of 2011)
• Current status on income tax filings
Secured and Unsecured Debts
The type of debts that can be discharged in a bankruptcy filing generally fall into two categories: secured and unsecured. Secured debt is backed up with collateral, such as a home in the case of a mortgage. Concerning this type of long-term debt, there are many variables that can come into play, thus we recommend contacting a bankruptcy lawyer immediately. Shorter-term secured debts, such as a loan for furniture, for example, may be subject to negotiation. A bankruptcy attorney can best negotiate a reasonable accommodation with some kinds of secured loans.
An attorney may negotiate a redemption with a creditor that allows the debtor to pay the current value of the property which secures the loan and thus take full ownership of it, and then treat the remaining debt balance as an unsecured debt in the bankruptcy filing. In other situations, it may make sense to surrender the property that secures a debt in order to be free of the encumbrance. A chapter 13 filing may offer an individual who wishes to keep assets such as real estate, that might otherwise be forfeit, more repayment options.
An unsecured debt is any loan not associated with an asset, such as outstanding credit card balances and personal loans. In general, a bankruptcy will discharge these unsecured debts. However, there are exceptions. Back child support and spousal support, fines, taxes and student loan debts are usually exempt from discharge through bankruptcy.
Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.