Overview of Bankruptcy

History of Bankruptcy 101

Beginning in 1800, several early attempts to create universal bankruptcy rules were made. These efforts were later amended and finally repealed. In 1898, Congress finally passed the “Nelson Act”. The Nelson Act was lobbied by creditors to establish uniform federal bankruptcy rules. It was a major step towards the bankruptcy we now know.

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Congress established the “Bankruptcy Code” in 1978 using Article I, Section 8 and the authority it had been granted by the U.S. Constitution.

There are many legal options to discharge debts by filing bankruptcy. These legal options are listed in the Code’s chapters. They are identified by their chapter number (e.g. Chapter 7 bankruptcy). They can be complex. A bankruptcy attorney is a valuable tool for many people to avoid making mistakes and choose the best plan for their debt. This will also help them avoid any legal problems.

Since its adoption, the Code has been amended many times and is applicable to all U.S. bankruptcy cases.

The bankruptcy process is governed by the Federal Rules of Bankruptcy Procedure, or simply “Bankruptcy Rules”, which were created by the U.S. Supreme Court. Each bankruptcy court has its own rules.

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The 7 Types of Bankruptcy

Six types of bankruptcy exist in the United States. Each type is specific and has its positives and pitfalls.

After selling or liquidating some of your assets to repay creditors, Chapter 7 will allow you to pay off most of your debt. Businesses that are facing financial difficulties may also need Chapter 7.

Chapter 13 preserves your property and sets up a repayment plan that has more affordable payments. This will allow you to repay as much of your debt as possible in three to five years.

  1. Businesses who wish to reduce their debts and save money through business restructuring can use Chapter 11.
  2. Chapter 9 is for municipalities, counties, school districts and other entities that are indebted.
  3. Chapter 12 is available for family farmers and fishing companies that are in debt.
  4. Chapter 15 deals with foreign cases, such as U.S. citizens who have assets in different countries.
  5. The majority of people will choose between Chapter 7 or Chapter 13 bankruptcy. Businesses will choose between Chapter 7 or Chapter 11.
  6. Your assets, earning ability, total debt and other factors will determine the type of bankruptcy that you can file. Your attorney or bankruptcy trustee can help you make the right decision.
  7. Some people may not feel that bankruptcy is the best option. They should look into other options for debt relief. Each option has its advantages and disadvantages.

Common Concerns about Bankruptcy

Although bankruptcy can be a great tool to resolve your debt problems, it can also cause concern for filers. Before you file, it is important to understand all possible consequences.

Although bankruptcy can reduce your credit score, it can also lead to lower credit scores due to continued debt and late payments.

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Filing costs around $500

  • Although it can seem prohibitive for some, many people find that hiring a bankruptcy lawyer is a cost-saving move.
  • Debtors may file disputes regarding the repayment of debts
  • You may have money taken from your paycheck (called wage garnishment).
  • Some creditors may argue that a particular debt should not be discharged. The bankruptcy judge will make the final decision.
  • Children support, alimony and taxes cannot be paid

If you can prove that student loans will cause undue hardship (which is extremely difficult to prove), then they cannot be discharged.

Failure to list all assets and debts can result in a court refusing to discharge your debt. Fraud charges could also be brought against you.

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An experienced bankruptcy attorney can help you avoid any problems. A bankruptcy attorney can help you avoid harassment and debt lawsuits. They will also save you money by making the process smooth. They can help you understand the facts and how they may affect your case.

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