There are many reasons for financial difficulties, such as loss of a job,
too many credit cards, large medical expenses, marital problems and other large
unexpected expenses. Money problems can be emotionally wrenching and seriously
damage family relations. However disturbing the idea of bankruptcy might
initially seem, in fact, bankruptcy laws exist to help people who are unable to
pay their bills.
Bankruptcies are a way for people with financial
problems to eliminate some or all of their debts and gain a fresh start.
Bankruptcies begin with the debtor filing a petition in bankruptcy court. The
petition is usually completed by a lawyer. Filing the petition automatically
stops most creditor actions, including harassing phone calls, threatening
letters, foreclosure proceedings, eviction proceedings and most lawsuits.
Types Of Bankruptcy
There are several types of bankruptcy,
including:
- Chapter 7. This is for people whose
debts far exceed their assets and ability to pay. In a Chapter 7 bankruptcy
(also called a "Liquidation"), the debtor turns over all non-exempt property
to a bankruptcy trustee, who then converts it to cash for distribution to
creditors. Generally, most property of the average debtor is exempt and he or
she continues to own them. The definition of "exempt property" differs in each
state, and it can include clothing, furniture, household appliances, jewelry,
tools of the trade, retirement plans and perhaps your home and car. In most
Chapter 7 cases, the debtor receives a discharge releasing the debtor from
personal liability for certain dischargeable debts. The discharge is normally
received just a few months after the bankruptcy petition is filed.
- Chapter 13. These bankruptcies are
designed for people who have a regular source of income and can work out a way
to pay their debts over time. Under Chapter 13, the debtor is placed in a
repayment plan approved by the bankruptcy court. He or she then makes payments
to the bankruptcy trustee for distribution to creditors. The repayment plan
usually lasts three to five years. The repayment plan can be used to extend
the time to repay bills. Chapter 13 is very different from Chapter 7, since
the Chapter 13 debtor usually keeps possession of property and makes payments
to creditors, through the trustee, based on his or her anticipated income over
the life of the payment plan. The debtor must complete the payments required
under the plan before the discharge is completed. While the plan is in effect,
the debtor is protected from lawsuits, garnishments and other creditor actions
associated with pre-petition debts. Chapter 13 bankruptcies are only for
people who meet certain financial requirements.
- Chapter 11. These bankruptcies are
used mostly by businesses. They allow a business to continue operating while
it repays creditors pursuant to a payment plan.
Common Reasons For Filing BankruptcyBankruptcy is a way for people with
financial problems to get a fresh start. Bankruptcy might be advantageous if any
of these situations apply to you:
- You recently lost your job and have a large amount of debt.
- You took on too much credit card debt and are having trouble making
minimum payments.
- You are finding it hard to pay for essentials like food, clothing and
shelter.
- Your credit cards are charged to the limit and you have no other sources
of borrowing.
- Bill collectors are writing or calling and threatening to take legal
action against you.
The Bankruptcy DischargeA main goal of filing bankruptcy is to obtain
relief from burdensome debt. Relief is achieved through the bankruptcy
discharge. A discharge is a release of the debtor from personal liability for
certain types of debts. In other words, the debtor is no longer required by law
to pay these debts. The discharge is a permanent order to the creditors to stop
all collection action on discharged debts, including legal action and
communications like calls and letters. If the creditor tries to collect a
discharged debt, the debtor can ask a court to impose sanctions, including
fines.
When does the discharge
occur? The timing of the discharge varies depending on the type of
bankruptcy. In a Chapter 7 case, the discharge usually occurs when the time for
filing a complaint objecting to the discharge expires, which is typically about
four months from when the debtor files the petition. In a Chapter 13 case, the
discharge is granted by the court as soon as practicable after the debtor
completes all payments under the plan (usually three to five
years).
Are all debts discharged or only
some? Not all debts are discharged. The most common types of debts that
cannot be discharged are certain tax claims, debts not set forth by the debtor
on lists flied with the court, debts for spousal or child support, debts for
intentional injury to person or property, and government fines and
penalties.
Recent Changes In Law
On October 17, 2005, the credit card and banking companies were successful in
lobbying for significant changes in the bankruptcy law. The new laws are
designed to stop the "Serial Filer" and force people into a repayment plan. In
general, the Bankruptcy Reform Act of 2005 has made it harder for people to file
bankruptcy, by creating more obstacles to file and get a Chapter 7
discharge.
However over the past 15 months we have found that through hard work and due
diligence those people who need relief are able to achieve it. A "Fresh Start"
is still possible and many of our clients have been able to put this painful
chapter in their lives behind them.
ConclusionToday, for the most part, the old stigma of bankruptcy is
gone, as bankruptcy has been used by thousands of hard working people who just
took on too much debt, lost a job, had uninsured medical bills or had other
financial problems. If you have financial problems, call us to learn about the
choices for solving them as well as the benefits and other aspects of filing
bankruptcy. Call promptly to avoid missing benefits that can be lost with the
passage of time.
This article is published for the clients and friends of this firm. It
provides general information. Due to complexities and constant changes in the
law, exceptions to general principles of law, and variations of state laws, one
should seek professional legal advice before acting on any matter.
The Bronsther
Law Firm, P.C.
930 Route 146 Clifton Park, New York 12065
(518)
373-9000
PRACTICE AREAS
Real Estate. Bankruptcy. Elder Law
Estate
Planning & Administration
Business Sucession Planning |
