Don’t Expect Bankruptcy to Solve All Your Problems
First, the definition: bankruptcy is a legal declaration of one’s inability to pay off large amounts of debt. When an individual declares bankruptcy, the bankruptcy court will clear the individual of responsibility for those debts which are legally dischargeable. Under United States bankruptcy law, two forms of bankruptcy available to individual debtors are chapter 7 bankruptcy and chapter 13 bankruptcy (chapter 11 filings are possible for an individual, but uncommon).
Chapter 7, also known as liquidation bankruptcy, is the most common kind of bankruptcy. It also offers immediate relief from creditors. After a successful chapter 7 filing, all dischargeable debts are wiped out.
Chapter 13, or reorganization bankruptcy, on the other hand, creates a payment plan which allows one to repay debts over a period of time (usually five years) under more reasonable terms. In order to file for chapter 13 bankruptcy, one must have a regular source of income with which to repay said debts. An advantage of this form of bankruptcy is that the debtor is allowed to keep assets which may be liquidated under chapter 7 bankruptcy.
Don’t think chapter 13 bankruptcy is a complete easy street. However, here are a few examples of the kinds of debts which can only be cleared under Chapter 13 bankruptcy -Debts from a divorce or settlement agreement -Court fees -Home Owners Association, condominium, or coop fees -Retirement plan loans -Non dischargeable tax debts -Debts from a previous bankruptcy
Not all of your debts will be erased under either Chapter 13 or Chapter 7 bankruptcy. The following debts cannot be discharged under any kind of bankruptcy: – Alimony, child support, and other domestic support obligations – Student loans, except in extreme cases of “undue hardship” – Criminal penalties, and any debts you incurred as a result of committing fraud or other illegal or “malicious” acts
Income tax debts can be discharged, but only under certain circumstances. The restrictions include, but are not limited to that you have to have filed a tax return for the year you owed the taxes, and the tax debt must be from a tax return filed at least two years before your bankruptcy filing.
When you file bankruptcy, be sure to report all your creditors and their addresses. Do not skip any debts. The bankruptcy court is likely to uncover anything you try to conceal. Honesty is by far the best policy. Besides, if you do not list a debt, it may not be discharged, and it may come back as being past due later on.
Life after bankruptcy can be as hard or as easy as the debtor makes it, to a certain extent. A bankruptcy filing in one’s credit report will make it harder for him or her to be granted credit in the future, and under chapter 7 bankruptcy, certain assets may be liquidated. However, the debtor can prevent creditors from taking his or her bank account or wages – though liens on a home may still remain. Being honest with your bankruptcy lawyer and cooperating with the court and creditors may make life easier after a bankruptcy filing – hiding secrets from your lawyer and the court can only cause more problems.
While filing for bankruptcy can relieve one of the burdens of debt, a debtor must do his or her due diligence to make sure that all dischargeable debts are, in fact, discharged and to know which debts cannot be discharged. Though a person sometimes must file for bankruptcy because of medical bills or other forces beyond their control, remember that you control what becomes of your life after bankruptcy.
Filed under: Business