The Bankruptcy Code provides for four different types of bankruptcy filings for individuals and married couples, Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
Chapter 7
The most common type of Bankruptcy that is available for consumers. It is also called complete or liquidation bankruptcy. The bankruptcy court appoints a trustee who administers the bankruptcy. The individual or married couple filing for bankruptcy usually retains all the typical types of household goods and clothing. He/she/they may also retain his/her home and vehicles as long as they do not have more equity in those items than they can exempt. If there is not enough equity in property to result in liquidation of an asset, then the individual or couple in bankruptcy will keep the asset and there will not be a liquidation. If the individual or couple in bankruptcy desires to keep a car secured by a car lien or a house encumbered by a mortgage, they must pay all car and mortgage payments as they fall due and pay the insurance on those items or risk losing the asset to a secured lender. A chapter 7 bankruptcy usually lasts about three to four months. At the end of the bankruptcy, most debts are extinguished through a discharge.
Chapter 11
is occasionally used by individuals with extremely high amounts of secured or unsecured debts but is primarily used by businesses and corporations that wish to pay off their debts through a repayment plan.
Chapter 12
is a type of bankruptcy available for family farmers and fishermen. It functions much like chapter 13 in that it is a repayment plan but it is structured so that repayment is on a seasonal schedule to match the Debtor’s income stream.
Chapter 13
Another type of bankruptcy available for individuals. This bankruptcy lasts for the duration of a debt repayment plan, from three to five years. General unsecured creditors are usually only repaid a percentage of what is owed, but past due taxes must be paid in full, as well as arrearages on secured debt, such as a mortgage or car loan. This bankruptcy may allow individuals to keep a home or car even if they have become seriously delinquent on the loans. At the end of a successful bankruptcy, most debts are extinguished through a discharge.
Frequently Asked Questions
People file for bankruptcy for a great many reasons. Obviously, most people file for bankruptcy when they don’t have enough money to pay their bills. Some incur too much credit card debt to handle based upon their income level. Some are facing financial crisis due to a separation or divorce or other family related matter. Others have problems stemming from loss of employment. For many, bankruptcy comes when they are faced with medical problems. Some are thrust into bankruptcy when they based their standard of living on funds from overtime work, which ultimately ended. Many buy a house with a mortgage that’s too big. Unexpected, large expenses with a home or car drive some people into bankruptcy. Some people file for bankruptcy because of personal problems that get out of control such as gambling, drinking, drugs or criminal conviction. Whatever the reasons, and the above list is just a small sampling of the reasons people might need to file, people do sometimes reach the point where they need to consider filing for bankruptcy.
Bankruptcy can be a good tool used to help relieve some stress and get someone back on track to financial freedom where the person has a competent counselor to assist them in the process. Keep in mind you must be committed to rebuilding your credit after bankruptcy to reap the full benefits of a filing.
According to the Administrative Office of the U.S. Courts, there were a total of 1,071,932 bankruptcy filings in 2013 with 1,038,720 of that number detailed as non-business filings. By the end of 2013, the United States Census Bureau estimated the population in the United States to be approximately 317,292,487 people living in the United States. Assuming that each non-business bankruptcy filing means one person filed for bankruptcy, then one out of every 296 individuals in the country, including the number of children, filed for bankruptcy in 2013. A bankruptcy filing can include a husband and wife and therefore bankruptcy filings were more common than even one of every 296 individuals.
You probably know several individuals who have filed for bankruptcy, they just didn’t tell you. A bankruptcy filing can be a fairly well-kept secret, notwithstanding that it is a matter of public record. It is unlike a divorce filing, where one party usually moves out of the marital house. A household in bankruptcy can look pretty much the same before bankruptcy as it does after bankruptcy.
The primary benefits of bankruptcy are four-fold.
The first benefit is that on the filing of bankruptcy, creditors are generally barred from debt collection by what is called the automatic stay in bankruptcy. Creditors’ telephone calls stop, debt collection stops, car repossessions stop and mortgage foreclosures and other law suits are stopped such as garnishments and warrants in debt. Some of these actions are stopped permanently when the discharge of debts is issued, but others are only stopped temporarily even if the discharge of debts is eventually issued.
The second benefit is that most consumer bankruptcy cases end with the issuance of the discharge of debts. The discharge extinguishes most credit card debt and medical debts as well as many other types of debt.
The third benefit is that each individual debtor filing for bankruptcy can exempt/protect certain property from the claims of creditors.
The fourth benefit, available in a reorganization type bankruptcy only, such as chapter 13, is that a bankruptcy repayment plan will allow a debtor to pay off taxes, the arrearages on his or her mortgage and cars and it can allow you in some cases to reduce the interest rate on your car, furniture and some mortgages over a period of up to five years.
We here at Royer Caramanis work hard with you to help you re-establish your financial freedom and to help you with the stress of overwhelming debt issues.
Most individuals who file a bankruptcy under Chapter 7 or Chapter 13 will not lose their house or vehicle because of the bankruptcy filing. You will lose your house or car if there is a mortgage or vehicle lien on those items and you fail to keep the payments current or fail to properly insure those items. You are allowed to protect from the bankruptcy process a certain amount of equity in a house or car through what are called bankruptcy exemptions. For most of the individuals filing for bankruptcy, these exemptions are adequate to allow an individual filing for bankruptcy to keep his car or house.
Depending on the value of the pension, and the legal manner in which the pension is held, your pension may or may not be exempt from the bankruptcy process, depending on what other property you own and what claims are against you and your spouse. A consultation with a lawyer qualified in bankruptcy will be required to adequately answer that question under the facts of a specific case.
If everything proceeds well with your individual bankruptcy, you will receive a discharge of certain debts from the bankruptcy court at the end of your bankruptcy. A discharge of debts will generally extinguish credit card debt, medical bills, unsecured loans, and many other types of debt. A discharge in bankruptcy will generally not relieve you of paying a mortgage or car loan if you keep those items. A discharge of debts will also generally not relieve you of paying alimony, maintenance, child support, student loans, taxes, claims from creditors based upon a fraudulent act by you, and criminal restitution and driving accidents caused by drugs or alcohol. In certain, limited cases, income tax may be eliminated by a discharge of debts.
If you receive a discharge of a debt that was co-signed or guaranteed by another person, that person will remain liable to pay that debt, even though you are freed of that obligation.
No. If you otherwise keep your credit clean after the filing of bankruptcy, your credit will be largely rehabilitated in about one to three years after you receive the discharge of debts in bankruptcy. If you have kept your credit clean since the bankruptcy filing, your credit will probably be better in two years after the issuance of the discharge than it would have been had you not filed for bankruptcy, but retained your unpaid bills. There are also steps you can and should actively take to rebuild your credit after a bankruptcy. Your attorney should be happy to discuss those post-bankruptcy options with you.
No. Nonetheless, there are a myriad of situations where it is advisable for both spouses to file a bankruptcy together. These situations include, but are not limited to: when the spouses hold significant joint debt, apart from a mortgage or car loan; when the spouse seeking bankruptcy protection has incurred emergency medical debt; or where the spouses owe joint tax obligations. If they both owe on joint credit card debt, and only one spouse files for bankruptcy, the credit card company will demand payment from the spouse not filing for bankruptcy. There are also several other instances your attorney can and will discuss with you regarding whether both or just one spouse should file for bankruptcy that are very fact specific and therefore any advice on that topic must be individualized to meet your needs.
Shannon has successfully helped hundreds of clients navigate the bankruptcy process. She is dedicated to assisting people who are facing extreme financial hardship and is a willing counselor throughout the bankruptcy process for her clients.
