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Knowing the Fundamentals – Bankruptcy Laws

Bankruptcy laws generally protect distressed people and businesses that can no longer pay their creditors. In the United States, bankruptcy laws are placed under federal jurisdiction as stated in the United States Constitution (in Article1, Section8), allowing the Congress to enact “uniform laws on the subject of Bankruptcies throughout [all] the United States [districts].” Its implementation, however, is realized depending on the different district state laws. Nevertheless, much of the relevant statutes are already incorporated within the Bankruptcy Code, located at Title11 of the United States Code. Other statutory bankruptcy laws are found in Titles18 (crimes), 26 (internal revenue code) and 28 (judicial procedure) of the US Code.

Features of the US Bankruptcy Laws:

An estate consists of all property interests of the debtor at the time of the filing, and which are subject to certain exclusions and exemptions. This may also include other items, including (but not limited to) property acquired by will or inheritance within 180 days after case commencement. In the case of a married person in a community property state, the estate may include some community property interests of the spouse even if the spouse has not filed bankruptcy.

Under the revised bankruptcy laws (1984) the bankruptcy judges in each judicial district function as a US bankruptcy court, a ‘unit’ of the US district court. Formally, each district court ‘refers’ practically all bankruptcy matters to the Bankruptcy Court. Yet in rare circumstances, a district court may in a particular case ‘withdraw the reference’ or take the bankruptcy case away from the Bankruptcy Court and decide the matter itself.

Decisions of the bankruptcy court could be generally appealed to the District Court, and then to the Court of Appeals. However in some jurisdictions, a separate court called a Bankruptcy Appellate Panel composed of bankruptcy judges hears particular appeals from bankruptcy courts.

Creditors might race to the courthouse to improve their positions against a debtor, yet a protective automatic stay is imposed at the moment a bankruptcy petition is filed. This generally prohibits the commencement of actions, judicial or administrative, against a debtor for the collection of a claim prior to the case. The stay also prohibits collection of property of the estate itself. A secured and court-permitted creditor, however, may be allowed to take the applicable collateral. Permission may be granted by filing a motion for relief from the automatic stay.

Stay-relieved secured creditors may look to the property that is the subject of their security interests. Security interests are considered liens on the property of a debtor. Yet, there still are unsecured creditors – the unsecured priority creditors and general unsecured creditors. In some cases, the debtor’s estate assets are insufficient to pay all priority unsecured creditors in full, and the general unsecured creditors receive nothing.

An individual debtor (not partnership/corporation) may claim certain items of property as exempt property and keep those items (subject, however, to any valid liens). The individual debtor is allowed to choose from a Federal list of exemptions. In states where the debtor is allowed to choose between the Federal and state exemptions, the debtor can choose the rules that most fully benefit him or her.

The debtor’s discharge is available in some but not all cases. For example, in a Chapter7 case only an individual debtor (not a corporation/partnership) can receive a discharge.

The discharge also does not eliminate certain rights of a creditor to setoff/offset certain mutual debts owed by the creditor to the debtor.
Not every debt may be discharged. Certain taxes owed to Federal, state or local government, government guaranteed student loans, and child support obligations are not dischargeable. (Guaranteed student loans are potentially dischargeable against the lender).

Bankruptcy laws relating to prosecutable bankruptcy fraud and other bankruptcy crimes are found in Sections151-158 of Title18 of the US Code.

The proceedings of these bankruptcy laws are covered under Title 11 of the United States Bankruptcy Code and are adopted by each bankruptcy court.

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Before and After Bankruptcy Help Advice

Before Bankruptcy Help Advice

A bankruptcy help advice that you should follow before anything else is to consider bankruptcy only when you have no other choice in the matter. There may other ways to solve your credit problems that you have not tried. Speak with a credit counselor that can give you bankruptcy help advice, specifically to help you avoid filing.

If you are considering bankruptcy, then you should understand the two common types of bankruptcy.

* Chapter 7 Bankruptcy entails that certain assets of the debtor will be liquidated to pay the creditors. At the end of the process, most of the debtor’s debt is cancelled.

* Chapter 13 Bankruptcy is designed for individuals with regular income and involves a debt payment plan based on the debtor’s income with terms extended over three to five years, after which any unpaid debt is eliminated.

Find out the specific requirements of each option to determine under which you are eligible.

Before making a decision whether to file bankruptcy, you should realize that not all of your debts will be discharged by the court. Tax debts, college loans or child support are some of the non-dischargeable debts. Bankruptcy may be the solution you need if you are seeking relief from credit card debt and other unsecured types of credit.

Bankruptcy laws differ in every state, particularly when it comes to Chapter 7 bankruptcy. The rules on exemptions or what you may or may not keep in a Chapter 7 bankruptcy depends on the laws in your state. You may have to surrender your car or house if it has high equity and it is not protected by your state bankruptcy law. Other assets such as pension and life insurance may be at risk if your state classifies it as “non-exempt” assets. Although, most states protect these types of assets, do your research or ask a bankruptcy lawyer in your area to know what you might have to lose when you file  bankruptcy.

Bankruptcy is a highly stressful process and you have to be prepared emotionally and mentally to handle it. Again, before filing bankruptcy seek professional bankruptcy help advice from credit counseling agencies or consult with a reputable attorney who may help you negotiate with your creditors.

After Bankruptcy Help Advice

While bankruptcy leaves a bad mark on your credit report for several years, it should not discourage you from regaining your creditworthiness. Usually, you can obtain new credit if you show proof that your financial situation has improved. Creditors often consider those who have been consistently employed with the same company for at least two years.

A good bankruptcy help advice is to open a savings account to cover any emergency needs. To re-establish your credit, start with a secured credit card and make sure you meet monthly payments on time or pay the balance in full every month.

A common bankruptcy help advice when it comes to credit repair is to check your credit report for errors. You can get one free credit report per year from Equifax, Experian and Transunion. You can write, call toll-free or visit the websites of these companies to order your credit report.

Once you have your credit report, review the information it contains thoroughly. Check your personal information, account and credit payment information to make sure everything is accurate. Have all your timely payments since bankruptcy been reported? If there are any irregularities, inform the credit company in writing to have the information corrected. Prepare documents to back up your claims.