Bankruptcy

To address collection contacts from creditors, stop foreclosure, and stop lawsuits, a bankruptcy is a legal proceeding that may aid you in gaining control of your finances once more. Bankruptcy law is federal law. The law book on bankruptcy contains several distinct Chapters to aid the consumer or business in addressing their obligations. The chapter you file depends on your goals and whether you can qualify for the relief which you are seeking.

Chapter 7: This is the most common filing of bankruptcy. This chapter can be utilized by individuals as well as businesses. A Chapter 7 is selected if your annualized current income is less than the acceptable median family income, as determined by federal guidelines and a document known as the "Means Test." You may also qualify for Chapter 7 by computing the current monthly income and calculating allowed deductions.

The law allows you to exempt as much of your property as possible. Most people who file bankruptcy have little equity in their property to exempt because they have sold or borrowed against their assets prior to filing. Exemptions are quite generous and usually cover most, if not all, of the property which the average person owns. Any property which has value and which you cannot protect with exemptions will be liquidated by the Chapter 7 Trustee for the benefit of your creditors. The typical Chapter 7 proceeding lasts approximately six months from beginning to end. You can reaffirm (keep paying on to retain possession of ) your house, auto loans and other secured debt, if you can afford to do so.

Chapter 13: This is chosen to stop a foreclosure of homestead property, address long-term repayment of tax debts, or to prevent repossession of a motor vehicle. Through a Chapter 13 proceeding, ample time to cure mortgage defaults is granted. In some Chapter 13 cases, entire second mortgages can be removed as a lien from the consumer’s home. Interest on the stripped mortgage ends and such mortgage debt can generally be satisfied for a fraction of the balance owed.

Your budget must show a surplus of income sufficient to fund the plan over an extended period of time. A Means Test must also be completed for determining disposable income and the length of the plan. The Chapter 13 Plan cannot exceed 60 months.

Chapter 13 Plan payments to a bankruptcy Trustee are made via payroll deduction. You stay in peaceful possession of your assets while you pay the amount required of you by the bankruptcy law.

Chapter 11: A reorganization process used usually for a business entity. The proceedings are lengthy and detailed.

A Chapter 11 is filed to keep the business operating. The benefit of a Chapter 11 is to keep the doors of the business open while restructuring its obligations. These proceedings can stop or limit IRS collection proceedings, repossessions by secured creditors, and evictions, among other actions.

An example of restructuring an obligation is to allow for a tax debt to be paid over a period of years after the tax debt has been assessed against the company. Bank debt secured by assets can be paid as secured up to the value of the assets. Any remaining balance of the loan is paid as a general unsecured debt, usually at a fraction of the deficiency amount.