Thursday, September 12, 2013

The Federal Bankruptcy Act

Individuals and businesses have the option to file for bankruptcy under the Federal Bankruptcy Act, usually called the Bankruptcy Code. There are three different types of bankruptcy, called Chapters. Each chapter provides its own legal and financial solution. Individuals can use Chapter 7 or 13, while businesses can use either Chapter 7, 11 or 13.
The different types of bankruptcy are based on different situations of the debtors. The Federal Bankruptcy Act has some features that can benefit the debtors, regardless which Chapter the case is filed under. One of these features is the automatic stay.  The stay stops the collections efforts of all the creditors.  The moment the bankruptcy petition is filed, all of the debtor's creditors have to halt their debt collection activities immediately, which includes repossession, foreclosures, lawsuits, letters, and phone calls.

Debt discharge is another important feature of the Federal Bankruptcy Act. It provides debt relief by wiping out debts permanently. A debt discharge applies to a particular amount depending on what chapter the bankruptcy case is filed under.

Wherever you are in the United States, you can file for bankruptcy as long as you satisfy the requirements. The bankruptcy proceedings occur in the U.S. District Bankruptcy Courts. The Bankruptcy Courts are organized based on the state boundaries. However, the bankruptcy law is regulated by federal judges because it is a federal law.

Chapter 7 bankruptcy cancels most of your debts. It mainly involves liquidation of your assets. Your nonexempt property at the time the bankruptcy petition was filed will be sold by the court-appointed trustee. The proceeds are then distributed to the creditors. 

The court will discharge most of the remaining debts you incurred before the filing. Because of this, Chapter 7 provides individuals an opportunity to start over by eliminating debt. However, if a company files for Chapter 7, the business will cease to exist once the case is over.  All the company's assets will be sold off and the remaining debts will be discharged by the court.

Chapter 11 bankruptcy allows businesses to restructure their business or debt. It is a very expensive and complex bankruptcy that requires a reorganization plan, which is subject to a court's approval. The business has to prove to the court that it can make sufficient money to pay its creditors through the restructuring.  Once a court confirms the Chapter 11 plan, the company will be allowed to continue its operations.  

Chapter 13 can be used by an individual or a business to reduce debt and pay creditors through a debt repayment plan. If the plan only pays part or some of the debts, the remaining unpaid amount will be discharged provided that the plan has been approved by the court. Chapter 13 plans normally take three to five years to complete.  One advantage of Chapter 13 filing to a business is that it would be able to continue with its operation under its present form.  Moreover, filing Chapter 13 bankruptcy can provide more time to pay off debts, and some of the debts can even be reduced with the court's permission.

Thursday, September 5, 2013

How to Get a Bankruptcy Discharge on Credit Card Debt

Credit card debts are unsecured debts that are dischargeable in bankruptcy. However, if the debt was incurred because of a non-dischargeable item in bankruptcy, it will not be forgiven by the courts. For example, if you paid a non-dischargeable tax obligation with a credit card, the credit card bill will not be discharged because the taxes are non-dischargeable.
Credit card bills are mostly wiped out in bankruptcy but the courts will also determine whether you made the purchase in good faith. The following are some of the factors which are going to be considered.

The court will scrutinize the status of your finances when you made the purchases using credit card. If it turns out that you could not possibly pay back the charged amounts, the court may presume that you used the card knowing that you could not possibly repay it. It will also be considered how many charges were made. In case there were more charges prior to the bankruptcy filing, it would appear that the debtor was attempting to abuse the bankruptcy.

The amounts you charged on your card will also be scrutinized. If the luxury items bought within the past 3 months prior to the filing exceed $600, the court may suspect that you defraud the credit card provider. Small amounts for basic needs are not usually scrutinized.

Your spending pattern will also be checked. If you want to file for bankruptcy should not change spending habit within the months leading to the bankruptcy; otherwise, you might find it hard to justify in court. Multiple purchases within a single day are going to be scrutinized as well. 

It is also a factor whether you had a job or income at the time you were using your credit cards. Your employment prospects will also be considered. If you have no job or income you should not be using the credit card. It will be seen as fraudulent when there is no logical expectation that the money owed will be paid back. Charges on basic necessities will not be scrutinized in general, while charges on luxury products or services will be a problem.

If most of your debts are credit cards, there is a chance that one of your creditors will file an adversary action and proceeding against you. This is where a credit card company claims that you should not be relieved from your obligation to pay. It is possible that a creditor may charge you of committing fraud in incurring the debt. The credit card provider might claim that it would be unfair if the debt is discharged. For this reason it is a good idea to see a bankruptcy lawyer before filing. 

The best way to steer clear of problems like these is to be truthful with your credit card use in the first place. Quit using your credit cards immediately if you really want to file bankruptcy. It is almost certain that if you accumulate large credit card bills within 2 to 3 months of declaring bankruptcy, that debt will not be discharged.