Bankruptcy

Bankruptcy is a legal process that allows individuals or businesses to get debt relief by liquidating non-exempt assets or creating a repayment plan to pay off creditors and/or debts. Filing for bankruptcy is a serious decision and can have lasting impacts on your financial status. Before making this decision, it is important to consult with an experienced bankruptcy attorney to ensure you understand the process and are aware of all of your options.

The Pros & Cons of Filing for Bankruptcy

The word “bankruptcy” carries some negative connotations with it, but there are ways that it can help you. Some pros for filing for bankruptcy include:

• Relief from creditor harassment: Once you have filed for bankruptcy, an automatic stay goes into effect. An automatic stay stops any actions against you and your property and does not allow creditors to contact you regarding debt collection. This can provide immediate relief from the stress and harassment of constant phone calls and letters.
• Elimination of certain debts: Depending on the type of bankruptcy that you file, certain types of debts can be discharged (no longer owed) and creditors can no longer attempt to collect those debts. You may also be able to pay back certain debts over a 3-5 year period and have the remaining balance discharged.
• Protection of property: Certain assets, such as a primary residence, may be protected from creditors through exemptions. This means that you may be able to keep your home or car while going through the bankruptcy process.
• A fresh start: Bankruptcy can provide a fresh start for you if you are struggling with overwhelming debt. It can give you the opportunity to rebuild your credit and start over financially.

Some cons for filing for bankruptcy:

• Credit score: Filing for bankruptcy can have a significant, negative impact on your credit score. The bankruptcy will remain on your credit report for up to 10 years, and this can make it more difficult to obtain credit or loans in the future.
• Loss of non-exempt assets: Some types of bankruptcy may require that non-exempt assets be sold in order to pay off creditors. This means that you may need to give up non-exempt property.
• Public record: Bankruptcy filings are public record, which means that anyone can access the information. This can be embarrassing for some individuals, and may have an impact on personal and professional relationships.
• Long-term ramifications: Filing for bankruptcy can have long-term ramifications on your financial life. It can make it more difficult to obtain credit, loans, and even employment in certain fields.

So, while bankruptcy can have positive effects, like stopping creditors from calling you or getting a chance to start over financially, it can also have negative effects. It is important to speak with an experienced bankruptcy attorney to make sure you understand how these effects can play out in your specific financial situation and to determine whether filing for bankruptcy is right for you.

Do you have questions concerning bankruptcy? Contact us for more information!

Chapter 7 Bankruptcy

One common type of bankruptcy is Chapter 7 bankruptcy. It is sometimes referred to as “liquidation bankruptcy” or “straight bankruptcy.” Filing Chapter 7 bankruptcy will put a temporary automatic stay on your debts and will hand legal possession of your property to the court. A trustee will be appointed to your case and will sell any non-exempt property to repay your creditors. If you have no non-exempt property, nothing will be sold and you will still receive a discharge if you successfully complete the case.

Chapter 7 bankruptcy and your credit score

When you file for Chapter 7 bankruptcy, it will be show up on your credit report for up to 10 years. This can negatively impact your credit score and make it more difficult to obtain credit in the future. Lenders, landlords, and other parties relying on credit reports may view you as a higher risk and may be less likely to approve loans or credit applications.

During the bankruptcy proceedings, your credit accounts are closed. This can result in a lower credit score. When you file for Chapter 7 bankruptcy, it is not uncommon to see an initial drop in your score.

After the bankruptcy has been discharged, you can rebuild your credit. While this may be difficult, it is not impossible. One of the most effective ways to rebuild your credit is to obtain a secured credit card. Secured credit cards are designed for individuals with poor credit, and they require a security deposit as collateral. As you make regular payments on a secured credit card, it can help to rebuild your credit.

Another way to rebuild your credit is to obtain an installment loan. Installment loans are paid back in regular payments over a period of time. Examples of installment loans include car loans and personal loans. As you make regular payments on your installment loan, you can rebuild your credit.

