#Bankruptcy #FilingForBankruptcy #BankruptcyProcess
Filing for bankruptcy can be a complex process and can differ depending on the individual’s specific circumstances. In simple terms, bankruptcy is a legal process that allows individuals or businesses to seek relief from their debts while keeping some of their assets. Here’s a breakdown of how someone can file for bankruptcy and still have assets.
## Understanding Bankruptcy
Before diving into how someone can file for bankruptcy and still retain certain assets, it’s important to understand the basics of bankruptcy. Bankruptcy is a legal process that allows individuals or businesses to eliminate or repay their debts under the protection of the bankruptcy court. There are different types of bankruptcy, including Chapter 7 and Chapter 13, each with its own eligibility criteria and guidelines for asset retention.
### Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of a debtor’s non-exempt property to repay creditors. However, not all assets are subject to liquidation. There are specific exemptions that allow debtors to retain certain assets, such as their primary residence, vehicle, and personal property, up to a certain value. In some cases, debtors may also be able to reaffirm certain debts, allowing them to keep the property securing that debt.
### Chapter 13 Bankruptcy
Chapter 13 bankruptcy, on the other hand, is a reorganization bankruptcy that allows debtors to create a repayment plan to catch up on missed payments over a period of three to five years. Unlike Chapter 7 bankruptcy, Chapter 13 does not involve the liquidation of assets. Instead, debtors can often keep all of their property while making monthly payments to creditors based on their disposable income.
## The Benefits of Filing for Bankruptcy
Now, let’s address the specific question of why someone would benefit from filing for bankruptcy if they can still keep certain assets.
1. **Debt Discharge**: One of the primary benefits of filing for bankruptcy is the potential discharge of certain debts. This means that the debtor is no longer personally liable for those debts, providing a fresh start and relief from overwhelming financial burdens.
2. **Automatic Stay**: Filing for bankruptcy triggers an automatic stay, which prevents creditors from taking any collection actions, including foreclosure, repossession, or wage garnishment. This can provide immediate relief and breathing room for the debtor to reorganize their finances.
3. **Asset Protection**: As mentioned earlier, certain assets are exempt from liquidation in bankruptcy. This means that debtors can potentially retain their primary residence, vehicle, and essential personal belongings while still seeking relief from their debts.
4. **Repayment Plans**: Chapter 13 bankruptcy allows debtors to create a manageable repayment plan based on their income and expenses. This can make it easier to catch up on missed mortgage or car payments while maintaining ownership of those assets.
With these benefits in mind, it’s clear that filing for bankruptcy can be a viable option for individuals who are struggling with overwhelming debt while still preserving some of their assets.
## Consult with a Bankruptcy Attorney
It’s important to note that the bankruptcy process can be complex and varies based on individual circumstances. Consultation with a qualified bankruptcy attorney is crucial to understand the specific options available and navigate the process effectively.
In conclusion, filing for bankruptcy can allow individuals to seek relief from their debts while retaining certain assets through exemptions and reorganization plans. It provides an opportunity for a fresh financial start and protection from creditor actions, making it a beneficial option for those facing overwhelming debt.
In corroboration, the laws associated with bankruptcy differ from state to state. It is important to consult a bankruptcy attorney or a financial advisor who can offer specific guidance based on individual circumstances. Remember, bankruptcy is a legal process and seeking professional advice is crucial for making informed decisions.
Bankruptcy discharge rules often ignore a filer’s primary vehicle and residence as long as the value of such aren’t excessive, as forcing those to be liquidated and used to repay debts would make it extremely difficult to recover from being in such a situation. (Getting/maintaining a job without a home or a car to get you there is painfully hard)
(Georgia’s personal vehicle limit for an unmarried filer is only $5000 equity and the homestead limit is only about ten times that, so it’s not a golden ticket)
There are different types of bankruptcy and the exact details depend on which type you use in what jurisdiction.
In the US these types are known as chapters like Chapter 11 or Chapter 13.
For individuals depending on the type of bankruptcy and the country you live, there often are exemptions, like your primary residence and other stuff that you get to keep when declaring bankruptcy.
Keep in mind that “bankruptcy” doesn’t mean “liquidate your life holdings”.
For personal bankruptcy, the intention is to discharge *some* of your debt, “refinance” the rest of your debt, and make it so there’s an actual chance you can repay your debtors.
