Bankruptcy is a condition where an individual or a business company can’t pay their due obligations, such that they file for bankruptcy to the court, wherein the judge and a court trustee examine the asset and liabilities of these debtors to determine whether to discharge those debts so the debtor is no longer legally required to pay the said obligations.
There are different types of bankruptcies, which are classified by their chapter in the US Bankruptcy Code, and these are: individuals filing for bankruptcy, depending on their specific situation, fall under Chapter 7 or Chapter 13; municipalities, cities, towns, villages, tax districts, municipal utilities, school districts may file for bankruptcy under Chapter 9 to reorganize; business companies may file for bankruptcy under Chapter 7 to liquidate their assets or file under Chapter 11 to reorganize; farmers or fishermen may file under Chapter 12 for debt relief; and parties from more than one country may file for bankruptcy under Chapter 15.
The Chapter 7 bankruptcy requires a trustee to gather and sell the debtor’s non-exempt assets and uses the proceeds to pay the creditors in accordance with the provision of the Bankruptcy Code, while some exempt property remains with the debtor or part of the debtor’s property may be subject to liens and mortgages that are pledged to other creditors.
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A wage earner debtor can file for Chapter 13 which enables individuals with regular income to develop a plan to repay all or part of their debts, such as an installment plan to creditors for over three to five years, depending on the debtor’s current monthly income, such that if the income is less than the applicable state median, the plan will be for three years and if more than the applicable state median, the plan will be for five years, and in no case may the plan provide for payments over a period longer than five years and, at the same time, creditors are forbidden by law from continuing their collection efforts. Most wage earner debtors file to qualify for Chapter 13 because of the advantages that this chapter offers, such as: offers the debtor an opportunity to save his home from foreclosure; a debtor can stop foreclosure proceedings and may arrange for mortgage payments to a rescheduling scheme; protects co-signers or third parties from debt liability; and the debtor will have no direct contact with creditors as part of the Chapter 13 protection.
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It is strongly recommended that a debtor seeks consultation with a qualified lawyer because of the long-term financial and legal consequences and to determine whether the debtor needs legal representation and, at the same time, the lawyer is able to provide advice on the following aspects: whether to file a bankruptcy petition; which chapter to file; whether the debts can be discharged; whether the debtor is able or not to keep the home, car, or property after filing; the tax consequences of filing; whether the debtor continue to pay creditors; explain bankruptcy law and procedures; help complete and file forms; assist in most of the proceedings of the bankruptcy case.