Bankruptcy is often viewed as an individual’s last resort when financial difficulties arise. And while we do not suggest that filing for bankruptcy would, or should, be anyone’s first choice, it is often, ultimately, the best, most comprehensive, solution to an individual’s financial problems. Certainly, if you find yourself facing overwhelming consumer or business debt, your first step should be to seek the counsel of a qualified bankruptcy attorney.
Unlike the numerous “debt reduction” or “debt consolidation” firms that flood our airways with advertisements, a licensed professional bankruptcy attorney is uniquely qualified to review your case and determine if bankruptcy is the proper course of action for you. Licensed attorneys have taken an oath to represent their clients to the best of their ability. Additionally, conversations with your attorney are confidential. Non-attorney debt firms do not have these same obligations. It is, therefore, better to speak with an attorney first, rather than last.
The process of filing for bankruptcy protection may seem relatively simple for the debtor, but it requires knowledge of very complex bankruptcy laws and regulations and should not be attempted without qualified legal representation. Failure to timely and correctly file required court documents can result in a case’s dismissal or the loss of property.
What follows here is a general overview of the bankruptcy process and requirements for an individual or married couple. There is more detailed information as well as clarification of a number of common misconceptions about bankruptcy which are addressed in more detail in following sections.
Bankruptcy Overview
When an individual, referred to as a “debtor”, files for bankruptcy, he is filing for “relief” or “protection” under the United States Bankruptcy Code. The creation of a Bankruptcy Law is provided for in the U.S. Constitution. An individual may file either under Chapter 7 of the Bankruptcy Code, referred to as “liquidation”, or under Chapter 13, which is often referred to as “reorganization.”
Many people believe that if they file for bankruptcy, they must give up all of their property. To the contrary, however, the Bankruptcy Code provides for what are called “Exemptions” under Section 522 of the Bankruptcy Code which allow for certain values a debtor may hold in various types of property such as real estate, household goods, automobiles, retirement funds, and other property.
Three types of debts are addressed in a debtor’s bankruptcy filing: 1) Secured Debts which include mortgages, car liens, tax and judgment liens; 2) Priority Debts which include unliened taxes, child and marital support obligations; 3) Unsecured Debts which include credit card debt, old utility bills, medical bills, pay-day loans and personal loans.
When a bankruptcy case is filed, the “automatic stay” goes into effect, pursuant to Section 362 of the Bankruptcy Code. This “stay” means that none of the debtor’s creditors may take any further steps to collect on a debt. They cannot call or write the debtor, they cannot file or continue a lawsuit, or execute on a judgment without first receiving the Bankruptcy Court’s permission to do so.
At the completion of a case under Chapter 7, the debtor’s unsecured debts are “discharged”, meaning the debtor no longer has a legal obligation to pay those debts. If the debtor wants to retain property that is subject to a secured debt, such as his home or car, he must continue to make those payments. (More on secured debts below).
At the completion of a Chapter 13 case, after the “Plan of Reorganization” has completed, the debtor also receives a discharge of any remaining unsecured debt. As with a Chapter 7 filing, the debtor must continue to pay secured debt to retain the property.
Robert Manchel, a New Jersey bankruptcy practitioner, will explain how bankruptcy can help you with your debt. Give our office a call at 866-503-5655.
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