What
is a Debtor?
Simply
put, a debtor is a person who owes someone else money. A creditor
is the person who is owed money.
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What
is Bankruptcy?
Bankruptcy
is the legal way for debtors to disburden themselves of the debts
that they owe.
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Who
can file for bankruptcy?
Any
person can file for bankruptcy protection from creditors. In addition,
most businesses and charitable organizations may also qualify for
bankruptcy protection.
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What
happens to my bills after I file for bankruptcy?
As
soon as your case is officially filed with the court, creditors
are legally prevented from attempting to collect on any debt owed
to them by you. This means that creditors must stop all collection
activity, including: telephone calls, harassing letters, repossessions,
foreclosures, lawsuits, and wage garnishments. Once the case is
concluded, the court may enter a "discharge". A discharge is a total
release of a debtor from any further personal liability for his
or her pre-bankruptcy debts.
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What
is the difference between Chapter 7, 11, and 13 bankruptcy?
Chapter
7 is a complete bankruptcy or "straight" bankruptcy. All or nearly
all the debtor's property is liquidated, and at the conclusion of
the bankruptcy proceeding, the debtor gets a fresh start. A Chapter
7 bankruptcy stays on your credit report for ten years.
Chapter
7 bankruptcy is available to almost any individual debtor, so long
as the court hasn't determined that the debtor is trying to abuse
the system by filing. In most courts, that includes a determination
of whether the debtor has enough income to pay his or her debts
and is simply trying to use Chapter 7 to improve his or her economic
position.
Chapter
11 is usually available to businesses (and people that have debts
of more than $1 million) and they may use a form of restructuring
under Chapter 11. A Chapter 11 bankruptcy stays on the credit report
of a person for ten years. There's no law about how long it stays
on a business's credit report, but most credit reporting agencies
use ten years.
Chapter
13 is in the nature of a restructuring. The debtor doesn't escape
the debt entirely but is allowed to pay less of it, pay it more
slowly, or some combination of the two. The debtor typically gets
to keep some property so income can continue to allow for payback.
A Chapter 13 bankruptcy stays on your credit report for seven years.
Chapter
13 bankruptcy is not as freely available as is Chapter 7. The debtor
must have "stable and regular" income, unsecured debts of less than
$250,000, and secured debts of less than $750,000. Income can be
stable and regular even if it's not earned income. For example,
alimony, child support, entrepreneurial income, and public assistance
all have been found to qualify as stable and regular income in connection
with a Chapter 13 bankruptcy.
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Will
my credit rating be affected by filing bankruptcy?
Yes.
However, most people are able to rebuild their credit within a few
years. If you are currently thinking about bankruptcy, then it is
likely that your current credit rating has already been affected.
A discharge of your current debt may provide the opportunity to
rebuild your credit with steady, regular payments on a new account.
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Will
I lose my house, car, and other personal property?
Those
who files for bankruptcy may excuse certain items from the bankruptcy.
In most cases, this lets them keep their home, car, furniture and
your household items. Different states have different conditions
for exemptions.
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