Bankruptcy Law – Everything You Need to Know

Bankruptcy Law - Everything You Need to Know

Bankruptcy law is federal law governed by Title 11 of the United States Code. Congress enacted the Code under its constitutional authority to enact “uniform laws on the subject of Bankruptcies” (Article I, Section 8).

The bankruptcy process starts when you file a petition in one of 90 federal district courts. The filing freezes legal proceedings like foreclosures, evictions, garnishments, and repossessions.

What is Bankruptcy?

Bankruptcy is a legal tool used by individuals and businesses that conclude they cannot repay their debts. It involves a specialized federal court process and follows certain procedural steps. It does not, however, overturn nonbankruptcy substantive law governing standard debtor-creditor relations.

There are two main types of bankruptcy: Chapter 7 liquidates the property and pays creditors according to a set distribution scheme, while Chapter 11 deals with business or individual reorganization. In either case, a judge makes decisions under the bankruptcy law Hattiesburg MS. Bankruptcy stops creditor attempts to collect money from debtors and can eliminate unsecured debts like medical bills, car loans, and personal credit card balances. It does not discharge secured debts (like mortgages or car loans), alimony, child support, or most student loan debt.

How Does Bankruptcy Work?

Bankruptcy allows individuals and businesses to start over by discharging debts they can’t pay. At the same time, it gives creditors a chance to get some repayment of their debts from assets available for liquidation.

In a Chapter 7 bankruptcy, the court appoints a trustee to sell or turn over valuable property, such as personal items, tools of the trade, motor vehicles, etc. Generally, a person’s equity in their home is protected up to a certain dollar amount, as are varying amounts of life insurance policies and retirement accounts.

A Chapter 11 bankruptcy reorganizes a corporation or a sole proprietorship business. Usually, a company that files for bankruptcy remains open for business while devising a plan to repay creditors over 3-5 years.

What Can I Do to Avoid Bankruptcy?

There are a variety of things that can be done to avoid bankruptcy. One of the most important is communicating with creditors and being open about one’s financial situation. It can help them find a solution that may allow the debtor to pay back the debt in a more manageable way.

Another option is to seek credit counseling from an organization that can help people or businesses develop a budget to put them in a better financial position. It will help them identify what expenses can be cut and how much money they can save each month.

Lastly, contacting an experienced bankruptcy attorney when facing financial hardships is important. These professionals can help steer you in the right direction or even represent you outside of court during a traditional bankruptcy procedure that best suits your needs.

What Can I Do to Avoid a Bankruptcy Confirmation Hearing?

A bankruptcy judge will schedule a confirmation hearing, and both the debtor and the creditors can present their cases to the judge. Objections can be filed regarding the debtor’s proposed payments, their claimed expenses, their exemptions, and the feasibility of their repayment plan.

When a Chapter 13 case is filed, the debtor proposes a “plan” to repay creditors for three to five years. Chapter 13 allows an individual with regular income to keep some assets, such as a home or car, and is often used by people who do not qualify for a Chapter 7 bankruptcy due to their income.

The bankruptcy filing stops all collection activities, lawsuits, garnishments, foreclosures, repossessions, and creditor demands. However, there is a process to stop the automatic stay, and a court can allow these types of actions again.

What Can I Do to Avoid a Bankruptcy Discharge Hearing?

In a Chapter 7 bankruptcy, a trustee turns all assets into cash to pay creditors. Some property is exempt, including a certain amount of clothing and household items, tools for work, and, in some instances, vehicles and the family home.

The court will discharge debts only after the debtor has completed a course on personal financial management and made all plan payments. However, a creditor may still pursue collection against the debtor for non-dischargeable debts like child support, alimony, and student loans, even after the bankruptcy.

A bankruptcy case is typically finished within a few weeks if all steps are taken properly. But a case can drag on for years if something goes wrong or a step is overlooked.