 According to the American Bankruptcy Institute,
Nevada was ranked as number one for households filing personal bankruptcies in the United States (calendar year 1998).
So
far, 1999 is not looking any better. Yesterday’s easy credit and today’s credit
crunch have resulted in an enormous number of people filing bankruptcy. Although
bankruptcies should be handled by an experienced attorney, I want to briefly outline the
various aspects of bankruptcy. In addition to reviewing the basic process itself, from the
time of filing until the case is over, this column provides basic information on what
financial profiles precipitate filing a bankruptcy and lists some exemptions individuals
or couples may claim in order to protect certain property.
In this column,
you’ll find a discussion of the most common forms of bankruptcy: Chapter 7 Debt
Liquidation, filed by a large majority of consumers, and Chapter 13 Adjustment of Debts,
in which most creditors are paid back over time.
The decision to
declare bankruptcy is never an easy one for individuals to make, but the general
information provided here should help to make it at least a little less intimidating and
troublesome.
First, let me
make clear the difference between a Chapter 7 and a Chapter 13 bankruptcy. Whereas a
Chapter 7 bankruptcy generally clears your debts, a Chapter 13 filing requires that the
debtor set up a plan to repay all or most creditors, normally within three to five years.
Either chapter can be used by individuals and businesses alike (but most ongoing
businesses that need more time to get through a slump file a Chapter 11 Reorganization
petition).
Employed wage
earners may wish to use a Chapter 13 bankruptcy to help salvage their credit and to help
retain their property by putting several overdue payments into the plan. Under a Chapter
13 bankruptcy, one payment is made to the trustee of your case each month. The trustee
then distributes the funds to various creditors. Other monthly payments, such as those for
a car or home mortgage, are usually paid directly by the debtor to the creditor. Not
everyone can qualify for a Chapter 13 bankruptcy. To do so, you must have sufficient
income to make the agreed upon payment each month to the trustee, as well as to keep other
monthly payments current.
When a bankruptcy
petition is filed, the petition contains detailed information on your financial affairs,
your business dealings, lawsuits filed because of your debts, and so forth. A listing will
be made of the names, addresses and account numbers of all of your creditors and the
amounts owed to them. Also, be aware that spouses can file jointly. But you can’t
force a spouse to join the bankruptcy petition, even though it may be in the couple’s
best interest. That’s because both parties are usually joint liable or responsible
for most debts incurred during the marriage. Divorced persons must file separate
petitions.
I would also
advise against the help of friends or a do-it-yourself book when you prepare and file a
Chapter 7 bankruptcy. That is never a good idea. Even though a Chapter 7 bankruptcy is one
of the least complicated cases for the average consumer debtor, a number of critical
issues still must be properly addressed or you could lose even more money or property.
Also, many people who have tried to file bankruptcy themselves to save attorney’s
fees had to hire a lawyer anyway, in the end, to finish off or straighten out the case.Top of next column  |
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I also want to address one of the most common questions that
people have, which is whether or not a Chapter 7 bankruptcy wipes out all debts. Although
it eliminates many debts, it does not necessarily eliminate all of them. For example, most
of your credit card debts and unsecured (not collateralized by certain property, such as
an automobile) personal loans go unpaid, but money owed for taxes, attorney fees, alimony,
child support, some types of educational loans, and certain other debts are not wiped out
or discharged. And, if debts were incurred within several months of filing bankruptcy,
they may remain as payable debts. That is, you must pay these debts because you are
considered to have defrauded creditors by running up bills, knowing that you’d soon
be filing bankruptcy.
Also, know that sometimes a bankruptcy court will dismiss or
throw out a petition under certain circumstances. A petition could be thrown out of court
if the required payments according to the plan agreed upon under a Chapter 13 bankruptcy
are not made, or if fraud is discovered in a Chapter 7 by the trustee overseeing the case.
For example, if you charged unnecessary items to your credit cards shortly before you
filed the petition, or if you transferred certain assets to another individual, the
trustee might consider these actions fraudulent. Also, it is important to advise the
trustee of any changes of address to avoid a dismissal of the bankruptcy. A dismissal can
have serious consequences because it allows creditors to come after you again. That’s
another good reason to retain an experienced attorney.
Finally, it is all over when a final discharge is given. In
the typical Chapter 7 case, a final discharge will be allowed by the court after a number
of months have passed in which no creditor has filed legal action contesting some issues,
such as a particular debt being wiped out. A final discharge from a Chapter 13 will be
given when all payments have been made under the plan for repayment of creditors. Also,
know that a debtor can regain credit again after a bankruptcy. Bankruptcy information can
remain on your credit record for 10 years, but it is possible to reestablish credit during
that period. Whether you’ll be able to do so depends on many factors, such as your
employment, your monthly income and your general financial condition. Although filing
bankruptcy is a serious business, some people have no choice, especially if debt
counseling or bill consolidation won’t resolve the financial dilemma.
And remember, that’s the
law, and it’s your right to know! LVN
Bob Massi is the legal consumer analyst for the FOX
NEWS CHANNEL. He is also a radio talk show host on KDWN-AM and the author of A
Layman’s Guide to the Law. The law practice of Robert A. Massi can be reached by
calling (702) 870-1100. Massi practices primarily in: personal injury, real estate law,
business law, wills and trusts and legal consultations. |
