Bankruptcy is federal law that provides a way for a person, or a business, to get out from under an oppressive debt load. There are a number of criteria that a person needs to meet to be able to use bankruptcy law to get rid of their debts. There are measures to prevent you from abusing the system. There are several forms of bankruptcy.
The first is “Chapter 7”, often called a “full or liquidation” bankruptcy. If a person qualifies for Chapter 7, they can get all, or most, of their debts discharged, or cancelled, without having to pay them. The first criteria for qualifying for a Chapter 7 is a limit on how much income you can have. If you earn too much, you cannot file a Chapter 7. The second requirement is that if you own too much, you may have to give up some of that property to pay down your debts before the rest of your debts are discharged. A reasonable amount of what you own can be “excluded” from the Court being able to take it. But if you own too much, losing it to the Court may be the price you have to pay to get the rest of your debts discharged.
The process for a Chapter 7 is simple. We run a credit report against all 3 credit bureaus to identify your debts. Not all debts are listed on the credit report, so you may have to provide the information on the missing debts. All debts have to be reported in the bankruptcy, even those that you intend to pay. You have to take two classes, one before you file, and one after you file. They are short courses, approximately 1.5 hours, that you take over the internet or by phone. You have to provide detailed information on what you owe, what your income from all sources is, what your expenses are, and what you own. We use this information to prepare your petition, and file it with the Court. The Court will notify all your creditors that you are filing bankruptcy, and are not allowed to attempt to collect their debt. You will meet with a “bankruptcy trustee” about a month after you file. The meeting is brief and informal. The trustee is required by law to confirm the information on your petition. If you have property that the Court is allowed to take, the Trustee will take it, and start to pay your creditors. Otherwise, your creditors are notified that you don’t have any property the Court can take, and they will not be getting anything. About 60 days after the meeting with the Trustee, you will receive a “Discharge Order” from the court that will cancel your debts. There are some debts that are not discharged. If you have a “secured” debt, such as a home mortgage or car loan, if you wish to keep that property, you have to pay the associated debt. Recent back taxes, child support and spousal support, school loans, and court fines are not discharged. You will have to make arrangements to pay these debts.
If you earn too much to file a Chapter 7, or do not wish to surrender the property that the Court could take, you can file a Chapter 13 bankruptcy, which is a repayment plan. The Court reviews your income and expenses, and sets an amount that you will have to pay to Court every month for 3 to 5 years. These payments are used to pay your creditors. Ideally, the Court would like to pay off all your debts under this plan. But if that is not possible, the balance of the debts (other than secured debts) is discharged at the end of your plan. There are other useful features in a Chapter 13. If you are behind on your house payments, you have 36 months to bring them current without the lender being able to foreclose on your house.
There is a Chapter 12, which is similar to a Chapter 13, but is intended for farmers or fishermen.
Finally, there is a Chapter 11, which is used by businesses to reorganize their debt. It provides for workable repayment plans, conversion of debt into equity (ownership), and other arrangements for dealing with debt. Small businesses that are deeply in debt may opt for a Chapter 7.
We provide a free initial consultation to determine what your situation is, and what options are available to you, and what the costs will be. We focus primarily on Chapter 7 cases. If that is not the best course for you, we can refer you to other attorneys, or recommend alternative measures, such as debt consolidation or debt settlement.