Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The idea of a fresh start for debtors goes back to the Old Testament and current bankruptcy laws can be traced to England in 1542 under King Henry VIII. The right to file for bankruptcy in the United States is provided for by The United States Constitution , and all bankruptcy cases are handled in the federal courts. Filing bankruptcy immediately stops your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. It is an important alternative for persons strapped with more debt and stress than they can handle.
Federal bankruptcy laws were enacted to provide good, honest, hard-working debtors with a fresh start and to establish a ranking and equity among all the creditors clamoring for the debtor’s limited resources. Bankruptcy helps people avoid the kind of permanent discouragement that can prevent them from ever re-establishing themselves as hard-working members of society.
To the extent that there may be money or property available for distribution to creditors, creditors are ranked to make sure that money or property is fairly distributed according to established rules as to which creditors get what. This discussion is intended only as a brief overview of the types of bankruptcy filings and of what a bankruptcy filing can and cannot do. No one should base their decision as to whether or not to file bankruptcy solely on this information. Bankruptcy law is complex, and there are many considerations that must be taken into account in making the determination whether or not to file. Anyone considering bankruptcy is encouraged to make no decision about bankruptcy without seeking the advice and assistance of an experienced attorney who practices bankruptcy law.
Bankruptcy may make it possible for financially distressed individuals to:
- Discharge liability for most or all of their debts and get a fresh start. When the debt is discharged, the debtor has no further legal obligation to pay the debt.
- Stop foreclosure actions on their home and allow them an opportunity to catch up on missed payments.
- Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
- Stop wage garnishment and other debt collection harassment, and give the individual some breathing room.
- Restore or prevent termination of certain types of utility service.
- Lower the monthly payments and interest rates on debts.
- Allow debtors an opportunity to challenge the claims of certain creditors who have committed fraud or who are otherwise seeking to collect more than they are legally entitled to.
Bankruptcy Usually Cannot do the Following:
- Eliminate certain rights of secured creditors. Although a debtor can force secured creditors to take payments over time in the bankruptcy process, a debtor generally cannot keep the collateral unless the debtor continues to pay the debt.
- Discharge types of debts singled out by the federal bankruptcy statutes for special treatment, such as child support, alimony, student loans, certain court ordered payments, criminal fines, and some taxes.
- Protect all cosigners on their debts. If relative or friend co-signed a loan which the debtor discharged in bankruptcy, the cosigner may still be obligated to repay whatever part of the loan not paid during the pendency of the bankruptcy case.
- Discharge debts that are incurred after bankruptcy has been filed.
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Chapter 7 bankruptcy, also referred to as “liquidation bankruptcy,” can wipe out common unsecured debts such as personal loans, credit cards, medical bills, and dental bills. Before the process is started, you will be asked to provide a list of all of your known creditors, along with the balance that you owe. It should be noted that Chapter 7 bankruptcy will not discharge secured debt, such as past-due mortgage payments or car loans. Chapter 7 bankruptcy will also not discharge student loan debt, alimony payments, child support, or taxes.
Chapter 12 bankruptcy is essentially a debt reorganization plan designed to help people categorized as “family fishermen” or “family farmers.” Much like Chapter 13 bankruptcies, Chapter 12 bankruptcies require filers to establish a court-approved repayment plan that is typically spread over a 3 to 5 year timeframe. However, unlike Chapter 13 bankruptcies, Chapter 12 bankruptcies have a higher debt ceiling, since individuals who work in the farming or fishing industries can incur much more debt in a short amount of time than the typical wage earner.
Chapter 13 bankruptcy, also referred to as a “court ordered debt consolidation,” involves grouping all of your debts together, allowing you to make a single monthly payment. The repayment plan is based around your living expenses, monthly income, and debt total, and typically spans 3 to 5 years. Unlike Chapter 7 bankruptcy filings, Chapter 13 filings do work for student loan debts and tax debts. However, to be eligible for a Chapter 13 filing, you have to have a regular income and your debts can’t exceed a certain amount. Also, it should be noted that Chapter 13 bankruptcies stay on your credit report for 10 years.
Unpaid medical bills are the number one cause of bankruptcy filings, with around 40% of Americans owing money to hospitals and clinics for times when they were sick. Although medical expenses aren’t tied to any form of collateral, insurance companies can still garnish your wages or claim a part of the equity you have in your home. At the Law Office of Douglas L. Barrett, we handle medical bankruptcy cases with the utmost care and consideration—we figure you have already been through enough pain and deserve a little TLC.
We also handle small business bankruptcy cases. Each and every business is different, which is why it is important to sit down with a legal counselor to discuss your options. We have worked with hundreds of business owners to help them discharge debts, reorganize their past-due balances, and protect the future of their companies.
We believe that your legal needs are of the utmost importance and you deserve the care and diligence necessary to successfully accomplish your goals. Contact us today, and speak with an experienced bankruptcy lawyer in Orem, Utah. Feel free to read through our most current client reviews, located here.
We understand that being in debt can be stressful and intimidating, which is why we offer free consultations for new consumer clients. During this consultation, we will talk with you about the debts that you owe, so that we can determine whether or not bankruptcy is a viable option. If bankruptcy is not right for you we will point in other directions to obtain the best relief possible.