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Bankruptcy
The word itself is scary and still a bit mysterious. Bankruptcy– it sounds so final, and has such negative baggage attached to it, that even people who once knew better have forgotten that recovery from bankruptcy is specifically mentioned in the U.S. Constitution.
The Constitution, of course, doesn’t give the what’s and the how’s of bankruptcy law, but does state that the government will establish procedures to bring American citizens relief from financial failure
. The laws have changed a number of times since the Constitution was ratified in 1787, and the last major revision took effect on October 17, 2005.
The basics
The law, at its most basic, makes it possible for consumers to include most of their debts – most commercial loans and obligations, but excluding some taxes and court-ordered payments – in their filing. This amount, when approved after a series of hearings and the provision of information to the Bankruptcy Court, would then be discharged by order of the government. Creditors could no longer take collection action on these amounts.
However, neither the previous bankruptcy law nor the one that took effect in late 2005 was automatic in its approval of a debtor’s debt listing. Creditors are notified about the filing, and a “
” is one of the first things on the bankruptcy agenda. At this time, a magistrate can question the debtor filing for bankruptcy protection as well as hear from creditors in attendance.
Personal vs. business
Personal bankruptcies, about which we are primarily speaking, are mostly Chapter 7, Chapter 11 and Chapter 13 filings. The first is a request for protection, whereas the second is a request for “reorganization,” where a plan for repayment of a partially-reduced debt amount can be evaluated by the Court. Businesses and individuals can opt for either of these filing Chapters, while Chapter 13 is yet another approach for working individuals (known as the “wage earner’s plan”).
Other Chapters (8, 12, etc.) cover the farm industry and other business entities. Individual consumers will be involved with Chapters 7, 11 or 13, primarily, and those are the areas covered by most self-help books and Web sites. The fact is, though, that unless you are very financially astute, you should get professional advice if you are considering filing for bankruptcy protection.
That was then, this is now
The “do it yourself” (DIY) bankruptcy kits are not selling quite as swiftly as they did prior to the 2005 revision of the law. The amount of debt written off, the repayment requirements, the ratios of income to obligations – all of these items and more changed with the new law. Since bankruptcy filing has become more complicated, the DIY kits have become somewhat less popular, although financially astute consumers can still do their own paperwork if they pay attention and have good reference materials.
If you are someone who needs help with your 1040 tax forms, chances are you will need help with a bankruptcy filing. The best thing you can do with your financial life, of course, is avoid bankruptcy at all costs. The other articles on this site, concerning everything from “Bad Debt” to “Free Credit Reports,” will give you good advice on handling your personal finances so that you can avoid bankruptcy. The best bankruptcy filing is none at all.
Topics: Credit Repair |
