What is Bankruptcy Protection?

Written By: Glenn Michaels, Op-Ed Writer

Bankruptcy is one of the founding principles of the United States. Bankruptcy law is very straight forward; it is all about assisting consumers to discharge debt. The United States Bankruptcy Code enables individuals and businesses, who find themselves in desperate financial situations, to start over, “a second chance”. Bankruptcy is meant to eliminate most or all of unmanageable debt through either a complete discharge or via a court supervised repayment plans.

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Bankruptcy may be the best option for individuals and businesses that are unable to pay their bills on time, receiving collection calls from your creditors, facing court judgments, wages being garnished, home is in risk of foreclosure, behind in taxes, behind on child support or alimony, have large medical bills or being evicted from your apartment.

Bankruptcies can be handed by an attorney representing you or can be handled Pro Se by yourself.

Individuals have a choice of two kinds of bankruptcy filings, Chapter 7 or Chapter 13.

Bankruptcy Chapter 7
A Chapter 7 bankruptcy looks to immediately eliminate all dischargeable debts. This type of filing is commonly referred to as a liquidation or straight bankruptcy. Individuals and businesses can file bankruptcy under Chapter 7.

For individuals there is a means test that must be satisfied in order to qualify to file under Chapter 7. If your income exceeds a certain amount, which is based on the median household income for the county that you reside in individuals may not be able to file under Chapter 7.

Under a Chapter 7 case a bankruptcy trustee is charged with gathering and selling any non-exempt property an individual owns and uses the proceeds from the sale to pay creditors. This sounds much worse than it actually is. In most states there are generous exemptions that allow generous exemptions that allow most people to keep all of their personal property when filing under Chapter 7.

After the filing of the bankruptcy petition, an automatic stay immediately takes effect that requires all creditors to stop all collection efforts. After filing, creditors are no longer allowed to collection calls or send you demands for payment and all foreclosure and garnishment activities must stop immediately.

Within a month or so after filing under chapter 7 or 13 the bankrupt person will be required to attend a meeting of creditors where bankruptcy trustee will ask a series questions concerning the finances. Your creditors can attend this meeting and ask questions as well. In personal bankruptcy cases it is rare for creditors to appear at these meetings.

Your home, cars and other property where money is still owed, reaffirmation agreements will have to be completed and signed. These debts will not be discharged through the bankruptcy and continue to make payments to these creditors.

Unless there is some non – exempt property to be sold, this is rare; a bankruptcy chapter 7 case can be usually concluded with an attorney in four to five months after filing.

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Bankruptcy Chapter 13
A chapter 13 bankruptcy is sometimes referred to as a wage earner’s bankruptcy. This type of bankruptcy allows individuals to develop a plan to repay part of their debts over a period of three to five years. Chapter 13 bankruptcies are typically filed by individuals who make too much money to file a Chapter 7.

A chapter 13 can offer a number of advantages over chapter 7 liquidation. Filing under a chapter 13 puts an immediate stop foreclosure proceedings and formulates a plan to pay your past due payments over an extended period of time. Depending on the situation at hand the second or third mortgage maybe eliminated.

Filing a Chapter 13 bankruptcy is a way to consolidate debt under which you make payments to a bankruptcy trustee who then distributes the payments to the creditors. Usually the amount paid is the amount of “disposable income” that available monthly. Creditors may not be repaid in full in order for the court to approve your repayment plan.

About The Author

Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

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