You should monitor your credit report after the bankruptcy discharge to make sure creditors are reporting the discharged debts as “included in bankruptcy.”

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a type of bankruptcy primarily used by businesses and individuals with significant assets and income. It is also known as “reorganization” bankruptcy because it allows you to restructure your debts and continue operating your business while you are under the protection of the bankruptcy court.

When you file Chapter 11 bankruptcy, an automatic stay goes into effect and stops creditors from contacting you. You can then propose a plan to reorganize your debts and pay them off over time. This will allow you to keep your assets and continue operating your business while paying off your debt in a more manageable way. You can also reject any unprofitable contracts and further improve your financial situation.

Chapter 11 bankruptcy does carry some consequences with it as well. One of those consequences is dealing with the lengthy and complex process. It can be a time-consuming type of bankruptcy and this may result in higher stress levels on your end. If your plan is not approved by the court, or if you are unable to meet the terms of your plan, you may risk losing your business. Chapter 11 bankruptcy can also have a negative impact on your credit score, similar to that of Chapter 7 bankruptcy.

Who should consider filing a Chapter 11 bankruptcy?

• Businesses that wish to continue operations while restructuring debts
• Individuals with a high level of income and assets
• Individuals who do not qualify for Chapter 7 or Chapter 13 bankruptcy
• Individuals who have debts that cannot be discharged in Chapter 7 or Chapter 13 bankruptcy

It is important to note that Chapter 11 bankruptcies can be complex and time-consuming. Consult with an experienced bankruptcy attorney, like the ones at Cornerstone Law Firm, before deciding to file.

Chapter 12 Bankruptcy

Chapter 12 bankruptcy is a type of bankruptcy that is specifically designed for family farmers and fishermen. It allows you to reorganize your debt and repay it over time while still continuing any farming or fishing operations.

Similar to Chapter 11 bankruptcy, Chapter 12 bankruptcy can provide quick relief from creditors collecting debts by putting an automatic stay on your debts when you file. You can also propose a plan to reorganize and pay off debts, while still keeping assets and continuing operations.

Chapter 12 bankruptcy differs from Chapter 11 in that it allows certain provisions specifically for farmers and fishermen. This can include the ability to spread tax debts out over the course of the repayment plan, and the ability to include future income in the plan.

The consequences of Chapter 12 bankruptcy are similar to those of Chapter 11 bankruptcy. You are facing a complex and lengthy process when you file for Chapter 12 bankruptcy. You risk losing control of your fishing or farming business if your plan is denied or you fail to meet the terms. And Chapter 12 bankruptcy can negatively impact your credit score. Chapter 12 bankruptcy is also limited to farmers and fishermen. Other individuals are not eligible to file for Chapter 12 bankruptcy.

Who should consider filing a Chapter 12 bankruptcy?

• Family farmers and fishermen who are struggling with overwhelming debt
• Individuals whose income is primarily dependent on farming or fishing
• Individuals who do not qualify for Chapter 7 or Chapter 13 bankruptcy
• Individuals who have debts that cannot be discharged in Chapter 7 or Chapter 13 bankruptcy

If you believe one of these types of bankruptcy will aid you in your financial situation, contact the attorneys at Cornerstone Law Firm. We can help you determine which type will be best for your case and help you navigate the process.

Exempt vs. Non-Exempt Assets

In bankruptcy proceedings, assets are divided into two categories: exempt and non-exempt. Depending on the type of asset, you may or may not be required to let go of it to pay creditors.

Exempt Assets

Exempt assets are those that you are allowed to keep. They typically include items you need, such as clothing, household goods, and tools of your trade. In Pennsylvania, we most often use the Federal exemptions in bankruptcy cases. The Federal exemptions protect assets such as wages, pensions, retirement benefits, and more. Home equity is considered exempt up to a certain amount, as are bank accounts and cars, among other things. The idea behind exempt assets is to allow you to maintain a basic standard of living through bankruptcy and after discharge.

