The Bankruptcy Code is a federal law which provides debtors with a “constitutional right” to a fresh financial start. Different Chapters of the Bankruptcy Code provide different debt relief to different kinds of debtors. Consumer debtors generally obtain their fresh financial start from either Chapter 7 or Chapter 13 of the Bankruptcy Code.
Chapter 7 - Liquidation
Discharges debts after liquidation of non-exempt assets, except that most assets (including personal effects, HHF&F, vehicles, and real estate) can usually be sheltered from such liquidation and so retained by Debtors!
Chapter 13 - Reorganization
Stays debts from collection upon a court approved repayment plan, except that sufficient income is required as are monthly payments to creditors for five (5) years in most cases.
Chapter 7 Bankruptcy (liquidation) proceedings would immediately stay (stop) creditor harassment and then ultimately discharge (cancel) creditor claims, thus providing debtors with a fresh financial start. On the one hand, this Chapter 7 debt relief might be considered a “nuclear remedy” which generally wipes debtor’s entire debt slate clean without discriminating between specific debts, including but not limited to the following debt problems:
• Credit Card Debts
• Uncovered Medical Expenses
• Personal Loans
• Auto Loan Deficiencies
• Residential Mortgage Deficiencies
• Creditor Harassment Generally
On the other hand, this Chapter 7 debt relief usually does not solve the following special debt problems:
• Recent Tax Liabilities
• Child Support & Spousal Support Arrearages
• Most Student Loans
• Court Fines and Criminal Restitution including DUI
• Fraudulent Charges
Chapter 7 Bankruptcy proceedings (which solve debt problems) are far, far more popular and common than Chapter 13 Bankruptcy proceedings (which postpone debt problems), but debtors need to qualify for Chapter 7 Bankruptcy proceedings:
Means Test: Either debtor’s income cannot exceed the median income within this jurisdiction, or their income which exceeds this median income must be reduced by technical adjustments.
Debtor Estate: The property that debtor owns must qualify as exempt (see below) to avoid liquidation and thus to make practical sense.
Regarding the latter, debtors can generally keep most if not all of their assets (their estate) even when filing Chapter 7 Bankruptcy proceedings.
The property which debtors can keep is defined by specific Exemptions found in the California Code of Civil Procedure.
Regarding future credit, Debtors can even see an improvement in thier FICO score, post Chapter 7 Bankruptcy. Debtors can certainly begin to improve their credit rating immediately after the filing of Chapter 7 Bankruptcy proceedings consistent with their fresh financial start. In this regard, it is not unusual for creditors to extend new credit to debtors immediately after Bankruptcy discharge based on the principle that debtors have resolved their financial difficulties, that they have no more debts, and that they cannot file another bankruptcy for eight (8) years, and that they are thus more credit worthy.
When you file Chapter 7 Bankruptcy proceedings, you need to disclose to the Bankruptcy Court all of your assets and all of your debts, including the value of your assets. In most cases, you may keep all of your assets. In the State of California, you elect one of two different sets of "Exemptions" which define what property you can keep. The following are partial lists of available Exemptions:
Note that the dollar values indicated above apply to the current fair market of the property. The fair market value of property is not what you paid for it but what you could sell the property for. In most instances, your property is worth a fraction of what you paid.
Included herewith is a Time Magazine article released on Monday, June 15, 2009 that is certainly worth a couple of minutes for you to review. “A Brief History of: Bankruptcy” written by Laura Fitzpatrick. Click Here to read the article.
Famous People That Have Filed for Bankruptcy:
|Set No. 1||Set No. 2|
|×$24,060 of any kind of property. (+ $1,280)||$75,000 - $100,000 of equity in your residence (more if you are disabled or elderly).|
|×$4,800 in one motor vehicle.||×$2,725 in motor vehicles.|
|×$600 each item of unlimited household goods, furnishings, clothing, etc.||×“Reasonable value” of household goods, furnishings and clothing, etc.|
|×$1,425 in jewelry.||×$7,175 in jewelry.|
|×$7,175 of books or tools of trade.||×$7,175 in tools of trade.|
|×$12,860 cash value of life insurance.||×$11,475 cash value of life insurance.|
|×Health items prescribed for you.||×Damages for personal injury.|
|×Social Security and veterans' benefits.||×A cemetery plot.|
|×Unemployment insurance proceeds.||×Disability, health and Worker's Compensation benefits.|
|×Pension and Profit Sharing Plans, in most instances.||×Pension and Profit Sharing Plans, in most instances|
|Abraham Lincoln||Thomas Jefferson||Donald Trump|
|Orange County, CA||King Phillip II of Spain||Larry King|
|Debbie Reynolds||Burt Reynolds ||Tom Petty|
|Dolly Parton||Kim Basinger||Francis Ford Coppola|
|Walt Disney||Henry Ford||Ulysses S Grant|
|Tony Gwynn||H. J. Heinz||Milton Hershey|
|Paulo Gucci||Wayne Newton||Rembrandt|
|Mark Twain||Johnny Unitas||Oscar Wilde|
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