If it’s really drastic, it may be a full-on “sell everything you have and now your credit is trash” situation. But every jurisdiction usually has some sort of carve-out for house and vehicle, since someone who is homeless and can’t get to work has zero chance of paying anyone back.
There are different types of bankruptcy with differing level of procedures and consequences.
(Also, personal and business bankruptcies are different.)
(Also, why would he lose his job because he filed for bankruptcy?)
Personal bankruptcy is more complicated than just “everything you own gets turned over and sold to repay creditors.” There are two kinds of personal bankruptcy in the United States: chapter 7 and chapter 13. In Chapter 7, your estate is taken into custody of a bankruptcy court which then liquidates certain holdings to repay creditors. Most debts that are then unpaid are then discharged. In Chapter 13, your payments are simply paused to give you a chance to renegotiate or refinance your debt without forced liquidation.
The amazing finance YouTube channel The Plain Bagel has a great video covering all the basics [here](https://www.youtube.com/watch?v=JEFXMcy0JCU).
It depends what chapter bankruptcy he filed for. Chapter 13 allows you to keep most of your assets and setup a court ordered payment plan overseen by a bankruptcy trustee. You would normally have to repay a certain percentage of the debt in exchange for not having to liquidate your assets.
Chapter 7 is liquidation of most assets such as money over a certain amount, real estate such as expensive homes, boats, heirlooms, jewelry, investments, ect
Each state’s bankruptcy laws set allowances for assets you can retain called “exemptions”. For example, Florida provides a motor vehicle exemption for up to $1,000 in vehicle equity for single filers. Alabama offers none, but they have a “wildcard” exemption of around $8k. Delaware provies a $15k motor vehicle exemption for a car that is “necessary for work”, which is just about every car considering you have to get to/from work.
If you have assets that exceed the exemption value, you can sometimes “buy them back” out of bankruptcy, but you’re negotiating with the trustee in order to do so. The trustee acts on behalf of the creditors. Some are more lenient than others. The trustee I worked for was a pretty good guy. He was good at reading a situation and going easier on people who genuinely needed relief. You really didn’t want him if you were trying to pull a fast one though. He was one of only two trustees in the state that were CPAs; most are attorneys. He could sniff out a cheater from a mile away.
Basically, bankruptcy doesn’t necessarily mean you restart from zero. Bankruptcy is designed as a check & balance against predatory lending. If creditors could saddle you with debt for the rest of your life, there is no limit to what they’d loan you. That’s exactly what’s wrong with student loans and federally backed mortgages. When you take away risk, lenders get silly.
Bankruptcy is for people and companies that can’t meet their payments as they come due. It is meant to restructure and/or forgive your debts so that you can get back on the path to being financially solvent. It’s also meant to allow creditors to get some of the money back that they’re owed, rather than nothing.
As a matter of basic humanity and to help the bankrupt person/company get back to financial stability, the court isn’t going to take away certain things that they will need to live, do their job, etc. That would be counterproductive- if you can’t make money, you can’t repay your debt.
For corporate bankruptcies, there are two main flavors of bankruptcy, Chapter 11 (restructuring of the company and its debt so that it can hopefully survive) and Chapter 7 (liquidation- the company is terminal and all of its assets are sold off with the funds given to the creditors).
In all types of bankruptcy, the court does its best to make sure creditors are paid to the degree they can be – while at the same not ruining the life of the filer.
If the filer makes less than the median wage for their state, they can file chapter 7. The court distributes their assets amongst the creditors, minus some basics like a car and household goods. After that, any outstanding balances are discharged and the person gets a clean start. This sounds like what your friend is doing.
If they make more than the median income, they usually have to file chapter 13. This allows them to keep everything they have, no assets are taken. However, the filer has to submit to court supervision for 5 YEARS. They have to hand over most of their income every month (minus basic living expenses) to a trustee who doles it out to the creditors. After 5 years, any balance left is discharged.
Chapter 13 has a very low rate of making it to the end of the 5 years. What normally happens is the person gets a better job, is able to sell their house, or otherwise becomes able to quit the program and pay the creditors in full. The chapter 13 filing is just preventing the creditors from suing, thus buying them time to get their act together.
Chapter 11 is about reorganizing a business, and not something a normal individual would do.
Because there would be no benefit to filing for bankruptcy if they literally took away your place of living and means of transport and your job(??? why would they take away your job? who would take it away?)
Bankruptcy protects your most important assets, that’s why you file. If you just stop paying your bills, then eventually your house and your car can be seized. You file bankruptcy to basically say there’s no foreseeable way for you to pay all your debts, and then you’re allowed to keep certain things depending on state, usually an average price house and a cheap car, and sell all the rest with a court determining how to split it up between your creditors.
