1. Bankruptcy

2. What is Bankruptcy? Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh start by canceling debts. The right to file for bankruptcy is provided by federal law. Debts are created by state law. Federal law is superior to state law, so bankruptcy trumps debts. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh start by canceling debts. The right to file for bankruptcy is provided by federal law. Debts are created by state law. Federal law is superior to state law, so bankruptcy trumps debts. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. However, bankruptcy is something to be avoided, not embraced. However, bankruptcy is something to be avoided, not embraced.

3. What does bankruptcy do? Bankruptcy may make it possible for you to: eliminate the legal obligation to pay most or all of your debts eliminate the legal obligation to pay most or all of your debts stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments prevent repossession of a car or other property prevent repossession of a car or other property stop wage garnishment, debt collection harassment, and similar credit actions to collect a debt stop wage garnishment, debt collection harassment, and similar credit actions to collect a debt restore or prevent termination of utility service restore or prevent termination of utility service allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe. allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

4. What can bankruptcy not do? Bankruptcy cannot cure every financial problem. In bankruptcy it is usually not possible to: eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and mortgages. eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and mortgages. discharge types of debts singled out by the bankruptcy laws for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes. discharge types of debts singled out by the bankruptcy laws for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes. protect cosigners on your debts. protect cosigners on your debts. discharge debts that arise after bankruptcy has been filed. discharge debts that arise after bankruptcy has been filed.

5. What are the different types of bankruptcy ? There are two basic types of bankruptcy cases provided under the law. Chapter 7 is known as “straight” bank bankruptcy. It requires a debtor to give up property which exceeds certain limits called “exemptions”, so the property can be sold to pay creditors. Chapter 7 is known as “straight” bank bankruptcy. It requires a debtor to give up property which exceeds certain limits called “exemptions”, so the property can be sold to pay creditors. Chapter 13 is called “debt adjustment.” It requires a debtor to file a plan to pay debts (or parts of debts) from current income. Chapter 13 is called “debt adjustment.” It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

6. In 2005, Congress passed legislation last spring marking the biggest overhaul of U.S. bankruptcy laws in more than 25 years. The new law creates a means test by which many people will not qualify for Chapter 7 bankruptcy, in which most unsecured debts can go unpaid. Unsecured debt is debt not backed by collateral, but by the integrity of the borrower (ex. credit card debt). New Means Test Determines Chapter 7 Versus Chapter 13 The means test is based on median income levels and varies from state to state. If a single person in Texas makes more than $33,280 a year, he or she won’t be eligible to file for Chapter 7 bankruptcy and will have to file for Chapter 13 where you develop a five-year repayment plan. For married couples in Texas, the means test is just over $64,000. Couples making more than this amount can only file for Chapter 13. Possible Increase in Attorney Fees Besides the means test change, the new bankruptcy laws may spur an increase in the costs associated with filing for bankruptcy. Since there will be more paperwork to complete, it is likely attorney fees will increase. Bankruptcy filing already costs $600- $2,000. The fee increase could make filing for bankruptcy cost prohibitive for some people. In addition, persons seeking to file bankruptcy will have to get credit counseling prior to filing. Then, one must complete a financial management course.

7. Common bankruptcy terms Automatic Stay – Order from the bankruptcy court against all creditors to stop lawsuits, garnishments, foreclosure, and all other attempts to collect a debt from a debtor, effective the moment a bankruptcy petition is filed. Automatic Stay – Order from the bankruptcy court against all creditors to stop lawsuits, garnishments, foreclosure, and all other attempts to collect a debt from a debtor, effective the moment a bankruptcy petition is filed. Bankruptcy petition – Formal request for bankruptcy relief. Bankruptcy petition – Formal request for bankruptcy relief. Bankruptcy trustee – Person, usually an attorney, appointed by the bankruptcy court to oversee your bankruptcy case. His job is to review the truth of all your financial information and assure that all parties follow the bankruptcy rules. In chapter 13, the trustee will also take your payments and distribute them according to your repayment plan. Bankruptcy trustee – Person, usually an attorney, appointed by the bankruptcy court to oversee your bankruptcy case. His job is to review the truth of all your financial information and assure that all parties follow the bankruptcy rules. In chapter 13, the trustee will also take your payments and distribute them according to your repayment plan. Confirmation – Approval of a chapter 13 repayment plan by a bankruptcy judge. Confirmation – Approval of a chapter 13 repayment plan by a bankruptcy judge. Creditor – Person or business to whom the debtor owes money. Creditor – Person or business to whom the debtor owes money. Debtor – Person who files a bankruptcy petition. Debtor – Person who files a bankruptcy petition. Discharge – Order from the bankruptcy court releasing a debtor from personal liability for most claims. It prevents creditors from taking any actions against a debtor or a debtor’s exempt property. Discharge – Order from the bankruptcy court releasing a debtor from personal liability for most claims. It prevents creditors from taking any actions against a debtor or a debtor’s exempt property.

8. Equity – Value of property after deducting for liens. Equity – Value of property after deducting for liens. Exempt – Property that creditors may not claim, either in or out of bankruptcy. Exempt – Property that creditors may not claim, either in or out of bankruptcy. Lien – Claim against specific property for payment of a debt, like collateral. Lien – Claim against specific property for payment of a debt, like collateral. Liquidation – Sale of property to pay claims of creditors. Liquidation – Sale of property to pay claims of creditors. Meeting of creditors – Hearing to talk about your case. Usually attended only by the trustee, you, and a lawyer. Meeting of creditors – Hearing to talk about your case. Usually attended only by the trustee, you, and a lawyer. Plan of reorganization – Debtor’s detailed description of how a debtor intends to pay creditors’ claims over three to five years. It must be confirmed by the bankruptcy judge. If you complete the plan, then all of your short-term debts are discharged. Plan of reorganization – Debtor’s detailed description of how a debtor intends to pay creditors’ claims over three to five years. It must be confirmed by the bankruptcy judge. If you complete the plan, then all of your short-term debts are discharged. Reaffirmation agreement – Written agreement by a chapter 7 debtor to voluntarily pay a discharged debt after bankruptcy, usually for the purpose of keeping collateral like a financed car or a mortgage home. Reaffirmation agreement – Written agreement by a chapter 7 debtor to voluntarily pay a discharged debt after bankruptcy, usually for the purpose of keeping collateral like a financed car or a mortgage home. Secured debt – Debt backed by mortgage or other lien on specific property as collateral for a debt. Discharged does not cancel a creditor’s rights against the collateral. Secured debt – Debt backed by mortgage or other lien on specific property as collateral for a debt. Discharged does not cancel a creditor’s rights against the collateral.