What Is Bankruptcy?
Bankruptcy is the term often associated with situations of financial hardship, it is also a valuable tool, which can be used to assist individuals in repaying debts and rehabilitating themselves from financial hardships. Although federal laws attempt to make the bankruptcy process easy for the common person to use, the procedures are often complex and require the guidance of an experienced attorney familiar with preparing an individualized plan that best meets your needs.
The two most common types of bankruptcies involve a person’s assets to undergo: 1) liquidation (Chapter 7), or 2) “reorganization” (Chapter 13). Chapter 7 bankruptcies require a debtor to request that the bankruptcy court discharge his or her debts. Distinguishably, a Chapter 13 bankruptcy involves the debtor preparing a repayment plan detailing how and when the debt will be repaid. Although some debts must be repaid in full, there are exceptions which require only partial repayment or will relieve the debt altogether. The entire bankruptcy process occurs under the guidance and jurisdiction of the Federal Bankruptcy court, which has exclusive jurisdiction and expertise in bankruptcies. Upon the initial filing of a bankruptcy, the court will issue an order called an “automatic stay,” which stops most creditors from pursuing collections.
During the automatic stay period, the court will often freeze certain debts, including:
- Repossession. The “automatic stay” will temporarily prevent an auto loan creditor from repossessing your vehicle. A debtor may still retain possession of their vehicle if they “redeem it.” However, filing a Chapter 7 bankruptcy will not result in a return of a vehicle after repossession has already occurred. Filing a Chapter 13 will stop repossession and allow the debtor to pay the balance owed on the auto loan while retaining possession and ownership of their vehicle.
- Foreclosure. A Chapter 7 will only temporarily stop a foreclosure. A Chapter 13 bankruptcy may be a better option in this case since such often allows a debtor to keep his or her house.
- Wage garnishments. The filing of bankruptcy may stop wage garnishments.
- Evictions. Although a landlord may proceed with an eviction, particularly if a judgment has been made against you, the stay may delay the eviction by a week or so. However, occurrences of such as property destruction may prevent the court from delaying an eviction.
Although the bankruptcy court has the authority to discharge debts, there are certain debts which cannot be discharged and a debtor will continue to be liable for them. These non-dischargeable debts include: unpaid child support, alimony, and tax debts. Additionally, a bankruptcy court may not discharge student loans guaranteed by the government unless a debtor can show that repayment would be an undue burden. Private student loans are dischargeable.
The Law Firm of Luftman, Heck & Associates, LLP is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. The information provided on the web site is not, nor is it intended to be, legal advice or an offer to represent you.
