Knowing the basics of bankruptcy law, you can make an informed decision about whether or not you should seek the court’s protection to relieve your debts. If you choose to file bankruptcy, you definitely should retain professional legal counsel.
According to a comprehensive, careful study by Harvard University researchers, over half of all bankruptcies in the United States are the result of overwhelming medical expenses. In their study, researchers found that over 1.5 million families had sought the bankruptcy court’s protection because their insurance did not cover the costs of serious medical treatment, and they could not pay the bills from their own resources. The same study found that extended unemployment ranked as the second leading cause of bankruptcy, and researchers noted that, since the serious recession began, the rates of those filings have increased more than 50%.
Bankers and financial planners emphasize the seriousness of declaring bankruptcy, stressing that you should consider it your last resort. If, for example, you have fallen behind on your house payments and fear foreclosure, you carefully should consider federally guaranteed mortgage refinancing or loan modification; Congress and the administration now have approved three different mortgage relief programs, and more than ten million families qualify. Similarly, if you have accumulated a great deal of credit card debt, qualified professional credit counselors may help you renegotiate your obligations and satisfy your creditors without severe damage to your credit rating. Moreover, if you owe a great deal of money in back taxes, an attorney or enrolled agent may help you submit an “Offer in Compromise,” which will reduce your indebtedness to the IRS or your state tax authority.
If, however, your debts have gone so far beyond your capacity to pay that you stand in jeopardy of losing everything, then bankruptcy will help you protect your assets and start over again with a clean slate. Learn the bankruptcy laws so that you may choose wisely as you complete the process. Most importantly, you must know which kind of relief you seek: one of the chapters in the bankruptcy law requires you to liquidate your assets for the sake of paying off your debts; the other allows you to restructure your debts and retain most of your major property. An attorney will help you understand the subtleties and intricacies in the bankruptcy laws.
Chapter 7 Bankruptcy Law
Chapter 7 filings are the remedy of choice for people who are hopelessly burdened with debt; the bankruptcy laws allow them to declare a fresh start. Often called a “straight-up bankruptcy,” a filing under Chapter 7 authorizes a bankruptcy trustee to sell or liquidate all of your assets. The trustee uses the proceeds from the sales to pay-off all of your creditors, and your creditors agree to discharge all of your obligations in exchange for these payments. In most cases, the person who takes advantage of this bankruptcy law has few assets left to lose, so that he or she receives a relatively quick and painless “do-over.”
Chapter 13 Bankruptcy Law
Under the provisions of Chapter 13, on the other hand, you indicate your genuine desire to honor your obligations, and you ask the court to grant you more time. Behind on payments for your two biggest assets-your home and your car-you understand you have the means to make-up your arrears, and the court grants an opportunity to make-up your missed payments. Under Chapter 13, you may reserve the right to file a Chapter 7 proceeding if your debt accumulates faster than you can make the payments.