1.
What is Bankruptcy?
Bankruptcy law allows individuals, married couples or
businesses (the 'debtor") to eliminate or
restructure their debts when faced with financial
difficulties. The philosophy behind the law is to allow
the debtor to make a fresh start, not to be punished for
the inability to pay his or her debts. Bankruptcy law
allows certain debtors to be discharged of the financial
obligations they have accumulated, after their assets
are distributed, even if their debts have not been paid
in full. Some bankruptcy proceedings allow a debtor to
stay in business and use business income to pay his or
her debts.
There are two basic types of Bankruptcy proceedings.
2.
Learn about Chapter 7
CHAPTER 7: Chapter 7 bankruptcy is a process provided for under United States federal law by which you are entitled to a fresh start.
A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors.
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3. Learn about Chapter 13
Chapter 13 is a debt repayment plan through which you consolidate your debts and make a payment on your debt over a 3 to 5 year period. While in a chapter 13 debt repayment plan, the creditors cannot collect from you, and the creditors are required by a Federal Court order to adhere to the terms of the plan.
One very important thing to remember about Chapter 13 bankruptcy is that you must be working or have a consistent source of income for your repayment plan to be approved by the court. Not only must you be able to pay for your monthly living expenses, but you must also be able to make a payment to the court to consolidate your debts.
Debts that are generally consolidated in a chapter 13 are mortgage arrears, balances on vehicle loans, student loans, credit card debts and other unsecured debts.
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The Pros and Cons of Filing for Bankruptcy
PROS
- Allows you to obtain a fresh start
- Stops collection efforts
- It temporarily forestalls foreclosure and repossession proceedings
- It temporarily prevents wage garnishment and disconnection of
utilities
- May allow you to maintain many of your assets (exempt assets)
CONS
- The bankruptcy will appear on your credit report for up to ten years. However, remember that many people have blemished credit report before filing.
- Chapter 7 Debtors lose the right to receive another Chapter 7 discharge for six years. This might improve your records as lenders know that you cannot soon repeat the process.
*** Keep in mind you cannot be fired from your job solely because you filed for bankruptcy.
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5. The “Automatic
Stay”
The filing of a bankruptcy case, under any chapter of the Bankruptcy Code, triggers an injunction against the continuance of any action by any creditor against the debtor or the debtor's property.
In Chapter 13, the stay even protects co debtors who are liable with the debtor on consumer debts.
The automatic stay prohibits the following:
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6. What property can you keep? Under
the Bankruptcy Code, certain property is exempt and
cannot be taken by the Bankruptcy Trustee or Creditors
to pay off debts. These exemptions allow the debtor to
keep certain property so that he or she is not rendered
destitute as a result of the Bankruptcy process.
The debtor must choose between the federal bankruptcy exemptions and the exemptions arising under Massachusetts and federal non-bankruptcy laws. The choice will depend on the nature and value of your assets.
The most important exemption for homeowner is the Homestead exemption under the Massachusetts and federal non-bankruptcy laws. A declaration of
Homestead filed prior to the filing of a bankruptcy petition will exempt up to $500,000 of equity in the debtor’s primary residence.
Other exemptions under Massachusetts law are certain personal property, pensions, certain retirement accounts, social security benefits, veterans’ benefits, unemployment and workers’ compensation benefits.
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7. What to expect in court?
After the filing of a Chapter 7 or Chapter 13 petition, the Bankruptcy Court will schedule a meeting of Creditors. The Debtor is required to attend the meeting.
In a Chapter 7 case, the trustee will ask questions to verify the eligibility for Chapter 7 relief and to determine that the debtor has fully disclosed all of her or his assets and liabilities.
Some of the common questions are:
Do you own a home?
Have you transferred any property?
Do you have the right to sue any one for bodily injury?
Have you listed all of your debts and assets?
Are you expecting to inherit money shortly?
The hearing only lasts about five to ten minutes and is relatively informal.
In a Chapter 13 case, in addition to the questions asked in most Chapter 7 cases, the trustee will also ask questions to verify that the Debtor can afford the Chapter 13 payment and that he is making his best efforts to repay his creditors through the Chapter 13 payment plan.
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