Represent Yourself in Bankruptcy Court
Bankruptcy is the legal position of a party unable to pay off their creditors: those to whom they owe money. Filing for bankruptcy is usually the choice of the bankrupt party, although in some instances a group of creditors of the same party may request that the party be declared bankrupt so that they can recover some, if not all, of the money owing to them. One thing to note is that the bankruptcy law was recently changed and there are many new provisions that have been enacted. Also, your state of residence can enact laws that make bankruptcy more or less favorable, so you need to check your state statutes as well as the federal.
Bankruptcy serves several purposes. From the perspective of the bankrupt party (the "debtor"), bankruptcy relieves many debts owed and can "wipe the slate clean" for the particular party. Any money or other assets a party has will still be mostly used to pay off portions of outstanding debts, but large amounts that the bankrupt debtor cannot possible afford are eliminated.
From a creditor's perspective, bankruptcy has both advantages and disadvantages. The main disadvantage is that a creditor can no longer claim money from a bankrupt debtor; the debtor is relieved of his/her full obligation. On the other hand, bankruptcy can be advantageous to a creditor in that at least some of the debtor's outstanding debt will be repaid; even though the creditor will not recover the full amount owed him/her, some repayment is better than the alternative, which is no recovery, particularly if the debtor owes large sums to a number of creditors.
Bankruptcy is a federal issue in the United States, and falls under federal jurisdiction, with the applicable law found in the Bankruptcy Code, Title 11 of the United States Code. Volumes of the United States Code are available in most libraries and online.
States do offer additional insight into bankruptcy law, so any person filing for bankruptcy must be aware of the specific states' rules regarding bankruptcy.
The Bankruptcy Code sets out six types, or "chapters" of bankruptcy. Each chapter applies to a different situation. The two main types of bankruptcy that will be applicable to an individual filing bankruptcy are:
- Chapter 7: liquidation-bankruptcy
- Chapter 13: payment plan for those with a regular source of income
Chapter 7 Bankruptcy
Under Chapter 7 bankruptcy, a debtor will have to sell his property, which is often done by a third-party trustee, such as a bank. The proceeds from the sale are used to pay creditors to the extent of the proceeds only, in full satisfaction of the debt, even if the total debt is much greater than the amount recovered from the sale. A debtor is typically permitted to keep certain property, such as his/her home, vehicle, and household goods. States vary with respect to the time period that must pass before debts are discharged, but 90 days is typical. A DISCHARGE is an order of the court of all debts owed by the debtor, unless a creditor files a lawsuit arguing that a certain debt should not be discharged in the bankruptcy proceeding. Debts that are discharged include personal loans, credit card debts, and medical bills. A few important types of debts are NOT subject to discharge, including child support, student loans, and fines or penalties owing to the federal government.
Chapter 13 Bankruptcy
Chapter 13 is a rehabilitation plan with limits on the amount of debt owed by the debtor. The debtor keeps all of his/her property, but must make regular payments to a trustee, such as a bank, which then pays creditors the balance owed them in installments. Plans may last from three to five years. Chapter 13 bankruptcy is a good option for debtors who have a regular stream of income and will ultimately be able to pay their debt.
Filing for Bankruptcy
The first thing a party must do is to collect all relevant financial documents for easy access and for inspection by the court, including financial records, outstanding bills, bank statements, and income verification, such as a pay stub or employment contract.
Next, a party must calculate the total extent of his/her debt. A financial or legal advisor can help one determine which debts are "secured" (creditor has a security on some property that he/she can claim from debtor if the debt is not paid) or "unsecured".
After deciding whether to file Chapter 7 or Chapter 13 bankruptcy, the debtor should file a Petition with the clerk of the court, and then immediately notify all creditors in writing of the filing.
Respond to questions from the court as completely and honestly as possible. A clear picture of one's financial situation is the most important tool in evaluating the extent of bankruptcy and what debts will be discharged: thing that is omitted, even inadvertently, may later turn up as a debt that was not discharged and must be repaid.----------------------------------------------------------------------------------
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