When financial problems become overwhelming, and creditors threaten to garnish your wages, file a lawsuit, or foreclose on your home, the bankruptcy laws of the United States may provide welcome relief. The purpose of filing bankruptcy is to obtain a “discharge” of your current debt. A discharge releases you, the debtor, from any debt liability incurred prior to the filing of the bankruptcy, thereby preventing lawsuits, garnishments, liens, and judgments which may be filed by debt collectors. Additionally, bankruptcy prevents creditors from staking claim to any future income or assets you may acquire after the filing of bankruptcy. There are, however, some exceptions. For example, bankruptcy will not relieve the obligation to pay off a mortgage on your home while you continue to live there. It does, however, prevent foreclosure by allowing you to come out of a default status, resume your monthly payments and bring your mortgage current over time. This same premise may apply to other assets such as a car or other vehicle. If bankruptcy sounds right for you, the next step is determining what type of bankruptcy to file.
When filing a Chapter 7 bankruptcy, the debtor is protected and allowed to keep many personal assets. The assets are protected by exemptions. There are exemptions for your home, car, clothes, jewelry, etc, each with a limit. Most filers of Chapter 7 never reach these limits and are allowed to keep ALL of their assets. If anything is held by the debtor above these limits, however, it is turned over to a third party known as a “trustee.” The trustee then oversees the liquidation of these assets and distributes the proceeds among the creditors. This allows the debtor to then be discharged from most debt.
When filing a Chapter 13 bankruptcy, the debtor presents a plan of repayment to be reviewed by a trustee, creditors, and the Bankruptcy Court. This plan pays for the debtors secured assets such as their home and car and pays a portion (0%-100%) of other debt based on the debtor’s income in comparison to debt. In order for the plan to be accepted by all parties, payments must be shown to be reasonable, and the total of payments must be no less than what creditors would receive if the debtor’s assets were liquidated through a Chapter 7 filing. The repayment plan must state that projected income above living expenses will be used to repay debt for a period of three to five years
For more information, contact our office or email us at bank@jameswdavislaw.com