Layoffs, separation, divorce, reduced working hours, illness, death of a family member, bad economic times and many other unforeseen events often push people into a financial discomfort zone that they never would have imagined.Fortunately, bankruptcy has been available to help many people and businesses alleviate the financial stress associated with these events.
What is Bankruptcy?
Bankruptcy is federal law and is administered through the United States Bankruptcy Court. A bankruptcy filing provides automatic and immediate protection from creditors and their collection efforts in most cases.The different types of bankruptcies are classified in "Chapters."Each Chapter is designed to address a different type of debtor and/or a different set of circumstances.
Chapter 7: Liquidation or Fresh Start Bankruptcy
Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. The final effect of the Chapter 7 is to erase or discharge debt.In a Chapter 7, a debtor may have to surrender certain luxury items, or items that they can no longer afford.Many people mistakenly believe that they will lose everything.This is not true. Chapter 7 debtors are able to keep an appreciable amount of property under the authority of South Carolina exemption laws.Chapter 7 debtors may also retain some credit privileges, if it will not cause a hardship.
Record of the Chapter 7 remains on a debtor’s credit report for ten (10) years.There are some debts that may not be discharged under the law, including but not limited to certain taxes, student loans, alimony, support payments, and criminal restitution.Even though these debts may not be discharged, they must be listed in the debtor’s bankruptcy papers.
Chapter 13: Repayment of All or Part of the Debts of an Individual with Regular Income
Chapter 13 is for individuals with regular income who are unable to pay their debts as billed, but would like to pay them in installments over an extended period of time.Under Chapter 13 a Plan must be filed in court proposing to repay creditors all or part of the money that owed using the debtor’s income.
Usually, the period allowed by the court to repay debt is three years, but no more than five years.A special formula is used to determine how long you must be in bankruptcy.Most people seek a Chapter 13 when they are faced with foreclosure of their home or repossession of personal property or overwhelming monthly payments to creditors.A Chapter 13 will generally help a debtor to catch up mortgage payments that are behind as of the day of filing, but it cannot change the amount, the payment date, payment period or the interest rate of future mortgage payments. There are other programs that we can discuss to help homeowners with mortgage modification, refinancing and loans.
The Chapter 13 is helpful to many people because it may allow for the substantial reduction of certain debts. It should be the debtor’s goal to make all of the monthly Plan payments in a timely manner and get a discharge of his or her debts. Record of the Chapter 13 filing remains on a debtor’s credit report for seven (7) years.
Chapter 11: Reorganization
Chapter 11 is designed primarily for the reorganization of a corporation and businesses but it is also available to consumer debtors with complex debts.
Chapter 12: Family Farmer
Chapter 12 is designed to permit family farmers to repay their debts over a period of time from future earnings and is in many ways similar to a Chapter 13.
More Things You Should Know
üYou may not pick and choose which creditors you want to include in your bankruptcy -- all creditors must be listed, even if you have co-signed for someone.
üA husband and wife may file with or without the other spouse.Ask your attorney about the effect of a bankruptcy on your spouse and his/her debts if they do not file.
üYou must also list all property that you own, whether you own it by yourself or jointly, or even if you think it has no value.
üLet your attorney know if you have transferred title or sold any land, cars or other property within the last six years.
Some important things to have when you meet with the Attorney:
üDriver’s license, official picture ID, social security card or proof of SS#.
üCopy of a recent credit report (Obtain free from annualcreditreport.com); or provide list of bills/balances.
üTax returns for the past two years.
üA copy of any foreclosure or lawsuit papers that you have recently received.
üMake, model, VIN#, mileage on all vehicles, boats, trailers, etc. in your name or which you are obligated to pay (including co-signed debts).
üReal estate tax bill (appraisal) or other existing appraisal
üMost recent check stubs (minimally) or other proof of income for past two months.You will need to eventually provide the last six months of check stubs, so save a little time and bring it to the initial consultation, if available.
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