Individuals and companies sometimes become bankrupt. It is sad but true. It is not the end of the world, however, and many people who have gone through the legal process of bankruptcy have recovered and eventually achieved financial stability.
There are a few basic legal facts and terms that you should know about bankruptcy.
First, keep in mind that bankruptcy is a legal process. Declaring bankruptcy may be necessary for a person or a business that is ‘insolvent,’ which means, unable to pay debt owed to creditors.
If you are a debtor who is insolvent, you may be able to obtain relief from debt. The relief may come from discharging the debt (i.e., canceling the debt in whole or in part), or it may come by restructuring the debt. When a debtor files a petition in a bankruptcy court, then the bankruptcy case begins.
Individuals (not companies) filing for bankruptcy may be able to obtain a bankruptcy ‘exemption,’ which specifies the property that person may be able to preserve – including real and personal property – through bankruptcy.
For a business filing for bankruptcy, a court will normally try to restructure the debt to allow the rehabilitation and continuation of the business.
You should know that if a court does dismiss a debt, it will also try to make an assessment of the underlying problem that caused the debt in order to minimize the risk that the person will experience financial distress again.
Please note, that for student loan debt, it is not easy for a person to have this debt dismissed in bankruptcy court. The court will apply a very strict set of criteria in its evaluation of the case.
Getting down to the technicalities, you may want to know that bankruptcy law if governed by the Bankruptcy Code at Title 11 of the United States Code. Under this code are six types of bankruptcy. These are found in six ‘chapters.’
Something important to know is that in any type of bankruptcy filing there is an ‘automatic stay.’ This means that the request for bankruptcy protection automatically halts most of the lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection activity that may be happening or threatened.
For personal bankruptcy, most cases will be handled under Chapter 7 or Chapter 13. Chapter 7 is “straight bankruptcy” that eliminates most debts. Chapter 13 involves making a repayment plan for debt.
Chapter 11 is mostly for business debt, although it may apply to individuals with a lot of debt and assets. It is a form of corporate bankruptcy that protects companies while they follow debt repayment plans.
As you can see, the legal process of bankruptcy can help people and companies in financial distress. The ins and outs of bankruptcy law are rather complex, contact The Law Offices of EDWARD M. FARMER for help.
Edward M. Farmer is a U.S. Army veteran and an experienced VA attorney in DuPage County Illinois. The majority of his career has been dedicated to assisting veterans with legal issues nationwide. Call toll-free at 1 (800) 700-4174.
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