There is a common misconception that only low-income individuals and families file for bankruptcy. However, this is far from the truth. Financial hardship affects people from all walks of life.
People in all professions seek relief from their creditors by filing bankruptcy – even business owners, doctors, lawyers, and CEOs of Fortune 500 companies. People of all different ages, ethnicities, religions, and backgrounds find financial relief by filing bankruptcy.
Filing for personal bankruptcy is every American’s economic right. In 2005, Americans filed over 2 million personal bankruptcies. Creditors are aware that you have the legal right to file bankruptcy and take this risk into consideration when determining what interest rates they will charge you. If the interest rates on your debts are very high, it is possible that you might have already paid the creditor more than you initially charged or borrowed.
Bankruptcy’s history is long and extensive. Scholars state evidence of bankruptcies in Biblical times exists. In the United States, some form of bankruptcy law has been available since the year 1800. Congress has since shaped and molded our Bankruptcy Code over the last 200 years. Bankruptcy laws have a purpose: to offer you protection from your creditors by granting you an opportunity to either reorganize or eliminate your debts.
As the recession churns on, we’re finding ourselves increasingly depending on credit and subsequently sinking further into debt. Some of us are asking ourselves a question we never thought we’d have to consider: Should I file bankruptcy? If you find yourself contemplating bankruptcy, you’re certainly not alone. Bankruptcy filings have increased all around the country.
In March, nationwide personal bankruptcy filings were up an astounding 41 percent from the same time last year, according to the National Bankruptcy Research Center. And it appears that the bankruptcy filings won’t slow down anytime soon; the March 2009 total of 121,413 filings was up 24 percent from February 2009’s total of 98,344 filings.
Foreclosures are on the rise too. The Center for Responsible Lending reports that a new home enters foreclosure every 13 seconds in this country. That means that as of this writing, 763,621 homes have entered foreclosure since the first of the year. These foreclosure statistics may only fuel bankruptcy filings, because in many cases Chapter 13 bankruptcy can stop foreclosure proceedings. With all this talk about bankruptcy statistics, let’s examine what exactly it means to file personal bankruptcy.
The U.S. Bankruptcy Code offers two main forms of personal bankruptcy: Chapter 7 and Chapter 13. Under both types, the filer typically receives the protection of the bankruptcy automatic stay. The automatic stay is a court order that prohibits creditors from pursuing further collection efforts, such as:
Although both types of bankruptcy offer this automatic stay, that’s where the similarities end. Chapter 7 and Chapter 13 offer distinctly different benefits for filers.
To put it simply, Chapter 7 bankruptcy deals with discharging (eliminating) unsecured debts and Chapter 13 bankruptcy helps people repay their secured debts over time while allowing them to keep their property.
Chapter 7 Bankruptcy
A successful Chapter 7 bankruptcy filing results in the discharge of a filer’s unsecured debts (debts not tied with property), which may include:
Under Chapter 7, if a person has significant property, the bankruptcy court has the option to sell it in order to repay creditors. (This is why people who own homes with significant equity typically don’t file Chapter 7.) Since the new bankruptcy law went into effect on October 17, 2005, people must qualify to file Chapter 7 by submitting to the means test.
The means test analyzes a person’s income to determine whether they really need to eliminate their bills or if they can afford to repay their debts through Chapter 13. Interested in filing Chapter 7? Talk to a bankruptcy lawyerabout whether you may qualify.
Chapter 13 Bankruptcy
Under Chapter 13, a filer is placed on a repayment plan that is agreed upon by the filer (or his or her bankruptcy lawyer), the bankruptcy court and creditors. The plan usually lasts between three and five years, during which the filer makes one lower monthly payment directly to the bankruptcy court.
If all payments are made according to the schedule, the filer typically can keep his or her property (like a home or car) and at the end of the repayment period, the court has the option of discharging the rest of the filer’s unsecured debts.
If you’re considering filing bankruptcy as a way to potentially resolve debt and/or protect your property, it may be a good idea to talk to a bankruptcy lawyer about your options.
A bankruptcy lawyer can examine your personal case and help you determine whether you qualify to file.