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©2017 by Joel Kenny, Attorney @ Law

GENERAL BANKRUPTCY PRINCIPLES

The federal bankruptcy law is designed to provide people going through a tough financial time with an opportunity for a fresh start.

To help you determine if you need a fresh start, you can use our Credit Card Debt Calculator to determine how long it will take to pay off your credit cards if you do nothing.

There are many reasons why people file for bankruptcy relief. Often, it is because of a loss of income due to losing a job or even just a decrease in income that prevents the person from paying all of their bills.

Another life event that may cause someone to file for bankruptcy relief is a medical emergency or prolonged illness that results in massive medical costs that are not covered by insurance. Even the death of a spouse can create a financial crisis where the only alternative is to file for bankruptcy protection. It could even be that someone has made very poor financial decisions in the past and have over-extended himself or herself to the point where it is now impossible to meet all of their financial obligations given their current income.

The bottom line is that people file for bankruptcy relief because some type of life event or circumstance has caused them to be unable to continue paying for their basic living expenses in addition to paying their bills.

The ultimate goal in filing for relief under either Chapter 7 or Chapter 13 bankruptcy is a discharge of your debts.

If you qualify to file for a Chapter 7 bankruptcy case, you will receive a complete discharge of most of, in not all, of your unsecured debts when the case is completed. This means that once the bankruptcy case is closed, you will no longer be legally responsible for the payment of the debts that are discharged through the bankruptcy case.

The automatic stay provisions of Section 362 of the U.S. Bankruptcy Code prevent creditors from attempting to collect any debt that is discharged through a Chapter 7 bankruptcy action. This includes collection actions, wage garnishments, judgments and seizure of property.

If you file a Chapter 13 you will create a 3 to 5 year repayment plan.  At the end of the successful competition of your plan your debts will be discharged.

The advantage of a Chapter 13 plan is that it may allow to keep your home or other property on which you are behind in payments or which are not covered by your exemptions.  You will also enjoy the protections of the automatic stay when you file a Chapter 13 bankruptcy.

The property a debtor can keep through the bankruptcy is determined by the specific exemptions available under state law. Bankruptcy Information allows you to search for state exemptions. In addition, residents of certain states are allowed to choose federal exemptions instead of state exemptions.

Before deciding upon the appropriate course of action you may wish to explore some alternatives to bankruptcy and review the frequently asked questions section of the site in order to gain a better understanding of the bankruptcy process.

CHAPTER 7 BANKRUPTCY

In a Chapter 7 bankruptcy you wipe out your debts and get a “Fresh Start”. Chapter 7 bankruptcy is a liquidation where the trustee collects all of your assets and sells any assets which are not exempt. (see Utah Exemptions) The trustee sells the assets and pays you, the debtor, any amount exempted. The net proceeds of the liquidation are then distributed to your creditors with a commission taken by the trustee overseeing the distribution.

Certain debts cannot be discharged in a Chapter 7 bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans, and certain items charged. (see Missouri Non-Dischargeable Debts). In most Chapter 7 cases, the debtor has large credit card debt and other unsecured bills and very few assets. In the vast majority of cases a Chapter 7  bankruptcy is able to completely eliminate all of these debts.

You may keep certain secured debts such as your car or your furniture or house by reaffirming those debts. To do so, you must sign a voluntary “Reaffirmation Agreement”. If you decide that you want to keep your house or your car or your furniture, and you reaffirm the debt, you cannot bankrupt (or wipe-out) that debt again for eight years. You will still owe that debt and you must continue to pay it just as you were obligated to continue to pay it before you filed bankruptcy. In order to reaffirm the debt, you must also bring it current. In other words, if you are three or four months behind, then you must pay the back payments which are due in order to reaffirm it. You can selectively reaffirm your debts – you can state that you wish to keep the house and the furniture, but that you want the car and the jewelry to go back to the respective Creditors.

Reaffirmation agreements can be set aside during the earlier of 60 days after the agreement is filed with the Court, or upon the Court’s issuance of an Order of Discharge.