Bankruptcy


A sudden major change in one’s financial situation due probably to loss of job or the need to pay child and/or spousal support can be financially crippling, especially if you are paying a mortgage, credit card bills and others bills on top of monthly utility charges. This is a very common scenario involving thousands of American wage earners, who end up being faced with overwhelming debts.

A debt crisis is a major stress and, unless you find an acceptable way of rising up from surmounting debts, this crisis will continually haunt you through phone calls at home at the most inconvenient hour of the day or at the office demanding to speak with you to ask you to pay your debts, emails and text messages, and letters from collection or law firms warning you of the possible lawsuit you can be faced with if you do not start paying immediately.

It usually takes about three successive months of non-payment before an account is tagged as bad debt and the debtor given negative credit. But with the debt crisis at hand, having negative credit would most probably be the least worry the debtor will have. The major concern is how to settle all debts and get back on good financial track again.

There are actually a variety of legal options that individuals and businesses have, which will help them get out of debt and regain control over their finances. One of these legal means is Bankruptcy, a legal declaration (either by an individual or by a business firm) of the inability to further pay debts that have worsened to an unmanageable amount. There are two major types of bankruptcy: liquidation and reorganization.

Chapter 7, one of the chapters in the bankruptcy law, which is a liquidation bankruptcy and the most commonly filed bankruptcy chapter, requires you (the debtor) to surrender all of your “non-exempt” properties for liquidation. If you run a business, this you will have to stop operations as its assets will have to be sold. A court-appointed trustee, who takes charge of the liquidation process, will pay all your creditors with the amount earned from the sold properties. Despite the probable small amount they may receive, the creditors have no option but to accept; they should also abide by the court’s decision to have your remaining balance forgiven and no longer be collected, lest they suffer severe penalties under federal law.

The debts that need to be paid in chapter 7 are only those that are categorized as non-dischargeable debts. Debts that can be discharged, like past utility bills, personal loan from family, friends, or employer, medical bills, and, most especially, credit card charges, are automatically discharged by the court with order to the creditor to cease any form of collection from you.

As explained in the website of the law firm Gagnon, Peacock & Vereeke, P.C., Chapter 7 bankruptcy can be a good option for an individual debtor as well as for a business entity. Individuals can benefit from Chapter 7’s discharge clause: in certain cases, a debtor can discharge his debts, remove the responsibility for these outstanding amounts, and emerge from the process with a clean slate. However, this chapter can be a complex legal procedure. Besides the need for you to evaluate properly, with the help of a competent bankruptcy lawyer, if this is the chapter that will best work for your particular case, or if there is even a need to file for bankruptcy altogether, you will also need to take a means test. This test will determine if you salary falls within the limit set under Chapter 7. The wisest move a debtor could make, in connection with filing a chapter 7 bankruptcy, is to do it only with the help of a lawyer highly-competent in the bankruptcy law.

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