What does bankruptcy mean?
Bankruptcy means the legal state of person who is not capable of repaying the debt he owes to the creditor. Usually this state is asked by the debtor, still there are cases when it’s imposed by the city or national court.
Still the bankruptcy doesn’t have only pros as the way to get rid of debts without actually paying them. The bankruptcy procedure also includes various legal forms of insolvency processing in order to partially cover the debts with the help of the debtor’s valuable belongings like the car or the property. Though bankruptcy is used in more cases than the procedure of insolvency, still it is used often enough.
How does bankruptcy work in USA?
The main meaning of bankruptcy is the action of "uniforming Laws on the subject of Bankruptcies throughout the United States” according to the constitution of the United States. This law has been used many times starting from 1801, but after the bankruptcy Reform Act of 1978 has come to action, some rules have changed. It’s now known as “Title 11 of US Code”, still most people who are not too close to law call it “The bankruptcy code”. The last changes in the code appeared to be made in 2005, known as Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. However some laws are considering bankruptcy even not being in the same chapter. For example, the Title 18 in the Crimes section is about the bankruptcy crimes, and Title 26 in Internal Revenue Code concerns tax implication.
Sometimes the bankruptcy case is passed from the city to the state government and further to the country government. Sometimes the law has to be used across the city line as well when the property of the debtor appears to be in the different states.
6 types of bankruptcy
There are six main types of bankruptcy according to the procedure and the law cases. All of them correspond to the defined Chapters in the US law system.
CHAPTER 7 is for the straight bankruptcy meaning the quick liquidation of debts for businessmen or individuals.
CHAPTER 9 is created for the case of municipal debts.
CHAPTER 11 is usually used for the good of business debtors and called the corporate bankruptcy. This type of bankruptcy allows the company to keep functioning while it pays off the debt under the given repayment plan.
CHAPTER 12 is created for the fishermen and farmer rehabilitation.
CHAPTER 13 is meant for the people with the regular income, it also includes the repayment plan.
CHAPTER 15 is the best way for foreign debtors to fix their debts.
Chapter 7 is for the people who are ready to surrender their case to the government and want their debts to be partially fixed by selling their property. This is the fastest way to solve the problem.
Chapter 11 is characterized as “debtor in possession” (DIP). The business still functions, while the debtor negotiates with the creditors and works out the payment plan.
In Chapter 13 the debtor doesn’t have to give off all his valuable belongings, still he has to pay off the part of his future income on the regular basis. The amount of payments is fixed in the payment plan.
Why do people resort to bankruptcy?
Here are three main reasons for the person to do so:
1. Fresh start.
The bankruptcy procedure offers the opportunity to get rid of the debts and savor the benefits of the fresh financial start. If you resort to Chapter 7 of Chapter 13, the creditors will not be able to sue you.
2. Save your belongings.
In case you’re really close to losing your own home, you can almost in all cases resort to the Chapter 13 and pay off the debts according to the private repayment plan so that your property will be still yours.
3. Get free of consequences.
Sometimes our life leaves us with the consequences we’re not able to bare. This might be the divorce, medical help, court case etc. Any kind of income loss might be fixed with bankruptcy.
How much shall I pay for filling bankruptcy?
Though the bankruptcy is usually the way to get rid of the debts in case of the low income, still this is not meant to be done for free. According to the Chapter 7, you will have to make payment in limits of about 200$ or give off 185$ in case you’re using the advantages of Chapter 13. Still if the bankruptcy was stated by the court, you do not have to pay anything at all.
What property might be taken away in case of bankruptcy?
According to the law, not all kinds of property are available for exemption in order to repay the debt. This is usually up to the specialties of each single individual case, so it’s highly recommended to hire the bankruptcy attorney in order to deal with the question. Before hiring the one make sure he’s certified.
Who is in charge of your bankruptcy case?
The bankruptcy is usually the procedure based on the decision of the court. When the person files for the bankruptcy, the federal court is in charge of the whole procedure, most part of which is administrative. You will only have to be present on the creditor meeting, where debtors will consider the debts and assets.
The main purpose of this action will be to consider the value of the estate and make the percent of the returned debt as much as possible. Also the lawyers will try to figure out if the person obtains any hidden assets.
How long does the bankruptcy last?
The different types of bankruptcy obtain various lengths. The Chapter 7 bankruptcy needs about 6 months for the liquidation process. The Chapter 13 bankruptcy may take up to 60 months.
How will bankruptcy affect my credit rating?
The bankruptcy filing will remain in your credit history for the next 10 years. All this time it will affect your credit score. Sometimes the term might be shortened to 7 years. Still this doesn’t mean you will not be able to get credit as long as the bankruptcy is in your credit history.
What are the Bankruptcy Abuse Prevention and Consumer Protection Act?
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) were announced in October 17 in 2005. This made the whole procedure much more complicated in order to prevent people from using bankruptcy as the way for simply not to pay the debts.