Personal bankruptcy is a way of getting protection from your creditors. Bankruptcy has been around since biblical times (take a look at Deuteronomy 15), and has been used as a means for people to obtain relief from burdensome debts.

The U.S. bankruptcy laws are formulated to give the “honest” debtor a “fresh” start. Bankruptcy is intended to level the playing field between people who owe money and the people they to whom they owe money.

In medieval Italy, when a businessman did not pay his debts, it was the practice to destroy his trading bench. From the Italian for broken bench, “banca rotta,” comes the term bankruptcy. In England, the first bankruptcy laws considered a bankrupt person to be a criminal and subject to punishment ranging from prison to the death penalty. Modern bankruptcy laws, however, emphasize rehabilitating (reorganizing) debtors in distress.

Bankruptcy is a necessary safety valve in our economy. Without bankruptcy, people that are over their head financially would give up or become part of the underground. Society benefits when people file for bankruptcy because it enables them to return to productivity.

One thing about bankruptcy that confuses many consumers is the number of Chapters of the Bankruptcy Code from which to choose. Although there are several possibilities, most consumers work with their attorneys to choose between only two choices – Chapter 7 and Chapter 13.

Chapter 7 bankruptcy. In practice, most debtors do not lose any of their property in a Chapter 7 bankruptcy filing. This is because the law allows “exemptions” which basically protect a certain dollar amount of different categories of assets. These exemptions are fairly generous and are usually sufficient to allow most of our clients to keep all of their property. Although technically, a Chapter 7 is known as a “liquidation”, these exemptions protect against the loss or sale of any of the debtor’s property unless the debtor has much more in assets than average.

Note: Chapter 7 is generally the Chapter most people prefer, although access to this Chapter has been limited as a result of the new law, which became effective in October, 2005.

The most important exemptions are:

1. Homestead (most people can keep their houses)
2. Motor vehicle
3. Retirement, IRA, and pension funds
4. Clothing, furniture and personal property

While there are limitations to these exemptions, most consumers we see, are able to keep all of their belongings while reducing or eliminating their debt. You should be aware, however, that certain debts such as tax bills less than three years old (from the due date), child support, or alimony cannot be eliminated by filing bankruptcy. Also, in most cases, student loans are not dischargeable.

Chapter 13 bankruptcy, known as the “Wage Earner Bankruptcy”, is designed for those individuals who are able to repay a portion of their debts over time. Most individuals who seek protection under Chapter 13 of the U.S. Bankruptcy Code are those who:

• own property that would not be considered exempt under Chapter 7;
• have a past due balance on a mortgage or car loan and wish to repay those past due balances over time without fear of foreclosure or repossession;
• have debts such as student loans that would not be discharged under a Chapter 7 bankruptcy; or
• have Disposable Income (as it’s defined by the bankruptcy laws) sufficient to repay a portion of their debts over a three year period of time (this period is five years for people who do not qualify for Chapter 7).

Under Chapter 13 you are given the opportunity to catch up on past due mortgages, car loans and rent payments. In addition, if you repay your debts through Chapter 13 you are given a predictable payment plan that your creditors are required to accept. The major difference between Chapter 13 and debt consolidation is that Chapter 13 gives you the protection of the U.S. Bankruptcy Code to protect yourself from continued interest, late fees, and credit harassment.

Our experienced bankruptcy lawyers can explain and help you put together a proper Chapter 13 Plan to ensure that it is a successful one.

BOTH A CHAPTER 7 AND CHAPTER 13 BANKRUPTCY WILL PUT A STOP TO ANY CREDITOR HARASSMENT, LAWSUIT, WAGE GARNISHMENT, OR FORECLOSURE.