5 Bankruptcy Terms Explained
There’s no denying that filing bankruptcy is a serious financial measure. It can affect your self-image, your reputation, and your future credit. But, it’s sometimes the only remedy to the situation. We have seen companies like General Motors and United Airlines file bankruptcy and continue business as usual. Individuals take the same path and emerge as one piece, too.
What is Filing Bankruptcy?
Put simply; this refers to the legal procedure that protects debtors with huge debts they do not expect to repay. It involves making arrangements. With creditors through the court. Taken as a whole; however, the process is confusing. And navigating the misconceptions around it is not easy. But don’t worry. A bankruptcy lawyer from Bartifay Law Offices can help you cut through the confusion surrounding this process.
An automatic stay is a court injunction. One that temporarily prevents individuals, creditors, government entities, and collection agencies from pursuing debtors for amounts owed. Nevertheless, certain debts like IRS tax deficiencies, child support, and loans from pensions are exempt from the automatic stay. During this period, the creditors cannot:
- deduct money from the debtor’s bank account
- garnish the debtor’s wages or go after any secured assets
- create, perfect or enforce a lien against an individual or company’s property and attempt to repossess the collateral
- start or continue court proceedings against the debtor, or
- move to foreclose on a debtor’s property
Chapter 7 is perhaps the most popular form of bankruptcy. While it discharges all debts, the debtor is required to liquidate most assets to offset some of the debts. The debtors must also pass a means test. Which is conducted to exclude individuals with a lot of assets and high income from filing for Chapter 7. Usually, this type takes 3-6 months to process and have debts discharged fully. Individuals, married couples, partnerships, corporations, and other business entities are eligible to file for Chapter 7.
Chapter 11 is a type of bankruptcy that gives the debtor a fresh start. It involves reorganizations of a debtor’s assets, debts, and business affairs. The reorganization may include negotiating debts. Or downsizing business operations to reduce expenses.
Is the debtor involved in any kind of dishonesty, fraud, or gross incompetence during the proceedings? Then a court-appointed trustee can step in and run the company for the remaining period. Compared to all other forms, it’s the most expensive, complicated and time-consuming.
Chapter 13 typically involves restructuring debts and creating a payment plan. And lasts up to five years. It is the perfect choice for anyone with a steady income. And anyone who wants a chance to keep their property. Its major downside is that you risk losing the same assets are trying to protect if you can’t keep up with the repayment plans. However, all debts included therein are considered paid off once the payment is finished as plan.
Discharge is a court order that releases the debtor from any legal obligation to pay certain specified types of debts. It also stops creditors from all collection activities. However, not all debts are discharged. Common nondischargeable debts include debts owed to specific tax-advantaged retirement plans. And debts for malicious or willful damage. As well as debts for spousal or child support or alimony.
Bartifay Law Offices
Although it offers a solution to different situations, filing bankruptcy can sometimes get confusing. As well as expensive and time-consuming. But have no fear. A bankruptcy lawyer from Bartifay Law Offices can help you wade through this tedious process. Want to learn more? Reach out to us today.