What Does Bankruptcy Do?

by San Antonio Attorney

Different chapters are suitable for different needs, but bankruptcy, basically, provides relief for debtors through the automatic stay on creditors’ actions following filing. The automatic stay means that all forms of harassment that debtors can be subject to, including letters, phone calls and other demands for payments, must stop. Ultimately, if all the requirements of the court are met in the honest and open manner indicative of full disclosure, various types of discharge are available enabling the debtor to take up their lives or businesses again.

Individuals burdened by consumer debt, such as credit card debt, can anticipate having this debt wiped out since most credit card debt is unsecured. Debtors filing under chapter 7 are required to make their non-exempt assets available for liquidation to secured creditors. The debtor must provide for payment or surrender of collateral. Unsecured creditors may not receive full payment or, indeed, any payment. The bankruptcy court appoints a trustee who arranges a meeting with creditors and deals with the disposal of assets to creditors according to their status. At the end of the process the debtor usually receives a discharge; this means that the debtor is freed from the cumbersome debt and able to start life afresh without further harassment from creditors.

Although chapter 7 is an approach predicated on liquidating debt, there is also provision for reaffirmation of a specific debt assuming the debtor can prove sufficient income. In this case the debtor makes arrangements with a creditor to retain certain property. Chapter 7 does not mean the loss of all assets, so household assets and exempt property can usually be retained.

Other approaches to bankruptcy focus on reorganization rather than liquidation. These approaches require the creation of a repayment plan so that the debtor can retain property or a business following the reorganization, and in some cases consolidation, of debt. Chapter 13 is a reorganization approach that is suitable for individuals who have a regular income sufficient to retain their property and manage their mortgages given support and advice.

Again the debtor receives relief on filing as a result of the hold on creditors’ actions, and co-debtors are also protected from creditors. A repayment plan is created during debt counseling, but unsecured creditors may receive little or no repayments depending on the debtor’s circumstances. After a period of three to five years, the debtor is likely to receive a discharge of debts.

Chapter 12 offers family farmers and fishermen a similar approach to debt management but one which encompasses greater debt burdens such as those associated with operating these businesses.

Filing chapter 11 is a bankruptcy option that provides businesses with the chance to remain in control and operate the business, ultimately, eliminating the debt burden. This option is most suitable for larger businesses as it is a complex, lengthy and potentially expensive business. But it is the option that provides the mechanisms businesses need. It has flexibility in that repayment plans can be modified as the business environment changes.

Whether an individual or a business, discharge generally means that the debtor is free from debts in existence prior to filing the petition.

Leave a Comment

Previous post:

Next post: