Whenever the economy suffers, the word bankruptcy gets tossed around. Anyone can experience trouble with finances including celebrities, athletes, politicians, business leaders and other prominent public figures. Every day on the news we hear reports of people (famous or not) dealing with financial problems stemming from divorce, medical conditions, mortgage foreclosure, credit problems, and lawsuits. This article will attempt to explain the bankruptcy process. There are many chapters of bankruptcy protection that can be filed such as chapter 7, 11, 12, and 13. Chapter 12 is reserved for family farmers and chapter 11 is reserved for businesses. Both are based upon a very complex set of rules and statutes and will not be discussed in this article.
Chapter 7 and 13 is what most consumers know as bankruptcy. There are major differences between chapter 7 and 13, and in practice each chapter solves a different set of issues. Chapter 13 allows you to stop most debt collection in exchange for your promise to pay your available funds to creditors according to a repayment plan. The typical repayment plans allow you to pay your debts over a three or five year period. At the end of the repayment period, most of your debts can be canceled even if you have not paid them in full, assuming you fully performed your plan.
In filing a chapter 7 bankruptcy, however, you are not seeking a repayment plan. Instead, you are asking the court to cancel most of your debts because you do not have the resources to pay them. It is important to note, that either chapter will treat secured and unsecured debt differently. An example of secured debt would be your home, vehicles, and other similar debt. Credit cards are a perfect example of unsecured debt. Most consumers are surprised to learn that certain credit cards can be treated similar to secured credit. A perfect example of this would be a “store” credit card. Chapter 7 petitions generally take three to six months from beginning to end.
The decision to file for bankruptcy should not be taken lightly. The bankruptcy filing will remain on your credit report for approximately 8 to 10 years. Also, you can only file for bankruptcy protection once every 8 years. If you and your family are considering filing for bankruptcy protection you should consult a local attorney who practices bankruptcy law. They will assist you in determining if bankruptcy is a good choice for your particular circumstances. Most law offices provide a free bankruptcy consultation. You should never be pressured to file bankruptcy. If available the attorney should and will provide you bankruptcy alternatives. Also, it is advised that you meet with the attorney who will prepare your petition. As a consumer, you should also require that the attorney who prepares that petition be the same attorney that will represent you at the 341(a) hearing (also known as the meeting of creditors.)
There are many aspects to a bankruptcy petition, but overall filing for bankruptcy protection allows you and your family a “fresh start.” It is named bankruptcy “protection” for a reason…it provides you and your family protection from creditors under a set of federal laws.
Jeremiah Raxter, Esq