All About Bankruptcy In Detail

A federal court procedure designed to help consumers and businesses to wipe out their debts (or pay them under the protection of the federal court) is called bankruptcy. Individuals as well as businesses can file for bankruptcy, and in some instances, a creditor (whether a person or business) who owes funds via an involuntary procedure may force the declaring of a bankruptcy procedure. The second case is rather rare. When you file for bankruptcy, all your debts are then discharged and no legal actions can be taken against you. However, bankruptcy does not discharge all of your debts 

Reasons to declare bankruptcy

• Accidents, act of God: most people filing bankruptcy in the US do this for the reasons of bad and decreasing health condition. Medical bills cause half of the bankruptcy cases in America. Among other reasons are: loss of job, unemployment, accidents, natural disasters or crime. All of that can easily damage or ruin anybody’s bank account.
• Wrong decisions, careless management of personal finance. Our own irresponsible behavior is another reason for bankruptcy. Gambling, thoughtless spending, extravagant lifestyle, risky businesses, as well as divorce can also cause huge financial troubles.

Types of bankruptcies

Bankruptcy is regulated by three chapters: Chapter 7, Chapter 11 and Chapter 13. Most common types of bankruptcies are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy – a straight bankruptcy or a liquidation proceeding. In this case, the debtor is allowed to keep certain type of property (exempt property), therefore, the property they must give up is called non exempt property. In case you file for bankruptcy according to Chapter 7, you free yourself from your debts in exchange for some kind of property. The non exempt property is then handed to the court trustee to sell these assets and distribute cash to the creditors.

Exempt property include:

1. Household appliances. 
2. Vehicles, up to a certain value.
3. Reasonably priced requisite clothing.
4. Reasonably priced requisite household goods and furnishings.
5. Jewelry, up to a certain value.
6. Pensions.
7. A part of unpaid but earned wages.
8. Equipments (up to a certain value) that are needed in the debtor’s profession.
9. Damages awarded for personal injury.
10. A part of equity in the debtor's home.
11. Public benefits, including social security, and unemployment compensation, public assistance (welfare) that is accumulated in a bank account.

Non exempt property include:

1. Pricey musical instruments provided the debtor is not a professional musician.
2. Family heirlooms.
3. Collections of valuable items like stamps and coins.
4. Bank accounts, bonds, cash and other investments.
5. A second or vacation home
6. A second car or truck.

The reasons to file for Chapter Bankruptcy:

The cases of Chapter 7 bankruptcies are usually resolved within a period of 4 to 6 months. You have to give up your non exempt assets, but this type of bankruptcy is usually chosen when a debtor has no assets to lose.

Chapter 13 bankruptcy, reorganization, means you should file a repayment plan and the bankruptcy court suggests how you repay defaults to your creditors. The sum you will have to pay will depend on the money you earn and owe, the kinds of debts you’ve made and the property you have. You are not obliged to give up any property to repay your debts, instead your income is used to repay your debts in some accorded period of time – usually 3 to 5 years. Reasons to file for Chapter 13 Bankruptcy:

In case you have secured loans and can’t pay them off (cars and houses) and you wish to catch up before the foreclosure or repossession.

If you have a tax obligation, student loan or some other debt that doesn’t fit the Chapter 7 bankruptcies. In case you wish to retain the non exempt property. In case you have a co debtor on a personal loan.

 Kinds of debts that are discharged in Chapter 7

Kinds of debts that are discharged in Chapter 13