Get Answers about Bankruptcy
The very word "bankruptcy" puts fear into many people's hearts. For
years, the word has been equated with being destitute, being unable
to pay bills and being financially insecure. But is that all that
bankruptcy is about? The truth of the matter is that many people
simply don't understand what bankruptcy really is. For many people,
bankruptcy is a way out of a bad situation and a hand up when they
need it most. It is also a life changing experience. These questions
and answers are designed to teach you about bankruptcy, what it is,
what it can do and what it cannot do.
What is bankruptcy?
Bankruptcy is a legal declaration of the inability to pay your
creditors. This does not mean you have no money. On the contrary,
many people who declare bankruptcy have enough money to live on.
Instead, it means that you do not have enough money to match your
basic living expenses and pay people to whom you owe money. How much
this is can vary from person to person because every person needs a
slightly different amount of money to meet their living expenses.
Since there is no set amount, bankruptcy is often granted by a
judge.
If I'm in debt, will bankruptcy solve my problems?
Bankruptcy should be considered a last resort. It does not
completely absolve debt, but allows you to pay your creditors some
of what you owe them. Bankruptcy looks very bad should you attempt
to buy things on credit or get a loan. Many credit card companies
refuse to supply a credit card to anyone who's filed for bankruptcy.
In addition, many loan officials will make people who have filed for
bankruptcy pay a higher interest rate. So while bankruptcy can help
you pay your debts where you may not be able to otherwise, it can
also cause problems in the future.
How does bankruptcy help me pay my debts?
There are several different types of bankruptcy, all of which
function in different ways. Businesses have several different
versions of bankruptcy, some of which are useful for individuals. In
general, should you need to file for bankruptcy, one of three things
will happen. Either you will be required to pay a fixed amount per
month until your debts are paid off, your assets will be liquidated
and sold off to pay your debts and you will pay monthly to cover the
rest, or your assets will be liquidated and sold off and then you
will be absolved of any further debt. With any of these options,
creditors can not attempt to collect above and beyond the agreed
payment.
What are assets in bankruptcy terms?
Assets are basically anything you own. Which things are liquidated
can depend on your quality of life, of course. If you own your
house, but aren't making enough every month to cover living
expenses, your house may not be liquidated. If your car is mandatory
to your ability to support yourself and pay your bills, your car may
not be liquidated. As well, some assets are protected from
liquidation in case of bankruptcy. These items vary from state to
state.
Are there any requirements for Chapter 13 bankruptcy?
Yes, there are two federal requirements. A debtor must ensure that
all creditors will be paid at least as much as they would get under
a Chapter 7 filing. This amount can be a little nebulous, so it is
often decided by the court. The court will take a list of your
assets and judge what would be received should they be liquidated.
Based on that information, they will judge how much each creditor
would get. The other requirement is that the debtor provides
meaningful payback. This amount varies from state to state, but in
essence it means that you cannot pay a tiny fraction of your
disposable income per month. Some states rule as small as one cent
per dollar, while other states rule as much as twenty cents per
dollar. All other requirements vary from state to state.
