What Are The Different Types Of Bankruptcies – Bankruptcy is a legal process that allows individuals, businesses, and other organizations to pay debts when they can no longer pay them. The main purpose of bankruptcy is to give a new start to the debtor, with a secondary task of paying as much as possible to the debtors without further burdening the debtor.
In the bankruptcy court process, after evaluating the assets and liabilities of insolvent individuals and businesses, the judge and the court trustee decide whether to discharge the debts. If the judge and the trustee decide to discharge the debts, the person or business that filed the bankruptcy will be relieved of the obligation to pay them.
What Are The Different Types Of Bankruptcies
Before a debtor can file for bankruptcy, the person must make a complete list of all debts, assets, income and expenses. This helps the individual and anyone else involved in the bankruptcy filing (including the eventual petitioner) to gain a clear understanding of the financial situation involved.
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Additionally, within 180 days prior to any filing, bankruptcy courts require applicants to obtain credit counseling from a State-approved counseling center. This usually takes less than two hours over the phone or online, and is done to ensure that all possible alternatives to bankruptcy (such as debt consolidation and debt settlement) have been adequately explored. Upon completion of the counseling session, a certificate is issued that must be included in the bankruptcy file.
This bankruptcy action usually involves the payment of unsecured creditors through the liquidation of the debtor’s assets that are not exempt from liquidation by state or federal law.
Assets generally considered exempt include your home, a car used for work, retirement income, social security benefits and Social Security checks. These types of assets are protected from liquidation to pay the debt.
However, exempt assets include cash, bank accounts, stock market funds, jewelry, collectibles, and any used homes or cars. These types of non-exempt assets will be liquidated under a Chapter 7 proceeding, with the resulting proceeds used to pay creditors.
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Chapter 13 bankruptcy is filed by individual debtors with incomes above the state median in which they live and is an option for people whose income may be too high to file for Chapter 7 relief.
This type of bankruptcy process involves drawing up a three- to five-year payment plan that requires certain debtors to be paid in order to forgive other debts. When the payment plan is completed, the remaining debts are removed.
Chapter 11 bankruptcy is mostly used by businesses, although some people use it when their debts exceed the limits provided in Chapter 13. Chapter 11 is considered a “restructuring” bankruptcy process “, as it gives businesses the opportunity to continue operating while debts are being restructured. .
Businesses ranging in size and scope from large multinational corporations to relatively small partnerships use Chapter 11 to pay off debts over time without selling assets or ceasing operations.
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Regardless of the type of bankruptcy, after a mandatory debt counseling session, the debtor files a bankruptcy petition in the debtor’s county court. This leads to an automatic stay that prevents creditors and collection agencies from further contacting or harassing the debtor.
This information is then transferred to a court-appointed trustee – usually a bankruptcy attorney, who oversees and manages the entire process while keeping in touch with the applicant and requesting additional information when necessary.
When applying, the applicant provides some information about the average income for the last six months. If this income is below the median income for his state, he can file under Chapter 7 bankruptcy protection.
However, If this income is higher than the median, the filer must fill out a form detailing the monthly income and expenses to determine if he has the means to pay the rest of the loan in a period of three to five years. If the means test shows that the debtor can do so, then you file under Chapter 13 bankruptcy protection.
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Regardless of the type of bankruptcy, after a mandatory debt counseling session, the debtor files a bankruptcy petition in the debtor’s county court. This leads to an automatic stay that prevents creditors and collection agencies from further contacting or harassing the debtor. When filing for bankruptcy, the debtor provides information related to income, expenses, names of creditors, amounts owed and assets. This information is then transferred to a court-appointed trustee – usually a bankruptcy attorney, who oversees and manages the entire process while keeping in touch with the applicant and requesting additional information when necessary.
When applying, the applicant provides some information about the average income for the last six months. If this income is below the median income for his state, he can file under Chapter 7 bankruptcy protection However, If this income is higher than the median, the filer must fill out a form detailing monthly income and expenses to determine if he has the means. to pay off some of the debt within three to five years. If the means test shows that the debtor can do so, then you file under Chapter 13 bankruptcy protection.
Although consulting an attorney is not a requirement for filing bankruptcy, it is often necessary. A clear understanding of which state and country laws apply to your situation can lead to the best outcome of the loan being issued in the end. Judges and court staff, including the applicant, are not allowed to give legal advice on your application. There are important differences between filing bankruptcy under Chapter 7 and Chapter 13.
Either way, there will be a lot of forms to fill out, and if you don’t fully understand the rules and procedures associated with your case, the outcome may not go as well as it would with an experienced attorney. your side Look for free (pro bono) options for legal services if you cannot afford to hire a lawyer.
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Within three to six months of filing for Chapter 7 bankruptcy protection, a person must attend a meeting of creditors that usually takes place in the debtor’s county. This meeting gives lenders the opportunity to ask questions to the debtor personally, although credit card companies and major banks rarely take the opportunity to show.
The trustee asks questions related to the forms submitted by the applicant in an interview which is usually a matter of minutes only. Although any existing creditor has the right to ask questions, there is little he can do to stop the inevitable discharge of debt that results within a few months of the creditor meeting.
Before being discharged under Chapter 7, the debtor will undergo a brief budget counseling session through a State approved credit counseling agency.
Once completed, the discharge removes credit card debt, debts, medical expenses, legal fees and court judgments. However, obligations including but not limited to public student loans, taxes, alimony and child support, debts incurred after a bankruptcy filing and debts resulting from drunk driving are not discharged in bankruptcy.
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In addition, bankruptcy will not release any co-signer from financial responsibility for all or part of the debts they agreed to pay if the debtor is unable.
After making a payment plan of between three and five years, the debtor must attend a meeting of creditors where any creditors present have the opportunity to express their objections to the plan. Any issues that arise from this meeting can be raised at the next confirmation hearing, where the debtor presents a payment plan before a judge.
If the plan is approved, the debtor pays the trustee, who then gives the money to the lenders according to the terms set out in the payment plan. If the plan is not approved, the debtor can amend the plan and present it again to the judge in another confirmation hearing. Once approved, the debtor is eligible to be issued the loan, but only after the payment schedule has been met.
The main reason why someone declares bankruptcy is to offer the benefit of a fresh start and a second chance at financial well-being.
Chapter 7 Bankruptcy
Whether it’s caused by a series of bad financial decisions, poor long-term planning, bad luck, or a combination thereof, an insurmountable debt balance can make bankruptcy the best option available.
The emotional relief that comes from getting rid of the stress of major debt is often worth the consequences of filing for bankruptcy. However, failure should not be presented lightly without understanding the long-term consequences. For example, a Chapter 7 bankruptcy will remain on the credit report for ten years from the date of filing, and a Chapter 13 bankruptcy will remain on the credit report for seven years from the date of the presentation.
Some may hinder your ability to obtain new credit and potential employers may overlook this part of your financial history.
It is possible that a bankruptcy discharge will drop your FICO credit score into the low 500s. However, if you are already considering applying
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