Bankruptcy is an extremely long and large topic. Impossible for us to outline all of the issues that can be addressed in a bankruptcy case, but this article can give you an overview and provide you with the resources that you need to find the information that you want and need.
What is bankruptcy?
Bankruptcy is the legal process of asking the federal bankruptcy court for a discharge of your debts. Bankruptcy law is federal law and is set forth in the United States Constitution in the fourth Clause of Section 8 it states that Congress shall have power:
“To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States”
Yes, believe it or not, bankruptcy is a federal right that you have and can exercise by filing a petition for bankruptcy relief with the federal bankruptcy court.
What are the chapters in bankruptcy?
The chapters in bankruptcy are the bankruptcy code sections that are followed for the administration of your bankruptcy case. The chapters of bankruptcy are 7, 9, 11, 12, and 13.
A chapter 7 bankruptcy is the most common bankruptcy case. This is also called a straight liquidation or a fresh start bankruptcy. In this case, all of your debts that can be discharged are eliminated and erased by a federal discharge order at the conclusion of your case. These cases usually take about 5 to 6 months to complete.
A chapter 9 bankruptcy case is for cities and municipalities. Unless you are the mayor or governor, you don’t need to worry about this chapter so we won’t address it here.
The chapter 11 bankruptcy case is typically called a business bankruptcy – but individuals can file until chapter 11 as well – it just is not very common because a chapter 11 case is very expensive to file and prosecute. Think of Sears, General Motors and Delta Airlines; all of whom have filed for chapter 11. Unless you have a business with over $2 million of dollars of value or debt, you need not worry about this chapter – if you do, give us a call to discuss your situation. We have done and do have some chapter 11 cases.
The chapter 12 case is for people who farm or fish for a living. If you farm or have a fish hatchery, you qualify for a chapter 12 and we can go over the pros and cons of such a case when you meet with us.
A chapter 13 bankruptcy is the second most common bankruptcy case. This is known as a wage earner’s reorganization. In a chapter 13 you make regular monthly payments to a trustee who will pay back some or all of your debts over a 3 to 5 year period. The chapter 13 must be a minimum of 3 years and a maximum of 5 years. There are some exceptions to whether you have to go for the full 3 to 5 years that we can discuss at another time, but keep in mind – you have to make monthly payments. If you can’t or don’t, you case is dismissed an you lose the benefit of filing your case.
Different Kinds of Debts in Bankruptcy
Bankruptcy courts look at debts a little differently than you might. In bankruptcy, you generally have three types of debt:
(1) secured debts;
(2) priority debts; and
(3) unsecured debts.
Secured debts are debt that you owe to someone where there is collateral securing the loan. The best examples of this type of debt are a house and a car. Typically, when you purchase a car, truck or van, your lender gets what is called a purchase money security interest. This means they get a lien on your car until you pay the debt off. The lienholder information is written on the title to your car and the title is even held by the lender until the debt is paid. Once you pay off the debt, the lender certifies on the title that the loan has been paid in full.
If you file for a chapter 7 case, you have essentially 3 options: (1) you can keep the collateral and pay the secured debt; or (2) you need to surrender or give up the collateral and the debt can be discharged; or (3) you can offer to redeem the collateral or in other words pay the lender the fair market value of the collateral and keep it.
Priority debts are child support, alimony, court ordered payments, taxes to the IRS or Utah State Tax commission. Typically these debts are not discharged – although some can be depending on the court order, type of debt and your specific circumstances – call us to discuss your priority debts.
Unsecured debts are credit cards, orthodontic bills, dental bills, clothing store bills, medical bills, and other debts that are not secured by collateral and have no priority.
Will Bankruptcy get rid of my debt?
Bankruptcy only gets rid of some debts. Depending on the types of debt that you have, you may be able to get rid of all of your debts. If all of your debts are unsecured, you are good to go. If you owe student loans, child support or alimony, you can get other debts discharged but not those priority debts. The question of taxes is a tricky one. We recommend that you speak with a licensed attorney to go over these questions in detail to determine whether or not you can erase a certain debt.
Bankruptcy Can Be Complicated
In conclusion, bankruptcy is a vast topic and it can be very complicated. For hundreds of years, bankruptcy courts have made decisions and have made case law that is followed. Because the federal bankruptcy code is complex, you should have an attorney assist you in filing for bankruptcy in Utah. A qualified bankruptcy lawyer from our firm will be able to guide you to file the right chapter for you so you don’t lose your cars, your home or your other assets.
Free Bankruptcy Consultation
We offer a free initial consultation for individuals and businesses considering filing for bankruptcy. Even if you’re not sure, a consultation will help put you on the path to prepare for a bankruptcy if you need to in the future or get you on a different debt elimination plan that will work best for you in your specific situation.
Call us today at (801) 676-5506 to schedule your free, no hassle, no obligation, initial bankruptcy consultation with a licensed attorney at Ascent Law, LLC. We look forward to meeting you and helping you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
Additional Bankruptcy Resources