Bankruptcy Law

When an individual is absolutely unable to pay for his or her debt, bankruptcy provides a way for the resolution of debt through the supervised division of assets to one's creditors. Declaring bankruptcy is indeed a last resort way of dealing with a dire financial situation, as filing for bankruptcy can be not only detrimental to your credit history but also to your quality of life.

Title 11 of the United States Code is the federal statutory law of the bankruptcy law, and is currently subdivided into eight chapters. The most common are:

Chapter 7 Here the individual seeks to be freed from all debt. All assets must be liquidated and all the monies from the sale of those assets given to the creditors. This type of bankruptcy requires a petition from the court, and is the most severe of the three types we mention here.

Chapter 11 In this situation the individual (or more commonly, a business) is able to keep some of the assets, but under the conditions of some type of repayment plan worked out with the creditors. This type of bankruptcy is a preferable alternative to the more severe Chapter 7. It is not often used by individuals since it is more costly than the Chapter 7 and 13 types. Chapter 11 allows businesses to reorganizes themselves, so that they can restructure debt and relieve themselves from burdensome leases and contracts.

Chapter 13 The main advantage here is for the homeowners who have fallen behind in their mortgage payments and who wish to temporarily halt foreclosure on their home. It is similar to Chapter 11 bankruptcy in that it is a reorganization bankruptcy. A repayment plan is decided upon, and the person in debt is able to keep their assets (rather than having to liquidate them, as in a Chapter 7 bankruptcy) while repaying their debt, usually over a three to five year period of time. The main stipulation here is that the person filing Chapter 13 must have enough income each month to cover his or her living expenses plus the agreed upon debt payments.

While filing for bankruptcy may sound like a simple way to get yourself out of debt and get a fresh start, remember it will always leave a black mark on your credit history record for seven to ten years, and that it is not something to be entered into lightly. It is truly to be a last resort. For those who truly need the state's protection, however, the laws have been provided and are there to be utilized. It is also helpful to be as informed as you can about bankruptcy law and how filing will affect you. A bankruptcy lawyer can help you decide if it's the right choice for you.

When should you file for bankruptcy?

When your wages are being garnished
When most of your debts are unsecured debt, such as (credit cards, doctor bills)
You are being harassed by collection agencies
You have high medical bills not covered by insurance
Your property (cars, furniture) is being repossessed because you cannot pay
You have income taxes you cannot currently pay
You have few assets and little or no savings


If you do decide to file for personal bankruptcy, what assets will you be allowed to keep and which will you be expected to liquidate (to sell and give the proceeds to your creditors)?

Since the laws vary from state to state, you will want to consult a bankruptcy attorney on some of these specific areas, but some of the assets you will be expected to liquidate will be your investments, no matter what form they take (stocks, bonds, expensive jewelry, any collectables). While you may get to keep your main home, you will be expected to sell your vacation home, any second car, luxury vehicles, recreational vehicles, boats, etc.

You should be able to keep your car, reasonable necessary clothing and personal items (minus expensive jewelry, furs, etc.), household furnishing, tools of your trade (so that you may continue to earn a living), a portion of the equity in your home, etc. It will be important to seek the counsel of a knowledgeable bankruptcy attorney as to your rights in these vital areas, of course.

There are certain debts that filing for bankruptcy will not erase, thought, such as child support and alimony, certain taxes, fines, school and government loans, and some other debts, particularly those not specifically listed on your bankruptcy petition.

On October 17th, 2005, a new bankruptcy law, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, was put into place. This new bankruptcy law makes it more difficult to file personal bankruptcies and also requires that people filing for bankruptcy must undergo credit counseling.

Find experienced California bankruptcy attorneys here in the Internet Lawyer Directory.