Some basic questions about bankruptcy
This articles attempts to answer some common questions regarding
individual bankruptcy. How does it get started?
Bankruptcy proceeding is usually started when a debtor or
debtors file a petition at the bankruptcy court in the district
they are domiciled. Filing the petition will put an 'automatic
stay' on all other proceedings against the debtor by creditors.
Debtor must also submit lists of all the creditors, assets, and
income, and in addition submit a plan of> repayment (in cases
other than chapter 7), with or within a short time of, the
petition.
Under what chapter should the debtor file for bankruptcy?
This depends on what the debtor wants to do. If he wants a
prompt discharge of debts and is willing to let most his assets
be liquidated to pay off creditors, he should file under Chapter
7. If he wants to consolidate and pay off his debts using his
income while retaining the use of his assets, he should file
under Chapter 13. Court will decide whether he is allowed to
proceed according to that chapter.
Who is the trustee?
Since bankruptcy involves lot administration work away from
court, the bankruptcy judge appoints a trustee to administer the
bankrupt estate and coordinate the interaction between the
creditors and the debtor. The trustee will separate the
creditors according to claims, into various classes, with
differing priorities. He or she will also organize the meeting
between the creditors and the debtor, called the '341 meeting',
where the debtor can be questioned under oath regarding his
financial position. In Chapter 7 cases he will transfer all non
exempt assets of the debtors to an estate, which he will
liquidate. Then he will distribute the proceeds among the
creditors. In the case of chapter 13, he will oversee the
implementation of the court approved repayment plan and will
distribute the payment received from the debtor among creditors.
Are all debts discharged?
No. Certain types of debts are not discharged. They include
taxes, fines, child support, and alimony, among others. Secured
debts have to be paid regardless of the bankruptcy proceedings.
Otherwise the secured creditor, after obtaining court's
permission, can take the collateral.
What assets are exempt?
The debtors can choose between the federal exemptions as stated
in United State Bankruptcy Code or State exemptions. The choice
must be made after consulting a
Bankruptcy Attorney and
after careful consideration. Usually exempted assets involves
home equity, car, clothing, furnishings, and other such personal
effects. These assets are made exempt so that the debtor can
move on with his personal life and not be subject to punitive
action by the creditors.
What is the effect on debtor's spouse?
When only one spouse files for bankruptcy other spouse's
liability on joint debts will remain. Ownership of assets will
be determined according to the marital property law operating in
the State. If the the common law is applied only jointly held
properties are taken in to consideration, in the case of
community property law all assets acquired after marriage are
considered to be equally owned.
Will the debtor be able to get credit in the future?
Yes, once the debtors has received a discharge he is free of any
personal liability to those debts and most debtors are able to
get fresh credit. Whether a creditor will advance new credit is
however a complex decision involving other factors. The
bankruptcy filing will
be on record for ten years.
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