Bankruptcy

The two most common forms of bankruptcy are Chapter 7 and Chapter 13. Chapter 7, also called “straight bankruptcy,” arranges for complete liquidation of debt. In exchange the creditor has to surrender all his non-exempt assets via liquidation and ensuing distribution to the creditors. Chapter 13 bankruptcy also called “reorganization,”allows the debtor to reorganize his debt structure over 3-5 years. To be eligible for Chapter 13, the creditor needs to demonstrate to the court that he has sufficient income to repay his debts. If approved he must submit a detailed payment plan.

Chapter 7 bankruptcy is generally most used for debtors who have few property assets, except for their basic furniture and house necessities, and who have little money left over at the end of the month, or may even have trouble meeting basic expenses.

The advantages of Chapter 7 bankruptcy are that it provides for total discharge of debts and the process moves rapidly. Once the debtor has filed bankruptcy, his creditors cannot contact him directly.

To qualify to file Chapter 7, a debtor needs to pass the means test, which determines is his total income is under a certain specified amount.

Chapter 13 bankruptcy is appropriate for debtors who have large amounts of equity, have a steady monthly income and other assets, but are incapable of keeping up with their monthly credit payments. Debtors accepted for a Chapter 13 bankruptcy agree to work out a 3-5 year plan (longer in the future), and will cooperate a credit counselor to pay their debts. Monthly payments are sent to the “debt trustee,” who apportions the money to creditors according to a pre-arranged dispersal plan. Payments in this form of bankruptcy are made from disposable income that remains after basic expenses are met, food clothing, shelter, etc. To be eligible for Chapter 13 bankruptcy a debtor must have unsecured debts below $360,475 and secured debts are less than $1,081,400.

In both Chapter 7 and Chapter 13, the debtor must obtain mandatory credit counseling within 180 prior to filing bankruptcy with the courts. The counseling is designed to give debtors a chance to solve their financial problems themselves and with the help of the course counselors, without the need to go to court. In addition, this course, as well as additional courses that people in bankruptcy must take, aim to teach people in debt how to manage their finances so they won’t go into debt again after they come out of bankruptcy.

Bankruptcy Consultation

The word bankruptcy comes from the composite Latin words bancus and ruptus, actually conoting a broken (ruptus) bench (bancus). In ancient Roman times, bankers set out benches in the market place from where they would extend loans and carry out financial transactions. If a banker became insolvent, his bench was broken as a sign that he was no longer capable of securing debts.

There were many different ancient approaches to bankruptcy. Both Ancient Israel and Greece had codes insolvency and debt forgiveness, forgiveness after 5 years in Greece and 7 years in Israel. In the intermediary, creditors might need to sell themselves as slaves to pay the debt. In practice there were exceptions to the rule in both countries, and being a debt slave was not so easy, even if he was a cut above ordinary slaves.

In other countries, the treatment of debtors was even worse. In the code book of Gengus Khan, a man who feel into debt three times was put to death. From Russia comes tales of Cossaks who would injure and on occasion kill peasants who couldn’t pay their debts.

Now a days, modern civilizations offer an substitute to historical banckruptcy. People who become insolvent have the chance to pursue debt restructuring, bankruptcy education to help debtors reorganize their debts and continue their financial life. In the United States, the power to carry out laws of bankruptcy is taken from Article 1, Section 8, Clause 4, and the Bankruptcy Code, is located at Title 11 of the United States Code.

A great deal of the focus of American debt law is 1) to enable debtors to recover as much as possible and 2) to reeducate the debtor so that he won’t return debt again after he comes out of bankruptcy. The education process in bankruptcy is at least three fold.

The first part of the retraining comes from the debtors interaction with the bankruptcy lawyer. A bankrupcty attorney spends his entire legal career in the courts and appears before Judges who interpret and in many cases create current thought about bankruptcy. During the first meetings with the client, the bankruptcy lawyer will help the client to describe the financial mess he has entered into, in an orderly fashion. His financial state of affairs will be transposed into a detailed description of assets,debts, including liens on property and back taxes, current monthly income, and expenses. The client will be requested to summarize how he came to be in debt.

If the debtor elects to pursue the process further, he must take a bankruptcy counseling course taught by licensed professionals. During this course he will learn techniques of debt management, and he will decide if he is capable of getting himself out of debt using these techniques, and thus avoid bankruptcy, or if he feels the need to proceed with bankruptcy .

If he decides to proceed with bankruptcy, he must take a course on bankrupcty management. This course will provide him the information he needs to proceed with the bankruptcy and to remain debt free after he comes out of bankruptcy.

During the course of the procedure, the bankruptcy lawyer, the courts, the debtor, and the creditor will communicate in and out of court, and in keeping with the bankruptcy laws, the debts will be reorganized and settled as best they can, and a certain percentage will be forgiven. When the debtor comes out of bankruptcy, he will be allowed to continue his business, with whatever credit constraints the court concludes are appropriate.

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