Introduction To Bankruptcy

Posted by Kevin on September 21, 2009 under Bankruptcy Blog | Be the First to Comment

Bankruptcy is a legal process that lets you use the protection of the courts to deal with debts that you cannot pay.  The right of Americans to file bankruptcy is found in the Constitution of the United States. I repeat- this is a constitutional right.   The first bankruptcy code was enacted by Congress in 1800.  The current bankruptcy law is known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or BAPCPA.

The Bankruptcy Code is divided into chapters.  Consumers file bankruptcy under Chapter 7, Chapter 13, or, in rare cases, under Chapter 11.  The Bankruptcy Code is federal law; therefore, bankruptcy cases are handled in federal court and not state court.

Prior to filing bankruptcy, a debtor must take a credit counseling course from a government approved agency.  The course can be taken in person or on line, and takes about 90 minutes.

A debtor starts the bankruptcy process by filing a petition.  Along with the petition, the debtor files schedules of assets and debts, and income and expenses.  Under BAPCPA, the debtor is also required to file a means test to determine under what chapter he or she may file, and a certification indicating that the debtor completed the credit counseling course.

In Chapters 7 and 13, the case is assigned to a trustee who administers the case.  In a Chapter 11, the debtor administers his or her own case unless the Court appoints a trustee for cause.  There is a filing fee of $299 for a Chapter 7, $274 for a Chapter 13, and $1000 for a Chapter 11 case.  In a Chapter 7 case, the filing fee can be waived if your income is below a certain level.  In both Chapter 7 and 13, the filing fee can be paid in installments with court approval.

A husband and wife can file together.  This is called a joint petition.  There is only one filing fee involved in a joint petition.  If the debtors are domestic partners or live together but are not married, each person must file a separate petition with a separate filing fee.

Once you file bankruptcy, creditors with some exceptions (just like everything else in life, there are exceptions) must stop all collection efforts.  This is called the automatic stay, and is one of the big benefits that you get from filing bankruptcy.  The automatic stay also means that if your wages are being garnished, it stops. It’s a big plus to pick up an extra $200-300 per paycheck.

Lot’s of people get nervous about filing bankruptcy because they think that they will have to appear in court before a Judge to explain why they are not paying their bills.  Well, that does not happen.  But, each debtor must appear before the trustee to answer questions at the first meeting of creditors (also called the 341(a) meeting).  That’s the bad news.  The good news is that the questions lasts only for a few minutes and you have your lawyer with you to protect your rights.

The primary object of bankruptcy is to wipe out your debts.  This is called a discharge. In addition, you should be able to keep most, if not all, of your assets allowing you to get a fresh start following bankruptcy.

Individuals do not need to have an attorney to file bankruptcy (corporations do). Individuals can file on their own or utilize a bankruptcy petition preparer.  But then again, you don’t need an electrician to rewire your house.  Even for the most simple cases (which really are not that simple), legal counsel is recommended.  If you cannot afford an attorney, you should contact your local legal aid office to see if you qualify for help.

Filing bankruptcy stays on your credit report for 10 years and does affect your credit score.  Since most people who file bankruptcy were behind on payments, their credit score is already in the tank before the filing.  So, the hit that you take may be less than expected.  Believe it or not,  many people show an increase in credit score within 1 year of discharge.  Moreover, if you re-establish credit, and pay your bills on time, your credit rating will be substantially rehabilitated within 3-5 years.

For further information, please refer to the following videos

How do I file for Bankruptcy?
Do I need a Bankruptcy Attorney?
Introduction to Bankruptcy

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