In my state, you’re allowed to retain a vehicle of $5,000 value, $5,000 in cash or cash equivalents, and (IIRR) $65,000 in equity in your primary residence, along with your retirement funds.
It’s rather hard to pay back your debts if you are homeless, and have no way to get to work.
I understand your question about the truck and the house, but why on earth would he not keep his job? Bankruptcy isn’t a punishment. It’s trying to work out a deal that is best for all parties. The idea is that the alternative, i.e. forcing the person to repay all their debts under the existing terms, is worse for everyone involved because it may financially ruin the person to the point where they can’t repay much of anything.
(This doesn’t mean that bankruptcy is a magic bullet for the person declaring it, by the way. First of all, you won’t be granted bankruptcy if you don’t need it, i.e. if you can pay of your debts as-is. Second, if you do get it, you’ll have to take some financial hit. You may be forced to sell property or have someone take control of your finances, and in any case you will take a big hit on your credit score which will make it difficult for years afterwards to get a loan, a credit card, a phone plan, etc.).
Making the person lose their job would be the very worst thing you could do in all this, as that would take away a source of income that they could use to settle at least some of their debts. If anything, the point of bankruptcy is to *prevent* the person from losing their job (which they might as a result of having e.g. their house or vehicle taken away, their utilities shut off, etc.).
they tend to leave things you need to keep a minimum level of living standards and anything you need to do your job.
i have a very expensive computer but i work in IT so they will not sell it during bankruptcy. but all my stocks and bonds are fair game. savings in accounts and extra cars etc
So, I’ve always wondered… if you were planning to declare bankruptcy would you benefit from cashing all your paychecks to cash for as long as you can beforehand? I know the judge could see it, but there’s no way to prove how much you have saved away vs. used it to pay for things. Do they have a formula for how much they assume you’ve socked away?
I know this isn’t unethical pro life tips, but I’m hoping someone can ELI5 this for me.
I know there are different *chapters* of bankruptcy, and *personal* bankruptcy is different from *corporate* bankruptcy. But you’d need to ask a lawyer for the details. I know in 1999 my ex-wife and I declared personal bankruptcy, we paid a lawyer $500 to get us out of about $5000 of debt. We didn’t have to sell anything. We didn’t have anything that banksters would’ve considered “valuable” anyway. But now I have no credit score, which really shouldn’t matter, since I’m not trying to get a loan of any kind. If you just live within your means you have no need of credit. But unfortunately society judges you negatively when you don’t believe in credit. Society is a screwy thing sometimes. That’s why I stopped using facebook.
Why do you expect bankruptcy to take his JOB?
Why wouldn’t he get to keep his job? If someone is using bankruptcy to resolve their financial situation wouldn’t not letting them “keep” their job make the situation that much worse? I’m just surprised that the asker thinks someone should lose their job in a bankruptcy.
* If you take literally *everything* away from a person, they will have a very tough time being a productive member of society.
* How can someone keep a job if they don’t have a car to get to work (necessary in many places in the US) or worse a house to live in?
* However if you leave them with some basics, they can start over and become a successful productive person again.
* We do the same for companies and there is a strong argument that it is one of the reasons the US has been so successful economically over the last 100+ years.
* Allowing people to try things that might not work, and then creating a way that allows them to try again has allowed for so much innovation we wouldn’t otherwise have.
* How many people would bother to try to start a new company if they knew that if things didn’t work out…they’d just be screwed for the rest of their lives?
Bankruptcy is what protects him from losing his assets. By coming clean, admitting your broke, and can’t pay your debts saves people’s houses, but don’t expect any future credit to come easily
There are basically two types of bankruptcy for individuals. Chapter 7 and chapter 13.
Chapter 7 basically means that the state takes all of your assets, minus things that are exempted (primary residence, primary vehicle, etc). Then, all of your debt is cleared.
Chapter 13 means that you do not have to give up anything. Your debt is not cleared, but it is taken out of collections. You then have to do a repayment plan, based on your income, to pay off the debt.
I think I need to clarify that this individual is low-key, making thousands and thousands of dollars through the company that is in his father’s name. And by low-key I mean they are doing almost $1 million a year in revenue. So I don’t really think this person cares one bit about filing bankruptcy. he would literally have enough money to buy cash after that and he gets away with his debt