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DID YOU KNOW?
Bankruptcy Is a Constitutional Right: The framers of the U.S. Constitution included bankruptcy provisions in Article I, Section 8, empowering Congress to establish uniform bankruptcy laws. This reflects the belief in providing individuals and businesses with a second chance.
Types of Bankruptcy Chapters: The most common types of bankruptcy chapters for individuals and businesses are Chapter 7 (liquidation), Chapter 13 (reorganization), and Chapter 11 (reorganization for businesses). Chapter 12 is specifically designed for family farmers and fishermen.
Automatic Stay: When you file for bankruptcy, an automatic stay goes into effect, halting creditor collection actions, including foreclosures, repossessions, and wage garnishments.
Exemptions: Bankruptcy laws allow you to exempt certain assets from liquidation. These exemptions vary by state but typically include essentials like a primary residence, vehicle, clothing, and personal items.
Means Test: Chapter 7 bankruptcy eligibility for individuals is determined by a means test, which assesses your income and expenses. If you pass the means test, you may qualify for Chapter 7. Otherwise, Chapter 13 might be an option.
Credit Counseling: Before filing for bankruptcy, individuals are commonly required to complete a credit counseling course from an approved agency. This is designed to ensure that bankruptcy is the right option and that you are aware of alternatives.
Debt Discharge: Chapter 7 bankruptcy can result in a complete discharge of unsecured debts, such as credit card debt and medical bills. Chapter 13 allows for a structured repayment plan, often with a partial debt discharge at the end.
Bankruptcy and Your Credit Score: Bankruptcy can have a negative impact on your credit score, but it also provides an opportunity for a fresh start. With responsible financial management, you can rebuild your credit over time.
Bankruptcy and Student Loans: Student loans are typically not dischargeable in bankruptcy, except in cases of extreme hardship, which can be challenging to prove.
Bankruptcy Court: Bankruptcy cases are handled in federal bankruptcy courts, which are separate from other federal or state courts.
Creditor Meetings: Shortly after filing for bankruptcy, you’ll commonly attend a meeting of creditors, where creditors can ask questions about your financial situation. In many cases, creditors do not attend these meetings.
Secured vs. Unsecured Debts: Bankruptcy treats secured debts (backed by collateral, like a mortgage or car loan) differently from unsecured debts (like credit card debt). Secured debts may require reaffirmation or surrender of the collateral.
Repossession and Redemption: In Chapter 7, you may have the option to redeem a secured asset by paying its current fair market value, potentially saving it from repossession.
Bankruptcy Abuse Prevention and Consumer Protection Act: This 2005 law introduced significant changes to bankruptcy rules, including stricter eligibility requirements and mandatory credit counseling.
Bankruptcy’s Impact on Lawsuits: Bankruptcy can put a halt to lawsuits and legal actions against you, providing temporary relief from creditors’ legal actions.
