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The bankruptcy laws in the USA are federal laws; so this means filing bankruptcy can only be done in a federal court. The basic bankruptcy laws are the same throughout the United States, with the only variations being in the State laws and revolve around what assets a debtor can keep, called "exemptions" (USA exemptions are here) The other major difference in the bankruptcy laws between the states is the length of time between filing for bankruptcy and the time of being discharged.
Filing for bankruptcy starts with filing in bankruptcy court of the official petition and a lengthy document known as the Statement of Financial Affairs. The Statement of Financial Affairs has information about your secured debts (such as home loans or car loans - "secured" loans are loans with property as collateral), priority debts (including taxes), unsecured debts, contact information of your creditors and a list of your debtor assets.
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When you are filling out the Statement of Financial Affairs it is very important you fill the form completely accurately and honestly. DO NOT be ashamed or afraid of listing all of your debts and assets. Debts that are not listed in the statement will not be discharged after you are discharged from bankruptcy. Failing to list assets as an attempt to hide them from creditors will result in serious consequences. It is possible you will be denied discharge from bankruptcy and your debts. It is also possible you will face charges of bankruptcy fraud.
Creditors are immediately banned from attempting to collect on your debts once the Statement of Financial Affairs is filed, through an "automatic stay." An automatic stay is designed to preserve your assets so you can have a fresh beginning once you are discharged from bankruptcy.
Your bankruptcy attorney will take your non exempt assets and sell them to raise cash to pay for your bankruptcy and then to pay off creditors with any left over monies. |
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After your bankruptcy case has been filed, any additional assets you earn after this time, are un-related to your bankruptcy case and are yours 100%. Your creditors can not come after any assets you gain after your bankruptcy has been filed.
The next step in your bankruptcy case is the 341 meeting, the first meeting with your creditors. You will be asked questions, under Oath, by your bankruptcy attorney, about all of your assets and debts. It is possible your creditors will also question you, but this is rare.
Your creditors will have 60 days after this first 341 meeting to prove to the bankruptcy court that you should not qualify for bankruptcy. |
Bankruptcy Laws in USA
You may have heard that it is impossible to file Chapter 7 bankruptcy under the new bankruptcy laws because there has been a lot of misinformation surrounding the new bankruptcy laws. Luckily, it is still possible to file for Chapter 7 bankruptcy! There are additional loopholes and extra forms and paperwork to work through, but the vast majority of debtors are still able to file for Chapter 7 bankruptcy. If you do not qualify for Chapter 7 bankruptcy, you are still able to file for Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is known as a straight bankruptcy. Chapter 7 of the bankruptcy laws is a chapter of the bankruptcy law in which you, the debtor, turn over all non-exempt assets to your bankruptcy lawyer. Your bankruptcy attorney will then sell your non-exempt assets to raise as money cash for it as possible for distribution to your creditors. The debtor will receive a discharge of all dischargeable debts. The length of time you are in bankruptcy before your debts are discharged vary between states, but it is usually within four months. In most cases, you have few or no assets that are non-exempt so you lose few items you own filing Chapter 7 and you will get a relatively quick new financial life.
To determine if you are eligible to file for Chapter 7 bankruptcy the government has laid out Federal laws that provide a means test to determine if you are eligible in USA. If your income is below the average family income in your state you will still be eligble to file for Chapter 7. If your income is higher than the average, then your income from the last 6 months are taken into consideration. Mortgage and other payments, taxes and child support are taken into consideration. After examining your income and expenses (such as your mortgage/rent payments, child support, and other financial obligations) if it is determined you can afford to pay a minimum of $100 a month for 5 years, for a total of $6,000, to your unsecured creditors you will not qualify for Chapter 7 and you will have to file for Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
The advantage of filing for Chapter 13 bankruptcy instead of Chapter 7, is the ability to avoid foreclosure and save your home. You will still have to pay your mortgage payments, but it is possible to stay in your home and not have a foreclosure or a short sale on your credit report.
A Chapter 13 bankruptcy is also known as a re-organization bankruptcy and your debts will be "re-organized" into more affordable payments for you. It is possible to extend and change payments of your secured debts, which can possibly lower payments.
Another big advantage of a Chapter 13 bankruptcy for many people is you get to avoid dealing with creditors! You will do everything through your bankruptcy attorney who will in turn pay your creditors.
You are eligble to file for Chapter 13 bankruptcy in USA if your unsecured debts are less than $360,475 and secured debts are less than $1,081,400. These figures are subject to change so make sure to check with your bankruptcy attorney.
USA Bankruptcy Exemptions
Each state has different bankruptcy exemptions. The exemptions can be found here
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