And Legal Definitions
This year, more than a million Americans will file for protection under our federal bankruptcy laws. While some bankruptcy claimants may be considered credit abusers and/or financially irresponsible, many are hardworking individuals and well meaning business owners who have succumbed to financial difficulty and face an irreparable crisis. Bankruptcy is designed to help resolve such a crisis and can act as a financial life preserver when you’re drowning in debt. Bankruptcy may not be your only recourse, but it is important to contact an experienced and professional bankruptcy attorney who will advise you of your legal rights under the bankruptcy law and federal bankruptcy courts.
Bankruptcy is designed to help both individuals and businesses either to eliminate their debt or to repay it under the protection of the courts. Typically, a bankruptcy is described as a liquidation of assets or a reorganization. Under a liquidation bankruptcy or chapter 7, the claimant files to eliminate all debt through the courts. Under a reorganization, (chapter 11 for business or chapter 13 for an individual), the claimant files a plan with bankruptcy court proposing a full or partial repayment.
New Bankruptcy Laws:
The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act on October 17, 2005 has changed the requirements under which a debtor may file a chapter 7 bankruptcy. Financial “testing” is required to determine the debtor’s capacity to pay. The debtors are also ow required to seek budget and credit counseling within 6 months of filing. Chapter 7 cannot be filed if the debtors household income is above the median income as deemed by the state. Also, state exemptions can’t be applied unless the debtor has resided at their residence for over two years.
Due to the new imposed bankruptcy requirements for chapter 7, debtors now have to file under chapter 13 protection instead. These individuals must agree to a court-imposed plan to repay the debt over five years. The court will appoint a trustee to monitor the process. Bankruptcy filings will be recorded on the individuals credit report for seven years in a chapter 13 and up to ten years for a chapter 7 filing.
Chapter 7 cases are commonly referred to as straight bankruptcy or liquidation cases, and may be filed by an individual, corporation, or a partnership. A Chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in Chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under Chapter 7 may result in the loss of property.
A Chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. Chapter 13 permits individuals to keep their property by repaying creditors out of their future income. It is not available to corporations or partnerships. After completion of payments under the plan, Chapter 13 debtors receive a discharge their remaining debts.
Foreclosure is the legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property due to the owner’s failure to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust”. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that “the lender has foreclosed its mortgage or lien”.
A Foreclosure by Sale ends in the posting of a sign advertising the auction of your home on the sale date. The only ways to stop a foreclosure are full payment of the arrearage, or the filing of a Chapter 13 bankruptcy. Full Payment: If you are able to obtain and tender the full amount of your arrearage, including fees and costs, you can stop the foreclosure of a standard residential mortgage. Most people lack the money to make full payment. Chapter 13 stops the foreclosure and allows you to repay your arrearage over a three-to-five year period. The arrearage is paid through a court-appointed official, while you resume your regular monthly payments to the bank in order to keep your home. A Bankruptcy case can be filed at any time prior to the sale, and it is often the only avenue to save your home.
Contrary to popular belief, debt consolidation is not a loan. Debt consolidation is a process in which debt is restructured into one low monthly payment. It further enables a consumer to reduce the amount owed and thereby eliminate interest. Very often a consumer can detect warning signs of being in too much debt long before any collection notices are received. If more than two of the following signs apply to you, you are probably in too much debt:
- You have begun charging to your credit card essential expenses like food and daily expenditures
- You are making only the minimum payments on your credit cards each month
- You are near the limit of your credit cards
- You have too many credit cards
- You are unsure how much money you owe creditors
Chapter 11 is typically used for reorganizing business and restructuring debt. It is not commonly used by individual consumers since it is far more complex and expensive to pursue. However, under certain circumstances it may be appropriate for individuals. Chapter 11 allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court.
If you or someone you know needs debt consolidation legal counsel or the assistance of an experienced bankruptcy lawyer, call Attorney Andrew S. Bisom today at 714-643-8900, or use the contact form provided on this site to arrange for your free initial consultation.