No one ever wants to file bankruptcy but, sometimes, it is the only option. Many people understand that bankruptcy is a way for people to discharge their debt so they can get a fresh start and begin rebuilding their credit. Unfortunately, this is the extent of the knowledge many people have on the subject before they file. What is bankruptcy, though, and what is involved in the process? These are important things to understand before you even file or embark on the process. Understanding the bankruptcy process will ensure you know what to expect, and the positive and negative effects you may face afterward.
What Is Bankruptcy?
Bankruptcy is a legal process that allows individuals, couples, and even businesses to discharge their debts when they are unable to pay them. Each type of bankruptcy has different processes and different qualifying factors. Essentially, bankruptcy allows people to get a fresh financial start by clearing the slate.
A discharge is a court order that prohibits any debt collector or creditor from trying to recover the debt from the borrower. Discharges are also sometimes known as bankruptcy injunctions. A judge will only issue a discharge order after the borrower has met all the terms of the bankruptcy agreement and adhered to the payment plan created during the process, or if the bankruptcy court decides otherwise. The terms are different for varying bankruptcy cases, depending on the type of bankruptcy being filed.
The Different Types of Bankruptcy
The Bankruptcy Code outlines six different types of bankruptcy, although most people only think of the two most common types.
- Chapter 7 bankruptcy is by far the most common type of bankruptcy people file. This type of bankruptcy is best suited for people that have little hope of repaying their debts. During a Chapter 7 bankruptcy, a person’s assets are divided into exempt and non-exempt property. Any property that is not exempt is sold and the proceeds are distributed to the creditors the borrower still owes in an attempt to repay at least a portion of the debt. In turn, the borrower’s debts are discharged and they no longer owe them, nor can creditors attempt to collect on the debt.
- Chapter 13 bankruptcy is another very common type of bankruptcy, although it is less commonly used than Chapter 7. During a Chapter 13 bankruptcy case, the borrower’s debts are not necessarily discharged. Instead, the borrower meets with the bankruptcy trustee and creditors to devise a repayment plan. Over a period of three to five years, the borrower then repays the debt. In a Chapter 13 bankruptcy, the amount of the debt is often reduced, making the payments even more affordable.
Other types of bankruptcy include:
- Chapter 11, used by businesses
- Chapter 9, used by municipalities and their organizations, such as hospitals and school districts
- Chapter 12, used by family fishermen and family farmers
- Chapter 15, used by foreign borrowers that have actions pending in other countries
Anyone considering filing for bankruptcy should speak with a bankruptcy lawyer who can help them determine which type of bankruptcy they should file.
How Does Bankruptcy Work?
Borrowers can only file for bankruptcy if they are in good standing with the courts. Debtors are also required to attend a credit counseling course with an approved agency within 180 days prior to filing bankruptcy. The courts do not want to discharge a person’s or company’s debt only for them to accumulate mass debt in the future and have to file bankruptcy again. This is the reason anyone filing must take the credit counseling course. The court will not discharge any debt for a borrower who has not taken the course.
Other than the above requirements, each type of bankruptcy will also have its own set of rules and regulations. However, there are some similarities between each type of bankruptcy. Namely, these include the use of trustees and the objective of getting debts discharged.
The U.S. Bankruptcy Courts govern bankruptcy cases as dictated by the U.S. Bankruptcy Code. Due to the fact that bankruptcy is a federal process, the bankruptcy courts are branches of the federal district court system. Bankruptcy judges are appointed by federal judicial committees and they govern the process in bankruptcy court.
Bankruptcy trustees are also an integral part of the bankruptcy process. Trustees are not judges, but they do oversee the case and review any documents submitted by the borrower. During a Chapter 7 bankruptcy, the trustee will try to sell any property of the borrower that is not exempt from the bankruptcy process. In a Chapter 13 bankruptcy case, the trustee will help devise the repayment plan and coordinate payments the borrower makes to the different creditors. In any bankruptcy case, the trustee will also look for any fraudulent activity, such as when a borrower fails to disclose important information. Trustees have a fiduciary duty to creditors and must work to collect as many assets from the borrower as possible to repay the creditors and debt collectors.
After a judge approves a bankruptcy for a borrower, creditors can no longer try to collect on the debt, as long as the borrower meets all terms and conditions of the bankruptcy. A borrower’s debt is only discharged once they have met all of these terms and conditions. It is important to note that while a bankruptcy discharge provides relief from many different types of debts, it is not all-inclusive. Certain debts, such as outstanding taxes and child support, cannot be discharged through bankruptcy.
It is also important for borrowers to understand that the impacts of bankruptcy will be felt for several years. A bankruptcy can stay on a person’s credit report anywhere from seven to 10 years, making it harder for the borrower to obtain credit, housing, employment, and other opportunities.
Our Fort Lauderdale Bankruptcy Attorneys Can Help with Your Case
If you are drowning in debt and need a way out, you may have considered filing for bankruptcy, but you should not do it alone. At Loan Lawyers, our Florida bankruptcy attorneys will ensure you file correctly, ensure you meet all requirements and conditions, and give you the best chance of a successful outcome. Call us today at (954) 807-1361 or contact us online to schedule a free consultation.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.