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What is Bankruptcy?
Bankruptcy is a legal process that allows individuals and businesses to eliminate or restructure their debts. Two of the most common types of bankruptcy in the United States are Chapter 7 and Chapter 13. While both chapters offer debt relief, they have some key differences that individuals should be aware of before deciding which chapter to file.
Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy because it involves selling the debtor’s non-exempt assets to pay off creditors. To be eligible for Chapter 7 bankruptcy, the debtor must pass a means test, which compares their income to the median income in their state. If the debtor’s income is below the median, they are generally eligible for Chapter 7 bankruptcy. However, if their income is above the median, they may be required to file for Chapter 13 bankruptcy instead.
One of the benefits of Chapter 7 bankruptcy is that it offers a relatively quick and straightforward path to debt relief. In most cases, the debtor’s dis-chargeable debts are eliminated within a few months of filing for bankruptcy. However, the debtor must also be willing to give up some of their assets in order to pay off their creditors. Some assets, such as a primary residence or a certain amount of personal property, may be exempt from liquidation.
Chapter 13 bankruptcy, on the other hand, involves creating a repayment plan that allows the debtor to pay back their debts over a period of three to five years. To qualify for Chapter 13 bankruptcy, the debtor must have a steady source of income and their debts must fall within certain limits. Unlike Chapter 7 bankruptcy, the debtor generally does not have to give up any assets in order to pay off their debts.
One of the benefits of Chapter 13 bankruptcy is that it allows the debtor to keep their assets while still addressing their debt problems. Additionally, Chapter 13 bankruptcy may be a better option for debtors who are facing foreclosure, as it can help them catch up on missed mortgage payments and keep their homes.
In conclusion, both Chapter 7 and Chapter 13 bankruptcy offer debt relief options for individuals and businesses struggling with overwhelming debt. However, the choice between these chapters depends on the individual’s financial situation and goals. Debtors who are unsure which chapter to file should consult with an experienced bankruptcy attorney to discuss their options and determine the best course of action.
History Of Bankruptcy
The history of bankruptcy is a long and winding tale, full of twists and turns that have led to the present day. From the earliest civilizations to the modern era, the concept of bankruptcy has evolved and changed, reflecting the times in which it was born.
In ancient times, bankruptcy was a harsh and unforgiving path. Those who could not pay their debts were often thrown into debtor’s prisons, where they languished in squalor and despair. Debtors were viewed as pariahs, shunned by society and left to rot in their own filth.
It was not until the Middle Ages that bankruptcy began to take on a more structured form. The concept of bankruptcy courts emerged, and debtors were given some measure of protection. However, the path was still treacherous, and bankruptcy was viewed as a moral failing rather than a financial one.
The Industrial Revolution brought with it new challenges and opportunities for bankruptcy. As commerce and trade expanded, so did the need for more sophisticated bankruptcy laws. In the United States, bankruptcy became a federal matter in the late 19th century, with the creation of the Bankruptcy Act of 1898.
The 20th century saw a number of changes in bankruptcy law, as society continued to evolve and grow. The Bankruptcy Reform Act of 1978 introduced the modern bankruptcy system, with the creation of Chapter 7 and Chapter 13. These paths offered debtors a chance at redemption, while still holding them accountable for their debts.
In the years since, bankruptcy has become a common path for those facing financial difficulties. It is no longer viewed as a moral failing, but rather as a necessary step in the journey towards financial stability.
In conclusion, the history of bankruptcy is a complex and ever-evolving tale. From its earliest roots in ancient times to the modern era, bankruptcy has reflected the changing needs and values of society. Today, it remains a vital tool for those seeking a fresh start, and it will continue to evolve and change in the years to come.
Here are some key laws related to Chapter 7 bankruptcy that every citizen in the USA should be aware of:
- Means test: Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, individuals who want to file for Chapter 7 bankruptcy must pass a means test to determine their eligibility. The means test compares the individual’s income to the median income in their state, and if their income is above a certain threshold, they may be required to file for Chapter 13 bankruptcy instead.
- Exemptions: When a person files for Chapter 7 bankruptcy, some of their assets may be sold in order to pay off their debts. However, the debtor is typically allowed to keep certain exempt property, such as a primary residence, a certain amount of personal property, and retirement accounts. The specific exemptions vary by state.
- Automatic stay: When a person files for Chapter 7 bankruptcy, an automatic stay goes into effect that prohibits most creditors from continuing their collection efforts. This means that creditors must stop calling, sending letters, or taking legal action against the debtor while the bankruptcy case is ongoing.
- Discharge of debts: At the end of a Chapter 7 bankruptcy case, the debtor may receive a discharge of most of their debts. This means that they are no longer legally obligated to pay those debts, and creditors cannot continue to pursue collection efforts against them.
- Credit counseling: Before filing for Chapter 7 bankruptcy, individuals must complete a credit counseling course from an approved provider. This is designed to help the debtor understand their financial situation and explore alternatives to bankruptcy.
- Fraudulent transfers: If a debtor has transferred assets to someone else within a certain period of time prior to filing for bankruptcy, those transfers may be deemed fraudulent and the trustee may be able to recover those assets in order to pay off creditors.
It’s important to note that bankruptcy law can be complex, and individuals who are considering filing for bankruptcy should consult with an experienced bankruptcy attorney to understand their rights and obligations under the law.
Here are some key laws related to Chapter 13 bankruptcy that every citizen in the USA should be aware of:
- Repayment plan: Under Chapter 13 bankruptcy, debtors create a repayment plan that outlines how they will pay back their debts over a period of three to five years. The plan must be approved by the bankruptcy court and must prioritize certain debts, such as taxes and secured debts.
- Automatic stay: Like Chapter 7 bankruptcy, Chapter 13 bankruptcy also includes an automatic stay that stops most creditor collection efforts while the case is ongoing.
- Disposable income: In order to qualify for Chapter 13 bankruptcy, debtors must have a certain amount of disposable income, which is the income that remains after necessary expenses have been paid. The debtor’s disposable income is used to fund the repayment plan.
- Credit counseling: Like Chapter 7 bankruptcy, debtors must complete a credit counseling course from an approved provider before filing for Chapter 13 bankruptcy.
- Discharge of debts: At the end of the repayment plan, some remaining debts may be discharged, meaning the debtor is no longer legally obligated to pay them.
- Co-debtor stay: Chapter 13 bankruptcy includes a provision known as the co-debtor stay, which can protect a co-signer or co-debtor on certain types of debts from collection efforts while the case is ongoing.
- Plan modifications: In some cases, debtors may need to modify their repayment plan due to changes in their financial situation, such as a loss of income or an unexpected expense. In such cases, the debtor must seek court approval for any changes to the plan.
As with Chapter 7 bankruptcy, it is important for individuals who are considering filing for Chapter 13 bankruptcy to consult with an experienced bankruptcy attorney to understand their rights and obligations under the law.
It is essential to get a bankruptcy lawyer as soon as possible if you are considering filing for bankruptcy in the state of Texas. A qualified bankruptcy attorney can provide guidance on which type of bankruptcy is best for your particular situation and help you navigate the complex legal process. Additionally, an attorney can help you avoid costly mistakes and ensure that all necessary documents and forms are completed accurately and on time. By working with a bankruptcy lawyer, you can increase your chances of a successful bankruptcy and emerge from the process with a fresh start. Call us anytime , day or night, we are here to help.