Bankruptcy Revealed

Bankruptcy is the legally declared financial status of an individual or an organization, who is unable to pay off their debts. Generally, Bankruptcy is initiated by the debtor, in order to get relief from the creditor’s permanently, but in order to recover their substantial amount of debt the creditors as well can file Bankruptcy case against the debtor. The Bankruptcy case initiated by the debtor is called Voluntary Bankruptcy and the one filed by the creditor against debtor is called Involuntary Bankruptcy.

A Harvard Study reported that half of US bankruptcies were caused by medical bills. The study was published online in February of 2005 by Health Affairs. The Harvard study concluded that illness and medical bills caused half (50.4 percent) of the 1,458,000 personal bankruptcies in 2001. The study estimates that medical bankruptcies affect about 2 million Americans annually — counting debtors and their dependents, including about 700,000 children.



Bankruptcy is a federal court procedure that is designed to aid businesses as well as the consumers to wipe out their debts or repay them under the protection of the Bankruptcy court. Businesses don’t like it, but for consumers, it can be a life saver. Bankruptcy is the last option and should be the last option while trying to get hold of yours scattered financial situation, since it has a very negative impact on yours credit report and affect you in the future for all your financial dealings, as most lenders view this differently. But for sure it allows you to start over again.

Let's start by exploring the different types of bankruptcies. There are four different filings you can make: Chapter 7, Chapter 11, Chapter
12 and Chapter 13.

Chapter 7

Its the most common form of Bankruptcy in US. Chapter 7 Bankruptcy, sometimes call a straight Bankruptcy is a liquidation proceeding. As per this chapter, the debtors are allowed to keep certain type of property, this kind of asset is known as exempt property and the property they
must give up is known as non exempt property. The debtor turns over all non-exempt property to the Bankruptcy trustee who then converts it to cash for


distribution to the creditors. The debtor receives a discharge of all dis-chargeable debts usually within four months. In the vast
majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".
One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts.

Non exempt property may include:

1. Pricey musical instruments provided the debtor is not a professional musician.
2. Family heirlooms.
3. Collections of valuable items like stamps and coins.
4. Bank accounts, bonds, cash and other investments.
5. A second or vacation home
6. A second car or truck.

Exempt property include:
1. Household appliances.
2. Vehicles, up to a certain value.
3. Reasonably priced requisite clothing.
4. Reasonably priced requisite household goods and furnishings.
5. Jewelry, up to a certain value.
6. Pensions.
7. A part of unpaid but earned wages.
8. Equipments (up to a certain value) that are needed in the debtor’s profession.
9. Damages awarded for personal injury.
10. A part of equity in the debtor's home.
11. Public benefits, including social security, and unemployment compensation, public assistance (welfare) that is accumulated in a bank account.

If a debt is secured by property, such as a home mortgage or an automobile loan, then you get to decide how to handle that debt. For example, in the case of a vehicle, you could: Keep the automobile and the debt as long as you are current and continue keeps your payments current.

* "Redeem" the automobile which means pay it off at its current "fair market value"

* Return the vehicle, include any balance due in your Bankruptcy and pay nothing further on the vehicle. The choice is yours.

Essentially what the new laws ask of people who are filing a Chapter 7 Bankruptcy is twofold. First, they must take an approved credit counseling course within six months before filing. They must also complete an approved financial management course before any debts can be discharged.

What are the most common reasons given for filing a Chapter 7 Bankruptcy? Well, of course, it's the accumulation of excessive debt! But seriously, here are the most common reasons why people get into such debt:

* Medical bills
* Unemployment
* Divorce
* Overextended credit
* Large, unexpected expense

In 99% of the Chapter 7 cases, the person filing Bankruptcy keeps all of their property.

Chapter 11

Chapter of the Bankruptcy Code that is usually used for the reorganization of a financially troubled business. Used as an alternative to liquidation under Chapter 7. Chapter 11 Bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. Bankruptcy affords the debtor in possession a number of mechanisms to restructure its business.

Chapter 12

Chapter of the Bankruptcy Code adopted to address the financial crisis of the nation's farming and fishermen community. Cases under this chapter are administered like Chapter 11 cases, but with special protections to meet the special conditions of family farm operations and fishing.

Chapter 13

Chapter 13 is more commonly known as a reorganization Bankruptcy. Chapter13 Bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years.This type of Bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.

There are many reasons why people choose Chapter 13 Bankruptcy instead of Chapter 7 Bankruptcy. Generally, you are probably a good candidate for Chapter 13 Bankruptcy if you are in any of the following situations:

1. You have a sincere desire to repay your debts, but you need the protection of the Bankruptcy court to do so. You may think filing Chapter 13 Bankruptcy is simply the "Right Thing To Do" rather than file Chapter 7.

2. You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 Bankruptcy. You can make up missed payments only in Chapter 13 Bankruptcy.

3. You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 Bankruptcy in the future. This would be the case if for some reason you can't stop incurring new debt.

4. You are a family farmer who wants to pay off your debts, but you do not qualify for a Chapter 12 family farming Bankruptcy because you have a large debt unrelated to farming.

You have valuable nonexempt property. When you file for Chapter 7 Bankruptcy, you get to keep certain property, called exempt. If you have a lot of nonexempt property (which you'd have to give up if you file a Chapter 7 Bankruptcy), Chapter 13 Bankruptcy may be the better option.

You received a Chapter 7 discharge within the previous eight years. You cannot file for Chapter 7 again until the eight years are up.

A Chapter 13 can be filed if:

* The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago.
* The debtor received a discharge under Chapter 13 more than two years ago.
* You have a co-debtor on a personal debt. If you file for Chapter 7 Bankruptcy, your creditor will go after the co-debtor for payment. If you file for Chapter 13 Bankruptcy, the creditor will leave your co-debtor alone, as long as you keep up with your Bankruptcy plan
payments.
* You have a tax debt. If a large part of your debt consists of federal taxes, what happens to your tax debts may determine which type of Bankruptcy is best for you.

As of October 17, 2005, new Bankruptcy laws took effect for all three types of Bankruptcy. When it comes to Chapter 13, you cannot file this way unless the following conditions are met:

* The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago.
* The debtor received a discharge under Chapter 13 more than two years ago.
* When a motor vehicle was purchased within 910 days (2 1/2 years) of the filing and a secured creditor has a lien on it, the creditor retains the lien until payment of the entire debt has been made.

The following debt is NOT discharged:

* Debt for trust fund taxes;
* Taxes for which returns were never filed or filed late (within two years of the petition date);
* Taxes for which the debtor made a fraudulent return or evaded taxes;
* Domestic support payments;
* Student loans;
* Drunk driving injuries;
* Criminal restitution;
* Civil restitution or damages awarded for willful or malicious personal actions causing personal injury or death.

All tax returns for the four years prior to filing Chapter 13 must be filed.

Disadvantages Of Bankruptcy --> Of course, there are disadvantages to filing for Bankruptcy. As per the Fair Credit Reporting Act, a record of this stays on the individual's credit report for up to 10 years. During the pendency of a Bankruptcy case the debtor is not permitted to obtain additional credit without the permission of the Bankruptcy court. Moreover, creditors may not be willing to risk lending money to such an individual.

There are some advantages to filing for Bankruptcy. By far the most important advantage is that debtors may obtain a fresh financial start.