Bankruptcy is an official declaration of an individual or business’ inability to repay their existing debts, supported by legal proceedings that either enables the debts to be eliminated or repayment to be negotiated and restructured. In this article, the focus will be upon a voluntary bankruptcy petition submitted by an individual, though in reality it is an action that can be taken by either the individual in debt – the debtor – or the body to whom the money is owed – the creditor.
It is possible, and often the case, for an individual to have more than one creditor. A vast array of circumstances can contribute to a descent into unmanageable debt and in the global recession, bankruptcy has very much become a reality.
Reuters reported that the number of bankruptcies filed between April and June, 2009 increased by 38% from those filed 12 months prior and by 15% from those filed between January and March, 2009. Of these actions taken, the predominant chapters filed for were Chapters 7 and 13.
Of all debt solutions, such as debt consolidation, settlement or negotiation, bankruptcy is the most formal due to its being governed by the Federal Rules of Bankruptcy Procedure and its legal nature. Chapter 7 bankruptcy is, essentially, the least complicated type to apply for, whereby assets are liquidised in order to make as much of a singular repayment as possible. Chapter 13 bankruptcy differs slightly since, rather than a sole lump repayment being offered, a plan of continued repayment is proposed and so this bankruptcy is more commonly described as Wage Earner bankruptcy.
The Process
For either chapter, a meeting between the debtor and an appointed trustee, who oversees the administration of the bankruptcy, is attended following the submission of the petition. This is to confirm creditors, assets and liabilities and, providing no creditors dispute the petition, a discharge may be granted as soon as four months after filing for bankruptcy. Until this point, both Chapters 7 and 13 follow the same legal process.
Should dispute between the creditors listed and either the petition or proposed repayment plan arise, the time before a discharge can be granted may lengthen. It is Federal Law for these disputes to be resolved before any further legal proceedings can take place.
Liabilities Following Discharge
It is important to be fully informed about any debt solution you may choose and, particularly with bankruptcy, it is crucial to be aware of the debts that an individual will remain liable for following discharge. These clauses are little advertised by the press and the lack of information is exacerbated by the stigma associated with bankruptcy.
Following discharge from bankruptcy, an individual no longer holds responsibility for the money that they owed and part of the agreement is that creditors will take no further action to recoup the outstanding debt. Debts exempt from both Chapters 7 and 13 bankruptcy discharges include taxes, student loans, family maintenance such as child support or alimony, and debt not declared subsequent to the petition being filed.
Student Loans
The repayment of student loans taken out after 7th October, 1998 may be contested in some States and consequently discharged should exceptional circumstances be proven. These may be presented in a number of ways, however the most common is that, based upon existing income and expenditure projections, an individual would be unable to maintain a minimal living standard for themselves or dependents should they be required to meet repayments.
Alternatively, should influential and exceptional circumstances be expected to continue for a significant duration throughout the loan repayment period, and payment has been attempted in good faith, it may be possible to contest student loan repayments on these grounds. It is vital to note, however, that contesting a student loan in the terms of discharge will lengthen the process of bankruptcy and that this is only possible in States belonging to the Ninth Circuit.
Bankruptcy is a debt solution that is often viewed as a last resort option out of debt and as such is subject to stigma that prevents people from fully obtaining crucial information. It is important to consider all options available and to seek the advice of an independent professional with express experience of your particular circumstances.
This article was provided by IVA.net who offer free, no-obligation information, advice and resources on debt solutions such as bankruptcy, individual voluntary arrangements and debt consolidation.
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