By filing for bankruptcy, a person can wipe off all his debts and make a fresh start. Bankruptcy has its advantages and disadvantages and it is important that before declaring bankruptcy a person is well-informed about the time of filing bankruptcy, its various types and the procedure.
In bankruptcy debt discharge is important, hence you should know which debts can or cannot be erased. In case majority of debts cannot be erased, then bankruptcy may not be advisable. Debts like alimony; tax debts; child support; and secured loans cannot be discharged.
Debt of cosigner cannot be erased by bankruptcy. In the event where the cosigner agrees to pay your debts, like loan for your car, he/she has to continue with the repayment of the loan even if you have declared bankruptcy.
The U.S Bankruptcy Code has bankruptcy rules and is handled by federal court. It mentions different types of bankruptcies, referred to as chapters.
Chapter 7 bankruptcy
Under Chapter 7, both individuals and businesses can file for bankruptcy. To qualify, your income must be lower than a specified level. Liquidation of property for paying off creditors might happen. Elimination of secured debts, allowing repossession of property or lump sum payment to the creditor for the property’s current value is possible.
For filing, you should know if you qualify by taking the Means Test. then you must fill up bankruptcy forms which list details of your property, income, debt and expenses. You must list the debts to be discharged. Filing of bankruptcy forms begins your case. Hiring an attorney is optional, but recommended.
A court-appointed bankruptcy trustee will work on your creditors’ behalf and verify your document information. Determination of property liquidation and non-exempt property is done by him. Matters like eligibility and discharges are ruled by the bankruptcy judge.
You should get credit counselling before filing for bankruptcy, and debtor education after it. The completion certificates must be presented in court before debt discharge.
The 341 meeting (meeting of creditors), occurring around a month after filing, helps debtors face the creditors so that questions about debts and property can be addressed.
Chapter 13 bankruptcy
Chapter 13, or wage earner bankruptcy, involves making a repayment plan for paying back creditors over next three to five years, and sticking to it.
Under Chapter 13, businesses (even the sole proprietor) cannot file for bankruptcy. A disposable income is required, and high debts are not acceptable. You must prove that for the past four years you have filed your federal and state income taxes.
You must fill out bankruptcy forms; enlist your financial data; get property valued; mention your income; and give your repayment plan.
After filing your bankruptcy forms, the court appoints a trustee for your case to represent your creditors. He will verify your information and manage bankruptcy procedures.
You must attend two hearings. After filing, approximately within a month a meeting with your creditors is arranged by this trustee to answer debt related questions and negotiating for repayment plan. A judge will confirm your repayment plan shortly after this in the confirmation hearing.