If you're worried about your financial situation, this bankruptcy basics page will help to provide some answers about the options for filing bankruptcy.
Bankruptcy is a federal law that allows individuals, families and businesses to eliminate most old debts and receive an Order of discharge to get a fresh start on life.
The Bankruptcy Code was amended (bankruptcy law changes) in 2005, but it does not mean that bankruptcy relief is no longer available, there are different rules now applied to new cases before they can be filed. It is a good idea to talk to a bankruptcy lawyer before filing any chapter of bankruptcy on your own.
Legal Options: Chapters for Filing Bankruptcy
You may be considering filing for bankruptcy, but not certain what that process will be like for you or your business. There are some commonly used words and phrases in bankruptcy that I will help define and explain here, to provide a better understanding of the bankruptcy basics.
- Chapter 7 bankruptcy is the liquidation chapter of bankruptcy. This chapter is generally appropriate when there is less income than expenses for a small business or individual.
- Chapter 13 bankruptcy is generally used when the cash flow of the individual filing has monthly positive disposable income. It is also used when people have non-exempt assets, they need to stop a home foreclosure or pay off large back tax balances. A Chapter 13 is a good strategy to help stop foreclosure.
You may be wondering, "Should I file bankruptcy?"
This decision is always difficult. It is usually based on the value of your belongings (assets) versus the total debts that you have (liabilities). If you are having your paycheck or bank account garnished for any reason other than paying child or spousal support, it may be a good time to talk to an attorney about the bankruptcy basics.
When you cannot make your regular monthly payments on medical bills, credit cards, cars, trucks or mortgage payments, then it may also be a good time to talk to a bankruptcy lawyer to get more information on your rights under the Bankruptcy Code.
Alternatives to Declaring Bankruptcy
There may be bankruptcy alternatives you should first consider. Debt consolidation plans or mortgage refinance or home loan modifications can often help. When these programs are not enough to help you pay your bills, you should consider bankruptcy debt relief and a bankruptcy discharge.
Beyond the Bankruptcy Basics... Filing Procedures
To file a bankruptcy case, a Petition is prepared (using the mandatory bankruptcy court forms) that will be filed with the federal Bankruptcy Court. A bankruptcy automatic stay goes into effect at filing. This means that all creditors must stop calling, writing, suing or garnishing you. You are still responsible to pay secured debts (such as autos and house payments).
In a bankruptcy case, you have to disclose your current income and income for a 2 year period prior to filing. This will be used to determine which chapter you file, and what your projected budget is for the future.
There is a pre-bankruptcy credit counseling certificate required to file any bankruptcy case and a post-bankruptcy financial management certificate required to receive a bankruptcy order of discharge.
Filing for personal bankruptcy and a small business bankruptcy are similar. Both groups of debtors often file for Chapter 7 and Chapter 13 bankruptcy relief.