Bankruptcy laws help people who can no longer pay their creditors or lenders by having their assets liquidated to pay their debts, or through a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through liquidation or reorganization.
A Chapter 7 bankruptcy gives the debtors a “fresh start” as most debts are wiped out. After filing at the bankruptcy court, sixty days from the meeting of creditors, the creditor and the lender will receive a bankruptcy discharge order. Debt collectors and collection agencies will never again attempt to collect a debt that has been discharged. It erases unsecured debts or debts that are not connected to any specific property. It includes credit card debts, medical bills, personal loans, deficiency on a car loan after possession, old tax debts, and other dischargeable debts. Non-dischargeable debt can’t be erased through bankruptcy. The most common examples of non-dischargeable debts are child support or alimony payments, recent tax debts, and generally student loans. Secured debt backed by the specific property is not erased in bankruptcy if you keep the property. Some common examples are mortgage loans back by real property or car loans secured by the vehicle.
To file for bankruptcy, the filers need to pass the mean test. There are two ways to do so. First, the filer can qualify if his income is below the median income in Maryland for a family of the same size. Second, through the means test calculations which involves examining his regular income and monthly expenses.
After filing bankruptcy, an automatic stay takes effect and stops all creditors from taking any actions against the debtor or borrower. Any wage garnishment that is happening or about to happen will be stopped. It also temporarily stops foreclosure, repossession, or eviction. To pay off what they owed, a bankruptcy trustee will sell or liquidate the debtor’s non-exempt assets or properties not protected by bankruptcy exemption and distribute them to the creditors.
Chapter 11 bankruptcy is a reorganization of debts also known as “debtor in possession”. It is used for businesses and individuals who failed to qualify for a Chapter 13 bankruptcy. Chapter 11 does not have a ceiling amount of debt or income the debtor or borrower has. Filing for bankruptcy is available for individuals or any business whose debt exceeds their ability to make payments. The debtor will develop a plan of reorganization to repay his creditors. It is similar to Chapter 13 where the debtor can regain financial footing without liquidating assets or closing his business. This type of bankruptcy uses the Absolute Priority Rule. This rule requires creditors to be paid in full if the debtor is going to retain the ownership of his assets or business. If the creditors don’t get paid in full, then the debtor can retain any asset or business interest. This is called the new value exception to the priority rule. This type of bankruptcy is usually used by large corporations.
Chapter 13 bankruptcy is also a reorganization. The debtor will create a three to five-year repayment plan or reorganization plan and present it to his creditors, trustee in bankruptcy, and to the bankruptcy court. Filing for bankruptcy is for individuals with regular monthly income who have enough left over to pay back their debt with monthly payments through their repayment plan. In this type of bankruptcy you will be able to keep all assets and properties including non-exempt property. In exchange you have to pay back all or a portion of what you owe through your reorganization plan and make monthly payments. Chapter 13 bankruptcy can be used by individuals who don’t qualify for Chapter 7 but need debt relief, have non-dischargeable debt such as child support or alimony that they would like to pay in a three to five-year term, or have fallen behind on a house or car payment and want to get caught up on missed or unpaid payments to keep the property. Furthermore, filing Chapter 13 just like Chapter 7 prevents foreclosure.
Are you planning to file for bankruptcy?
If you are considering declaring bankruptcy, talking to bankruptcy attorneys will help you a lot. While you can file bankruptcy on your own, a bankruptcy lawyer will help you with the tedious and complicated bankruptcy process as well as let you know about the types of bankruptcy options, credit counseling, restructuring, and other information that may be beneficial to you. We at Grafton Firm, LLC will provide you with an experienced bankruptcy lawyer that will provide the best strategy for your specific situation. Call us now for a free legal consultation.