A Brand New Financial Start through Chapter 7 Bankruptcy

According to the US Department of Labor’s Bureau of Labor Statistics, unemployment rate during year-ends 2012, 2013 and 2014 were 7.9, 6.7 and 5.6, respectively (from a high of 9.9 during the Great Recession of 2008-09). While the term unemployment may suggest a negative meaning (such as when people are laid off or quit their work while looking for a new job) or a positive meaning (as may be the case when a company makes technological improvements, replacing human workers with machines for consistently fast work output, or when a job is outsourced), for workers who have been displaced from their work, the term can only signify one sense: financial problems.

For millions of wage earners in the US, who may just have enough salary to enable them to cover all their financial concerns between salary dates, losing their source of income, even for just a month or two, can result to unpaid monthly bills, loans or mortgages – the possible start of a crushing debt crisis.

Banks give debtors the chance to settle late payments for their loans; however, after being continuously delinquent for about three to six months, rules will require these banks to consider unpaid bills as bad debts and, so, refer a debtor’s account to a collection agency, which does not shy away from using hounding tactics in order to make a debtor pay.

In an article found in the website of Greenway Bankruptcy Law, LLC, this firm recognizes the stress and difficulty that debtors experience in coping with their debts. Besides the sleepless nights due to inability to pay their mortgage, car loan, student loan, medical bills and/or credit card bills, the thought of the possibility of losing their home or car plus all the text messages, letters, emails, phone calls and other forms of harassing tactics from collection agents, can be just too much. But rather than allowing debtors to legally suffer the consequences of their delinquency or inability to pay, this Greenway Bankruptcy Law firm informs debtors that there are various types of solutions, legal ones, which will save them from all forms of debts, regardless of how enormous these may be. One of these solutions is bankruptcy, designed as a legal means for individuals and businesses to get out of debt for a chance at a brand new financial start.

The Bankruptcy Code, which was enacted by the US Congress in 1978 and which completely replaces the Bankruptcy Act of 1898, also called the Nelson Act, is composed of various Bankruptcy Chapters (7, 9, 11, 12, 13 and 15, which was added to the Bankruptcy Code in 2005) each designed to address the specific financial situation of those seeking protection under the Bankruptcy law.

Records from the United States Courts (http://www.uscourts.gov/statistics-reports/us-bankruptcy-courts-judicial-business-2014) show that from 2010 to 2013, the average number of bankruptcy applications filed in various U.S. federal bankruptcy courts was 1,358,104. The average number of applications filed during the same years under the different Chapters is as follows: Chapter 7 = 952,948; Chapter 11 = 11, 583; Chapter 12 = 582; and, Chapter 13 = 392, 879.

Chapter 7, specifically, which is the bankruptcy chapter most commonly applied for, involves liquidation. This chapter requires a debtor to surrender all of his/her “non-exempt” properties for liquidation and cease operation of his/her business if he/she has one. Non-exempt properties usually include a vacation home, a second house, expensive musical instruments (but only if the debtor is not a musician by trade), cash, bonds, stocks and other forms of investment. Exempt properties, on the other hand, include items which are considered necessary for working and living; a number of examples are a house, a vehicle (or vehicles but only up to a certain value), clothing, necessary household appliances, personal injury compensation, tools necessary to the debtor’s trade or profession, and jewelry (up to a certain value).

A trustee appointed by the court will take charge of the liquidation of the debtor’s non-exempt properties and use the amount earned to pay all of the debtor’s non-dischargeable debts, such as child support and alimony or spousal support, court fees, government-imposed penalties, debts resulting from wrongful death or personal injury, student loans (unless debtor would suffer “undue hardship” if he/she were to keep paying these), and taxes (federal, state, and local) that are no more than 3 years old since these first became due. If the amount of liquidated properties is more than enough to pay all non-dischargeable debts, the remaining amount will have to be returned to the debtor. Otherwise, creditors will have to accept the (legally determined) amount they are paid, even if this falls short of the actual amount owed to them. Besides this, they should also follow a decision made by the court which is to forgive any balance from the debt and to stop any further collection of payment, or suffer severe penalties under federal law.

With regard to other debts, which include medical bills, past utility bills, personal loan from employer, family or friends, and, most especially, credit card bills, all of these are considered dischargeable debts, thus the court automatically frees the debtor from any further obligation of paying these, at the same time ordering creditors to cease any form of collection from the debtor.

Furthermore, once bankruptcy is filed in court, the debtor immediately is benefitted as all interest charges on loans as well as all legal and harassing tactics from creditors will cease; this is called the “automatic stay.” Even a single attempt by a creditor to try to make a debtor pay can result to legal consequences against him or her.

Each bankruptcy chapter has requirements which will determine qualification. For chapter 7, an applicant will be required to take a means test – this is to determine if his/her salary is within the limit set under this specific chapter.

The law firm Erin B. Shank, PC, explains on its website how filing for bankruptcy can help an individual or business “restructure, significantly reduce, or altogether eliminate” debts and work towards financial independence. It is necessary, however, that one first understands what bankruptcy really is, what it does and which chapter will address and solve all financial problems, considering such individual’s or business’ specific financial situation.

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