Tip! The next step in filing for bankruptcy is to determine exactly what assets you have available to you. Your assets include your recurring income from your job, your home and major items of personal property that you might own (including such items as motor vehicles).
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however, in the majority of cases, bankruptcy is initiated by the bankrupt individual or organization.
The purposes of bankruptcy are: (1) to give an honest debtor a “fresh start” in life by relieving the debtor of most debts, and (2) to repay creditors in an orderly manner to the extent that the debtor has the means available for payment.
The word bankruptcy comes from the ancient Latin bancus (a bench or table), and ruptus (broken). Bank originally signified a bench, which the first bankers had in public places, markets, fairs, etc. on which they tolled their money, and wrote their bills of exchange. Therefore, when a banker failed, he broke his bank, to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business.
Tip! It is true when they say that the bankruptcy laws can be rather complex. One of the most common is Chapter 7, which discharges all financial debts.
Bankruptcy in the United States is placed under Federal jurisdiction by the United States constitution, which allows Congress to enact “uniform laws on the subject of Bankruptcy throughout the United States.” Its implementation, however, is found in statute law. The relevant statutes are incorporated within the Bankruptcy Code, located at Title 11 of the United States Code.
There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code:
Tip! Pay all of your bills on time. Bankruptcy is a means to financial recovery.
? Chapter 7 (a liquidation-style case for individuals or businesses).
? Chapter 9 (Municipal bankruptcy).
? Chapter 11 (a more complex rehabilitation-style case used primarily by business debtors, but sometimes by individuals with substantial debts and assets).
? Chapter 12 (a payment plan or rehabilitation-style case for family farmers and fishermen).
? Chapter 13 (a payment plan or rehabilitation-style case for individuals with a regular source of income).
? Chapter 15 (ancillary and other cross-border cases).
The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13.
Chapter 7 personal bankruptcy is also known as straight bankruptcy, or liquidation bankruptcy. Under Chapter 7, debtors give up certain property that they own when they go bankrupt. The property is sold, and the proceeds are used to pay the creditors. In most cases debtors do not have any assets, and thus in most cases they do not lose anything. In most Chapter 7 cases most debts are discharged about 90 days after filing. Debts that are discharged (which means they go away) include credit card debts. Debts that are not discharged would include child support payments and some taxes and student loans. Secured debts, such as car loans and house mortgages, are also not discharged.
Tip! The final step in considering bankruptcy is to actually engage the services of an attorney. At this juncture, you attorney will prepare a bankruptcy petition on your behalf that will be filed in the bankruptcy court.
Under the new rules implemented as a result of the 2005 Bankruptcy Reform, it is now more difficult to qualify for Chapter 7 bankruptcy. Debtors are subject to a means test, and if income exceeds limits set by the government, the debtor must file under Chapter 13.
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Chapter 13 bankruptcy is a reorganization plan for individuals. To qualify for Chapter 13, an individual must have secured and unsecured debts under a certain amount. Under Chapter 13 the debtor keeps all of their property, but in return they make regular payments to a trustee, who distributes the payments to the creditors. Most Chapter 13 plans last for three to five years, and then eligible debts are discharged. The types of debt that can be discharged under Chapter 13 was substantially scaled back by the 2005 reform amendments. Creditors may challenge a Chapter 13 plan but a plan can still be confirmed over their objection if the criterion for confirmation is otherwise met.
Tip! It is also a requirement, for those wishing to obtain a bankruptcy home loan, to have a debt-to-income ratio of between forty-five to fifty percentile range.
Chris Simons is a prolific freelance writer. You are welcomed to visit http://bankruptcy.cyberinformer.com, for more information on Bankruptcy.
