Personal Bankruptcy General Discussion
Contrary to what some may believe, bankruptcy is not ordinarily a cause for shame or embarrassment. None of us can predict the future and therefore, we all face the possibility of future events which could render us incapable of satisfying our monthly financial obligations. Our firm assists literally hundreds of clients every year to file personal bankruptcy. The vast majority of these bankruptcies resulted from unpredictable circumstances beyond our client's control. These situations have included accidents, major medical problems, loss of employment and divorce, to name just a few.
Personal bankruptcy laws are designed to help people who can no longer keep up with their financial obligations. Continuing to struggle against insurmountable bills prevents the individual from carrying on a productive life. In turn that not only hurts the individual but serves as a drag on society. Even the creditor is not helped by carrying debt on their books and continuing in collection efforts for a bill which can never be repaid. Once bankruptcy is filed the creditor can write the loss off their taxes and forgo the expense of further collection efforts. It is noteworthy at this point to realize that when creditors set their prices and rates, they know that a certain percentage of all debt goes into default. It is an anticipated cost of doing business as a creditor. This loss is allowed for and offset, when creditors set their prices and rates. When both the creditor can get back to normal business and the consumer can resume a normal productive lifestyle everyone benefits.
Most personal bankruptcies are filed under provisions of chapter seven or chapter thirteen of the U.S. bankruptcy code. The choice of which type of bankruptcy to file, for a particular client, will vary depending on his or her particular circumstances. Important considerations include the client's total debt, income assets and needs. The actual decision of which to file is often a mathematical one, based on the monthly obligations and how much income is available to satisfy them.
Chapter seven bankruptcies are referred to as liquidation bankruptcies. Typically secured assets are repossessed. Valuable assets may be sold to satisfy debt. Many assets can be exempted from this process. If you qualify for a chapter seven bankruptcy, the debt which cannot be repaid is forgiven and the client is allowed a fresh start.
A chapter thirteen bankruptcy is often referred to as a wage earners bankruptcy. It allows a wage earner to reorganize their debt so that a workable budget can be arrived at. A client may keep the secured items they wish to keep and continue to make payments on them and give up items which they feel are overtaxing their budget. Clients create a three to five year budget including the secured items they wish to keep plus all necessary costs of living the remainder of their disposable income is then distributed equally between unsecured creditors. This may result in only a percentage of the unsecured debt being repaid in the three to five year period. Never the less all remaining debt is forgiven. This can be true even if as little as 1 or 2 percent of the total unsecured debt (like credit cards) is paid The client has a fresh start and is able to begin working on building a future instead of being held down by the past.
The specifics of these two types of bankruptcy will be discussed in other articles to be published on this site. These and other articles will help you understand the benefits and cost of bankruptcy. If you would like additional information, please contact the office at 757-447-4087 for a free consultation.