Bankruptcy is a legal proceeding in federal bankruptcy court when a person who has more debts than he or she can pay, seeks relief from those debts. The right to file bankruptcy exists under the law. Bankruptcy may appear on a person's credit record for 10 years and may interfere with that person's ability to get credit. However, a person contemplating bankruptcy may already have a poor credit rating and, in some cases, bankruptcy may actually improve his or her ability to get credit, since many of the person's former debts will have been dismissed. You local credit bureau may be able to provide information about the policies of lenders and creditors in your area with regard to bankruptcy and obtaining credit.
The most common type of bankruptcy is straight bankruptcy, often referred to as a Chapter 7 or liquidation proceeding. A person who files for such a bankruptcy is referred to as a debtor. A straight bankruptcy proceeding includes a court-administered sale of any of the debtor's property that is not exempt, with sale proceeds going toward paying debts. The result of a successful bankruptcy proceeding is a discharge of bankruptcy which released the debtor from payment of certain debts.
Chapter 13 is a special kind of bankruptcy, also referred to as a "Wage Earner Plan" although it is available to individuals on welfare or what other kinds of regular income. In a Chapter 13 Plan, a person continues to pay off debts under an installment payment plan administered by a trustee.
There are some advantages of Chapter 13 dealing with secured creditors, such as mortgage companies or banks, who might otherwise repossess property of the debtor. A Chapter 13 plan may also extend the time to pay off debts and reduce the amount of to be paid. The plan suspends legal and collection actions against the debtor for the period it is in effect, usually three or five years, and it may also suspend actions against person who co-signed loans with the debtor.
In general, any person, regardless of how much he or she owes, can file for a straight bankruptcy proceeding. An individual and, if desired, the individual's spouse, who income is regular and who owes unsecured debts of less than $269,250 and secured debts of less than $871,550 may file for Chapter 13 relief.
There is no requirement that a husband and wife file bankruptcy together, although one advantage to filing together is that the amount of the exemptions are doubled. In some instances where most of the debts are owed by only one spouse, it may be appropriate for that spouse to file alone. However, jointly owned property may be affected if only one spouse files. In most cases, a husband and wife have the same debts, or have co-signed the same loan agreements. In this situation, if only one spouse files, the creditors can continue to demand payment from the spouse who did not file.
A person who co-signed with you on a loan may still be held responsible for the debt if you file for bankruptcy. A Chapter 13 bankruptcy may keep credits from taking any legal or collection actions against your co-signers.
If you have only a few debts, you should contact your creditors to try and work out a payment plan with them, rather than filing for bankruptcy. Sometimes you can find assistance in avoiding bankruptcy by contacting a local consumer credit counseling agency, consumer credit bureau, or legal services office.
If you do feel bankruptcy is necessary, you should consult a lawyer. You will need a lawyer to handle the filing, explain the procedures, evaluate your exemptions and debts, and attend to all other matters involved in a bankruptcy proceeding. The lawyer will also assist you in determining whether a Chapter 13 plan is appropriate.
The following debts are not dischargeable:
Certain property is exempt from a bankruptcy proceeding and can be kept by the debtor. A debtor can choose between a state or federal exemption standard. In Pennsylvania, the main state exemption is $300.00 for an individual and $600.00 for a married couple who file together. A few of the other important state exemptions include clothing, pension benefits, worker's compensation, payments and disability insurance payments. However in most cases in Pennsylvania, the federal exemptions will be preferable to the state.
Only the debt's property that is not exempt is available to be sold and used toward payment of his or her debts. Many individuals may only have property that falls under the exemptions and, therefore, have no assets available to be sold to pay creditors. This does not affect the bankruptcy. Under a Chapter 13 case, the individual's earnings after the bankruptcy petition is filed are used to fund the plan.
As a general rule, there is no limitation on the future ability of a debtor to own real estate or to acquire personal property. In most cases, creditors who claims are discharged in bankruptcy will not be able to take property or earning acquired by the debtor after he or she files for bankruptcy. However, some special types of interests, such as inheritances, property settlements, and life insurance proceeds, if acquired within 180 days after bankruptcy, may become available for payment to creditors.
Six years must expire from the date of an earlier filing of a straight bankruptcy where discharge of debts occurred before a straight bankruptcy can filed again. Following certain Chapter 13 proceedings, there is no time limit for the filing of a straight bankruptcy. Also, if you have previously had a Chapter 13 plan within the last six years, you cannot have debts discharged again unless payments to unsecured creditors under the prior plan were either made in full, or up to 70 percent and the plan was proposed in good faith, with the debtor's best efforts.