Bankruptcy law was created for the debtor, who is unable to pay his creditors, to resolve all debts by dividing all debtor's assets among creditors. Certain bankruptcy rules may allow a debtor to stay in business and use revenue pay off debts remaining. The bankruptcy law will allow certain debtors to be discharged of the financial obligations they have accumulated, after their assets are distributed, even if their debts are not paid in full.
Bankrutpcy should be considered the last step in getting out of debt. When you file a bankruptcy, it goes on your record for the next 7-10 years. It will be a nightmare finding anyone to give you a loan for a home, car or even a credit card and if you find a lender, the interest rates they charge will be outrageous.
However, there sometimes comes events in life that were unplanned like a sudden death in the family of the major income earner, a bout with a terminal illness or serious disease like cancer, a sick newborn baby, a fire, a natural disaster, loss of a job, economic depression and the like. You may have done your best in times past, but find yourself unable to pay bills. Then comes the collection calls. And then they want to take you to court.
Most of this pain can be avoided before bankruptcy by talking to the people you owe and explaining the situation. Many will work with you if you make even a modest effort to meet them halfway. Others will not accept your modest effort and want a payment that is more than you can afford. Work with the ones who will work with you first. If the creditors do not want to work with you and you do not have the money to pay them, you will have to resign yourself to the fact that they will probably end up taking you to court, but usually will end up with less money than they wanted from you.
There are two basic types of bankruptcy, Chapter 7 and 13. A Chapter 7, the major form of bankruptcy, is called liquidation. It is the most common type of bankruptcy proceeding because this completely dissolves all debt obligations.
Chapter 7 involves the appointing a trustee who collects the property of the debtor which is not exempt from sell and sells it. The trustee then distributes the proceeds to the creditors.
Chapters 13 involves letting the debtor meet with a judge to set up a schedule that allow him or her to use future earnings to pay off creditors. A trustee is appointed to supervise the assets of the debtor.
A bankruptcy proceeding can either be entered into voluntarily or initiated by creditors. After a bankruptcy is filed, creditors may not seek to collect their debts outside of the proceeding.
The debtor is not allowed to transfer property that has been declared part of the estate. Account holdings such as banks, stocks, and other assets may be frozen until there is a final hearing on the assets.
The first known place to practice bankruptcy laws was in England in the mid-1500s to relieve the inhumane conditions of the debtor's prison. The debtor's prison was a place to store those who owed money as they would a thief who stole products from a merchant. It was viewed equally in the law.
Debtors who could not pay their bills had their assets seized then sold and the proceeds were distributed among the creditors. It applied only to debtor merchants and only the creditors could initiate a proceeding and it did not nullify the debtor's outstanding debt.
The US kept up the practice of debtor's prison until 1833, but had bankruptcy laws since 1792. We will still lock up certain debtors such as those who run up debt through fraud or by not paying child support. Early on, this power was used only a few times, with short-lived bankruptcy laws being passed in 1800, 1841, and 1867.
If you are planning to file bankruptcy, seek out a lawyer. This is a very complicated proceedure. You will need to seek out everyone you owe because once your case has been heard, you cannot do this again for another 7-10 years and outstanding debts not claimed in court will be your problem.
Be sure to show up on time for your case and present yourself well. Most judges do tend to look down on you anyway, so don't add fuel to their fire. Document your side of the story as to why you were unable to pay your bills. The judge will be more understanding if it was through tragedy, but will give you a hard time if you just simply didn't feel like paying the bill.
Before you consider filing, try settling the debt yourself. Call up your creditors and explain the situation. Set your terms, but be reasonable. If you do not wish to be harassed with collection calls at work, send a certified cease and desist letter to the creditor asking them not to call you at work [legally, they have to oblige.]
If the creditor is unreasonable, send a certified letter stating you refuse to work with them and they are to cease and desist calling you. However, they can take the next step when you send them this letter. If it is a collection agency, they will send it back to the original creditor and you can try to negotiate with them or they will merely send you to court and can put a judgement on your credit record and garnish your wages.
Try using a go-between service that works as a bargaining agent between you and your creditors. Do some research on any company that claims to help you be debt free and make sure you know exactly what they have in mind. Some companies will put you through a Chapter 13 bankruptcy while others will help you with a payment plan without a court hearing. Contact the BBB and make sure there are no complaints with that company first.
Consumer Credit Counseling Service is well respected, and most creditors are willing to work with them to allow people time to get back on their feet. Check your local Yellow Pages for a branch nearest you and be sure to make sure it really is CCCS and not some imitation group.
If you feel you have no other choice, here are some resources to help you in filing bankruptcy:
- Bankruptcy Basics
- Bankruptcy Forms
- Fees To File
- Bankruptcy Court Locations
