Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid while giving creditors a chance to obtain some measure of repayment based on the individual's or business's assets available for liquidation. In theory, the ability to file for bankruptcy benefits the overall economy by allowing people and companies a second chance to gain access to credit and by providing creditors with a portion of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations that were incurred prior to filing for bankruptcy.
All bankruptcy cases in the United States are handled through federal courts. Any decisions in federal bankruptcy cases are made by a bankruptcy judge, including whether a debtor is eligible to file and whether they should be discharged of their debts. Administration over bankruptcy cases is often handled by a trustee, an officer appointed by the United States Trustee Program of the Department of Justice, to represent the debtor's estate in the proceeding. There is usually very little direct contact between the debtor and the judge unless there is some objection made in the case by a creditor.
Is Bankruptcy An Effective Foreclosure Defense?
On the whole, bankruptcy is not an effective foreclosure defense. Most bankruptcy attorneys don’t have the ability to help resolve this issue. When you file for bankruptcy, you have to pay about a 10% fee to the bankruptcy trustee, which will typically make a mortgage payment unaffordable. Also, a Chapter 7 absolutely has no impact on a foreclosure, other than delaying it for 60 to 90 days.
A Chapter 13 bankruptcy, which can last as long as five years, can act as an effective foreclosure defense, if you are willing to make the payments. Again, most of the time, those payments are more than your prior payments that you could not afford. The best defense is to negotiate a lower mortgage payment that does not include the bankruptcy trustee fee.
Advantages and Disadvantages of Bankruptcy?
Declaring bankruptcy can help relieve you of your legal obligation to pay your debts and save your home, business, or ability to function financially, depending on which kind of bankruptcy petition you file. But it also can lower your credit rating, making it more difficult to get a loan, mortgage, or credit card, or to buy a home or business, or rent an apartment.
If you're trying to decide whether you should file for bankruptcy, your credit is probably already damaged. But it's worth noting that a Chapter 7 filing will stay on your credit report for 10 years, while a Chapter 13 will remain there for seven. Any creditors or lenders you apply to for new debt (such as a car loan, credit card, line of credit, or mortgage) will see the discharge on your report, which can prevent you from getting any credit.
Why do people choose to file chapter 7 over chapter 13 bankruptcy?
The primary differences between a chapter 7 and a chapter 13 bankruptcy filing are as follows:
(1) chapter 7 tends to have lower fees. However, you can file for chapter 13 more quickly since the fees can be paid over time. You cannot file for chapter 7 until you have paid all of the fees.
(2) In chapter 7, you can keep only your exempt property, and the trustee may sell much of the rest to pay your creditors. In chapter 13, you may generally keep all of your assets.
(3) You can qualify for chapter 13 filings only if you have regular income and debts below a certain level. If you do not have a regular income, and have significant debts, chapter 7 may be a better choice for you.
Do I have to list all of my property when I file for bankruptcy?
Yes. Bankruptcy laws require that you fully disclose all of your assets. The FBI fraud division, IRS auditors, and the U.S. Trustee's office examine bankruptcy filings. Even if your assets are not listed in your paperwork, they will be found. It is a federal crime -a felony - to commit bankruptcy fraud. Do not attempt this.
I'm married - does my spouse have to file for bankruptcy too?
No, you and your spouse are not required to file for bankruptcy together. However, you may both want to file for bankruptcy jointly if you and your spouse share responsibility for the debt. If you and your spouse have co-signed a debt together, this may be a debt that the two of you share. For instance, if you have bought a car together, you may both have signed for the loan.
Who will know about my bankruptcy?
Like most court records, bankruptcy filings are public. However, this does not mean that all of your personal information will be available to everyone who wants it. In most cases, your friends and family will not find out about your bankruptcy unless you tell them.
Direct notice of your bankruptcy will be sent to your creditors and co-debtors (if any). Your bankruptcy will be reported to the major credit bureaus, and will stay on your credit report for ten years, though many credit reporting agencies will remove it after seven. Companies that run credit checks will know about your bankruptcy from these reports. If you have an ex-spouse who receives child support from you, he or she will receive a letter informing them of your bankruptcy, and information about what to do if the child support does not continue.
Finally, although most employers are not told of your bankruptcy, a chapter 13 trustee may request a wage withholding order to your employer if you fall behind on your chapter 13 plan payments