Bankruptcy – Basics
What is Bankruptcy?
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay then under the protection of the bankruptcy court.
To begin, Parr Law Group will assess your needs, your goals, and what you can afford to lose or keep. Declaring bankruptcy is largely determined by the results of a Means Test. Then we will determine what Chapter in bankruptcy is right for you, and what your dischargeable debt are, some debts are not cleared by bankruptcy which are court fines, HECS debts, child support payments, debts incurred by fraud, and student loans. Even after declaring one bankrupt, these dues need to be paid back in regular terms.
Is Bankruptcy right for me?
Are you afraid of bankruptcy? Are you wondering if you should file for bankruptcy? Bankruptcy is not as bad as you expected, and if you are:
- Losing sleep at night or worrying during the day about your financial situation?
- Frequently paying bills late?
- Experienced a dramatic drop in income from the loss of a job, illness or disability?
- Only pay the minimum on your credit cards?
- Using one credit card to pay off another?
- Creditors threatening lawsuits, foreclosure of your home, or repossession of your car?
- Gone through a divorce resulting in a decrease of income, but an increase of your personal expenses?
- Sacrifice basic necessities just to make ends meet?
- Being harassed by your creditors and collection agencies
Then bankruptcy may provide the relief you need contact us now and we may be able to help you.
Before you can file for bankruptcy, you must complete a credit counseling course with an agency approved by the United States Trustee’s office (we will provide you with an approved agency in your area). The purpose of this counseling is to give you an idea of whether you really need to file for bankruptcy, and explains more about the benefits and burden of bankruptcy.
Counseling is required even if it’s obvious that a repayment plan isn’t feasible or you are facing debts that you find unfair and don’t want to pay. You are required only to participate, not to go along with any repayment plan the agency proposes. However, if the agency does come up with a repayment plan, you will have to submit it to the court, along with a certificate showing that you completed the counseling, before you can file for bankruptcy.
Toward the end of your bankruptcy case, you’ll have to attend another counseling session, this time to learn personal financial management. Only after you submit proof to the court that you fulfilled this requirement can you get a bankruptcy discharge wiping out your debts.
A discharge is when the debtor is no longer legally responsible for his/her debts. Each type of bankruptcy offers a discharge of certain debts of the debtor. However, the type of debts discharged and the qualifications to receive a discharge vary with each chapter and also vary among the different types of debtors. Once a debt is discharged, it can no longer be collected from the debtor.
Bankruptcy and foreclosure will damage the debtor’s credit score. However, sometimes bankruptcy is the preferable option when trying to rebuild credit because a foreclosure will damage a credit score for many years and will not get rid of other debt, and is particularly harmful if the debtor is in the market for a new home. Discharging debts in bankruptcy will harm the debtor’s credit score, but can also help rebuild a credit score quicker than a foreclosure because bankruptcy leaves the debtor solvent and debt-free and able to start rebuilding good credit sooner.
A debtor may be able to eliminate a lien through a chapter 11 or chapter 13 plan if the lien has no value after deducting the senior liens from the current market value. For example, if a home is worth $310,000, and there is a first mortgage of $300,000 and a second mortgage of $100,000, the second mortgage is completely unsecured. Since the first is the only secured lien, the second lien may be stripped because it has no value. The debtor might have to pay a portion of the stripped lien, along with other unsecured debts through the bankruptcy plan.
The Automatic Stay
The automatic stay is one of the most important features of bankruptcy. It provides the debtor with a breathing spell to get his/her financial situation in order and make a fresh start. Furthermore, it prevents the commencement or continuance of most actions by creditors against the debtor or the debtors property, such as starting or continuing collection actions, wage garnishments, lawsuits, repossessions, foreclosures, letters and telephone calls.
Some assets of an individual debtor are exempt from the claims of creditors. Exempt assets can be retained by an individual debtor after filing for bankruptcy and cannot be sold by a trustee in bankruptcy to pay the claims of creditors. Whether an asset is exempt often will depend on applicable State law and the Bankruptcy Code.
A special note on foreclosure
Bankruptcy can be a helpful source when faced with foreclosure. A failure to keep current on mortgage payments may give the lender an opportunity to take steps to foreclose, where the lender enforces the terms of the loan by selling the house at a public auction and taking payment of the debtor’s loan out of the auction.
The foreclosure process begins after payments are missed for at least two to four months. This gives the debtor time to consider alternative options, such as loan forbearance, a short sale, or a deed in lieu of foreclosure. However, if the debtor failed with those measures, it is a good time to consider bankruptcy as a possibility for avoiding or stalling the foreclosure process.
When the debtor files bankruptcy, the court automatically issues an order that includes the “automatic stay.” The automatic stay directs the debtor’s creditors to cease their collection activities immediately. If the home is scheduled for a foreclosure sale, the sale will be postponed while the bankruptcy is pending, generally for two to four months. However, there are exceptions to this general rule.
The recovery process is long and difficult for those individuals that have filed bankruptcy. The first step comes when you and your bankruptcy trustee meet with your creditors to inform them of the bankruptcy, at which time any non-exempt assets that you have must be liquidated. You will be allowed to keep your furniture, your car and your personal belongings up to a certain value, but any non-exempt liquid assets such as cash or CDs must be turned over to a court-appointed trustee.