Non-Exempt Assets

Non-exempt assets are not protected and may be sold or liquidated by bankruptcy trustees to pay off creditors. Examples of non-exempt assets include: second homes or vacation homes, rental properties, and luxury items like boats or expensive jewelry. Investment and savings accounts, and other financial assets may also be considered non-exempt if they exceed certain limits.

Exemptions vary by state. Pennsylvania allows for state or federal exemptions. An experienced bankruptcy lawyer can help you determine which exemptions are available to you and how they can apply to your situation. Contact Cornerstone Law Firm for more information on the exemption status of your assets.

What is a Trustee?

If you’ve read this far down on the page, you’ve already seen some mentions of trustees. A trustee is a person or entity appointed by the court that will administer your bankruptcy case. If you file for bankruptcy, your trustee’s primary duty will be to collect payment from you and distribute it to the creditors involved. Depending on the type of bankruptcy that has been filed, this may look like liquidating assets or collecting payment based on a repayment plan.

A trustee’s duties in a Chapter 7 bankruptcy include:

• Reviewing your petition and schedules to ensure accuracy and completion.
• Investigating your financial affairs and assets to determine if anything is available to distribute to creditors.
• Notifying creditors that you have filed for bankruptcy and providing them with information about your case.
• Holding a meeting of creditors (a 341 meeting) so you can answer questions under oath about your financial affairs and assets.
• Liquidating any non-exempt assets and distributing those proceeds to creditors.
• Objecting to the discharge of any debts if they believe you have engaged in fraudulent or dishonest behavior.

A trustee’s duties in a Chapter 13 bankruptcy include:

• Reviewing your petition and schedules to ensure accuracy and completion.
• Holding a meeting of creditors (a 341 meeting) so you can answer questions under oath about your financial affairs and assets.
• Reviewing your proposed repayment plan and approving or objecting to it.
• Collecting payments from you and distributing them to creditors according to the terms in your repayment plan.
• Monitoring your compliance with the repayment plan and making any adjustments as needed.
• Objecting to the discharge of any debts if they believe you have engaged in fraudulent or dishonest behavior.

A trustee does not represent you. They act as a neutral third party to ensure your assets are fairly distributed and that creditors are equitably treated. If any issues arise during the course of your bankruptcy case, consult with an attorney to ensure you receive proper representation.

Debt Consolidation vs. Bankruptcy

Bankruptcy and debt consolidation are both methods of dealing with overwhelming debt. They each have advantages and disadvantages, and the best option for you will depend on your individual financial situation.

Bankruptcy is a legal process that allows individuals and businesses to get relief from debts by either liquidating non-exempt assets or creating a repayment plan.

Debt consolidation, on the other hand, is a way to combine multiple debts into one single payment. This can make it easier to manage your debt and pay it off over time. With debt consolidation, you can take out a new loan to pay off existing debts, usually at a lower interest rate than the combined interest rate(s) of your existing debts. The new loan is used to pay off all of your existing debts and you are left with one loan to pay off instead of multiple.

Some of the key differences between debt consolidation and bankruptcy are:

• The effect on your credit score. Filing for bankruptcy can have a significant negative impact on your credit score and make it more difficult to obtain credit or loans in the future. Debt consolidation, however, may improve your credit score in the long run if you make your payments on time.
• The impact on assets. In a Chapter 7 bankruptcy, certain non-exempt assets may need to be sold in order to pay off creditors, whereas debt consolidation does not require you to sell any assets.
• The discharge of debt. In a bankruptcy, certain types of debts can be discharged (meaning you won’t have to pay it off). Debt consolidation does not discharge any debts and you are still responsible for paying off all of your debts.

Debt consolidation is not a solution for everyone, and it may not be appropriate for every situation. Consult with an experienced bankruptcy attorney to determine the best option for your individual financial situation.