Bankruptcy is considered when unsecured debts are more than the assets .This is a legal status of a person to fail to pay the debts owed to creditors. In most cases, bankruptcy is imposed by a court order regularly initiated by the debtors. In the united state, bankruptcy is applied more largely to formal liquidation proceedings.
Bankruptcy is declared when large debts are not paid. For instance, bankruptcy can reduce or abolish debts by keeping bills collectors at bay. Bankruptcy has serious penalties including long term damage to the credit score hindering the ability to borrow in the future, resulting to high rates to insurance company and also impossible to get a job.
Bankruptcy cases in most cases are handled by federal courts where the federal defines different types of bankruptcy. Chapter 7 is the commonly type of bankruptcy used by consumers and businesses since it describes some sections of the centralized codes about bankruptcy towards the aforementioned individuals. This type of bankruptcy in most instances is referred as the liquidation whereby a trustee who is appointed by the court is authorized to sell the assets of the individuals to pay creditors. Afterwards the debts are considered discharged as some types of assets can be excused from insolvency, subject to assured limits.
For instance, many American file a petition through chapter 7 bankruptcy codes preventing businesses from threatening a court case against them. Individuals are eligible to file a bankruptcy petition according to chapter 7 of the bankruptcy codes by submitting their financial statements showing their income, debts and assets. However, a mean test form is required to determine whether income is low enough to qualify for chapter 7.
Chapter 7 of bankruptcy, individuals can file a case without hiring a lawyer in the sense that filing for bankruptcy is complex. This process is should be done correctly in order to succeed, it is disreputable to proceed without consultation from an experienced attorney who understands bankruptcy proceedings. Chapter 7 has a negative consequence on individuals’ bankruptcy in the sense that credit records remain for ten years. Under a chapter 7 bankruptcy, some questions are asked the attorney for further direction they are as follows,
(I)In a chapter 7 bankruptcy, will all of the assets be liquidated?
(II)Will taxes be charged in chapter 7 bankruptcy?
On the other hand, chapter 13 bankruptcies recognize the debts of individuals as a result of court approval plans for the repayment process take place over a period of three to five years. According to chapter 13 of the bankruptcy codes, some of the debts are discharged because they do not require liquidation of the assets. As long as individuals keep on the agreement of payment, chapter 13 of bankruptcy allows individuals to keep their homes. The most charming aspect of chapter 13 of bankruptcy is that the court requires the individuals to provide a detailed financial statement to show their revenue and expenses as agreed upon monthly payment to a trustee who in return pays the creditors.
Once the completion of chapter 13 bankruptcies is done, individuals in US are no longer responsible for the previous debts even if they did not pay the entire amount originally owed. Chapter 13 of bankruptcy stops the interest rate from increasing as well as the total amount owed by individuals on the credit card debt. Chapter 13 bankruptcy protection code is intended for individuals and married couples. However, the U.S bankruptcy code does not impose any limitation on any individual who file the case in court. This chapter has some question to the attorney they are;
(I) Can individuals file a chapter 13 bankruptcy if they have debts with cosigners?
(II) What are nonexempt assets?
Choosing between a chapter 13 and chapter 7 bankruptcy is an important responsibility with significant consequences. In order to obtain the best advice from the attorney, accurate information is the bottom line about the financial status. Individuals should alert the attorney to any special deliberations that might affect the decision making process. Chapter 13 also has a negative consequence on individuals about bankruptcy since bankruptcy will remain for the next seven years.
Chapter 11 of bankruptcy was named after the U.S bankruptcy code11; this involves a reformation of the debtor’s business affairs and assets as well as individuals. In most cases, it is filed by corporations which require time to restructure their debts. Majorly chapter 11 of the bankruptcy is the start of the fulfillment of its obligations under the plan of reformation. Small business debtors are considered small cases by the court when the case is filed in courts. Therefore, reorganization plan must be approved by the bankruptcy court for the case to proceed. Balancing of income and expenses, chapter 11 of bankruptcy, helps the debtors in decline of the obligation and modification of the terms of payment.
When individuals file a case majorly for real estate investment reorganization for unsecured debts are too high to qualify for Chapter13 of bankruptcy for relief. Chapter 11 allows real estate to rewrite mortgages thus enabling reduction of the principal balance of the mortgages to the value of the property.
The most complicated area of law is bankruptcy in the sense that dozens of national laws and state laws to deal with while filing the case. If it is not conducted well it will result to the case thrown out of court as individuals will automatic lose their belongings.
Small businesses and Major Corporation under chapter 11 must comply with the rules and meet the set requirements of reorganization. Usually the judge approves the reorganization plan if creditors agree then the plan is confirmed. Personal assets and debts according to chapter 11 of the bankruptcy can be used as a mechanism for liquidation depending on the size and the complication of the bankruptcy.
When dealing with matters of insolvency individuals should consider experience of the attorney on how to handle such kind of case. For instance, attorney has more experience about the bankruptcy cases as compared to lawyer. Therefore, specialization is needed to determine the attorney who understands the basics of the Chapter 7 and Chapter 13 of the bankruptcy. A good attorney should advice the individuals about the necessary documents to acquire and paperwork to support the case. Answering of the vital questions and clarification of rules and procedures is the responsibility of the attorney to determine individuals are confessant with court orders.
Occasionally attorney are really expensive and it is advisable for individuals to work with an experienced yet reasonably priced attorney who can really help through the whole process in order to achieve goals of getting out of debt.
Determining a good attorney, individuals should be aware whether the attorney belongs to the National Association of Consumers Bankruptcy Attorney, who offers several resources for people who are profound in debt cases. Significantly, individuals should determine if the attorney is respected by members of the consumer bankruptcy organizations.
Individuals are likely to choose attorney who offer free in person consultation through set up appointments in order to appraise the situation in detail. These circumstances need individuals to feel more confident that the attorney representing his/ her interest is experienced. Initial phone conversations should be supportive in determining the best attorney during selection process.
Similar sentiments should be followed to determine the best attorney from a large bankruptcy firm verses someone from a small firm. In essence, bigger firms with lot of lawyers usually charge higher fees without more experience in handling such cases of bankruptcy. Small firms may be less experienced since they majorly rely on the clerks to assist them. Therefore, it is suggested to work with attorney either from small or large firms as much as they are experienced to handle the case.