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Bankruptcy
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WHAT IS BANKRUPTCY?
Bankruptcy is a legal proceeding in federal court which allows a person
with a large amount of debts to be released, or “discharged,” from the
debts (or from most of them). The person with the debts is called the
“debtor,” and the people or companies you owe money to are called
“creditors.” In every Chapter 7 or 13 bankruptcy case a person is
appointed by the court to administer the estate. This person is called a
“trustee” and is paid a commission from the money distributed to
creditors.
ARE THERE DIFFERENT TYPES OF BANKRUPTCY CASES THAT CAN BE FILED?
There are three main types of proceedings in bankruptcy. These are
referred to by their chapter number in the Bankruptcy Code.
Chapter 7 – This is the type of case most people think of when they
hear the word bankruptcy. You may also hear it referred to as a “straight
liquidation case.” In this type of case, the trustee collects all of your
non-exempt assets (described below), sells them, and then distributes the
cash to your creditors as provided by law. The result of a successful
bankruptcy proceeding is a discharge in bankruptcy, which means that the
debtor comes out without any future obligations on the discharged debts.
Chapter 11 – This type of bankruptcy proceeding is generally used
by businesses, or by debtors with substantial assets that would be lost in
straight bankruptcy. In a Chapter 11 proceeding the creditors are
temporarily stopped from taking any action against the debtor while he or
she tries to work out a plan of reorganization that suggests a method of
paying or settling the debts. The creditors vote on the plan, and it also
must be approved by the court. This is a complicated proceeding, generally
used by businesses.
Chapter 13 – In this type of case, sometimes referred to as a
“wage-earner plan,” you present to the court a proposed plan for paying
off your debts gradually over a period of time, generally 3-5 years. A
portion of your paycheck will go to a trustee and the trustee will divide
that money among your creditors. In the meantime, the creditors cannot
garnish your wages or repossess your property. A wage-earner plan normally
gives you more time to pay your bills than you would otherwise have. It
also can help you pay debts that are not dischargeable in a straight
bankruptcy proceeding. You must have a job in order to qualify for this
plan, and there is a limit to the amount of debt you can have. One
advantage of this type of bankruptcy is that you can keep most of your
property. Another advantage is
that you can make up past payments on your mortgage.
WHO CAN FILE FOR BANKRUPTCY?
In general, any person or business can file for bankruptcy. There is
no minimum amount of debt required. In most cases, however, a person who
files owes considerably more in debts than he or she can pay.
WILL I HAVE TO GIVE UP ALL OF MY PROPERTY IF I DECLARE BANKRUPTCY?
No. The law recognizes that some items are necessary for a person and
his or her family and protects those items from creditors. Among the
protected items are a home and some value in a car, furniture and certain
other basic items. The exact items protected from creditors will depend on
your particular circumstances. If you have taken out a loan secured by
your home, car or other basic items, you must continue to pay the loan to
be able to keep those items. Your creditors may ask you to “reaffirm”
these debts, which means that you promise to keep paying the loans. You
must enter into a reaffirmation agreement with your creditors and attend a
hearing with the bankruptcy judge.
WILL ALL OF MY DEBTS BE DISCHARGED IF I FILE FOR BANKRUPTCY?
No. There are some debts which the bankruptcy court cannot cancel. These
include certain taxes, student loans, child support, spousal support,
debts arising from a malicious or willful injury, and debts incurred by
giving false financial information. Debts incurred for luxury goods or
services or cash advances just before bankruptcy, and liabilities for
damages caused by driving while intoxicated, are other examples of debts
which cannot be discharged. An attorney at Eskens, Gibson & Behm Law Firm,
Chtd. can help determine which, if any, of your debts might not be subject
to discharge in bankruptcy. You will have to continue to pay these debts
whether or not you declare bankruptcy.
CAN I FILE FOR
BANKRUPTCY MORE THAN ONCE?
Yes, but there may be a limit on how soon you can file. Six years must
pass from the date of a Chapter 7 bankruptcy discharge before straight
bankruptcy can be filed again. There is no waiting period for the filing
of a Chapter 13 bankruptcy after any prior bankruptcy. There may be a
waiting period after certain Chapter 13 proceedings for the filing of a
straight bankruptcy.
DO I HAVE ANY CHOICE
BESIDES BANKRUPTCY IF I CAN’T PAY ALL OF MY BILLS?
Yes. Bankruptcy is not the only way to deal with debt problems. If you
have only a few debts, you or your attorney can contact your creditors and
try to work out a payment plan with them. Sometimes you can find help in
avoiding bankruptcy by contacting a local social service or consumer
credit counseling agency.
HOW CAN I
TELL WHETHER I SHOULD FILE FOR BANKRUPTCY?
The legal solution to the problem of too many bills can be complicated.
Filing for bankruptcy is a very serious step that could affect you for the
rest of your life. If you feel bankruptcy may be necessary, you should
consult a lawyer. An attorney at Eskens, Gibson & Behm Law Firm Chtd. can help explain to you
how the process works and can evaluate your exemptions and
non-dischargeable debts. We will help you make an intelligent decision
about whether bankruptcy is your best alternative, and if so, under which
chapter you should file. When you consult us, you should bring a detailed
list of all of your debts, including the amount of the outstanding balance
in cash and a list of all your property. It is important that all of your
bills and property be listed so that the best solution to your problem can be arranged. Every
circumstance is different. Only by going over all of the facts can we help
you avoid any problems that could interfere with bankruptcy.
HOW WILL
BANKRUPTCY AFFECT MY CREDIT RATING?
Bankruptcy may appear on a person’s credit record for at least ten years.
It may make it difficult to obtain credit for a while. Yet, at the same
time, a person considering bankruptcy may already have a poor credit
rating. In some cases, bankruptcy may actually improve the ability to get
credit, since many of the debtor’s former debts are discharged. Your local
credit bureau may be able to provide information about the policy of
lenders and creditors in your area with regard to the effect of bankruptcy
on a person’s ability to obtain credit. Also, the law prevents certain
governmental units and agencies from discriminating against persons who have filed for bankruptcy. Again, an attorney at Eskens, Gibson & Behm
Law Firm, Chtd. can give you guidance in this area.
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Eskens, Gibson & Behm Law Firm, Chtd.
115 E. Hickory St. - Suite 200
P.O. Box 1056
Mankato, MN 56002-1056
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