South Jordan Law Office | Bankruptcy Attorneys/Lawyers in South Jordan, Utah
South Jordan Utah Bankruptcy Attorneys / Lawyers answer the questions:
What is Bankruptcy?
Bankruptcy is a form of legal protection that gives you a financial fresh start. Let’s talk about some of the specifics. It is federal law that enables you to file for bankruptcy, but there are some state aspects too that affect the bankruptcy based on where you live. This is certainly something you want to talk to your lawyer about so that you understand how the state laws affect your bankruptcy.
Now, filing your bankruptcy immediately stops your creditors’ attempts to collect debts from you. The way that it does that is by imposing what’s called an “automatic stay”. You don’t need to try and remember that, but I do want you to understand what it means and how it works. Think about an invisible wall or barrier that stops them from coming and collecting from you. Being that’s it’s called an “automatic stay”, one funny way that we use to remember it is we tell people to “think that your creditors are like dogs and we’re going to tell them ‘stay’”. We want them to stop foreclosing, stop garnishing, or whatever it is that they are doing to you while we figure it all out.
US Bankruptcy Court - South Jordan Law Office
Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.
Most cases are filed under the three main chapters of the Bankruptcy Code – Chapter 7, Chapter 11, and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.
Different Chapters of Bankruptcy
We’re going to start with probably the most common chapter which is Chapter 7, often called a “straight bankruptcy” or “liquidation”. Here’s how it works: essentially non-exempt property is surrendered so that it can be sold to pay for debts. Now it needs to be said that most people don’t surrender much if anything at all. Very valuable property and property with liens could be surrendered but the typical household dealing with a bankruptcy doesn’t have anything of significant value that isn’t already protected by the bankruptcy laws. In a later article, we will deal with what are called “exemptions”, the exceptions to the rule for property, so you know what’s protected and what’s not.
A Chapter 7 is often referred to as a “fresh start”. Your legal obligation to pay those debts back is wiped away and you no longer are obligated to pay anything back whatsoever, that’s why it’s called a “fresh start”. The slate is clean at that point. A fact about it: it does stay on your credit report for 10 years. This is something that we touch on in one of our credit articles where we talk about the importance of dealing with credit after bankruptcy.
We’re just going to run through Chapters 11 and 12 very quickly because they’re not really pertinent to an individual. Chapter 11 deals with business reorganization and it’s used by businesses or just a few individuals whose debts are extremely large. Chances are you do not fit into this category. A Chapter 12 is simply for family farmers and fishermen.
Chapter 13 is a type of reorganization like the Chapter 11, except that it’s for individuals or families. A Chapter 13 creates a payment plan based on taking your current income and figuring out how much of that income is left over after necessary expenses. Then, that amount that is leftover determines whether or not you can pay back all or a portion of your debts in a period of 3 or 5 years. All of those things together are what is called your “bankruptcy plan” and it has to be completed within at least the 5 year time frame but it could be the 3 year time frame.
Something that’s important to know is that you’re not necessarily in a position where you’re going to be paying back 100% of your debt. After you expenses are figured out and if all that’s left over is enough to pay back 10 cents on the dollar, then that’s what your plan would end up being because the Chapter 13 based on leftover income.
Chapter 13 is the most common method of stopping a foreclosure or vehicle repossession. This is one of the greatest features of a 13: tax debts can be included in the plan and interest charges stop accruing. We have a client right now who is going through that exact problem. For the last 5 years, he’s been paying and paying and paying and then he contacted the IRS (Internal Revenue Service) thinking, “gosh it’s been 5 years, surely my debts had been paid off”. No. This whole entire time he has been paying interest charges and penalties, he hasn’t even made a dent in his debt. When we explained to him that the interests and the penalties stop the minute you file a Chapter 13, you should have seen the relief of his face. That’s one of the great benefits that a Chapter 13 can offer you if you’re dealing with tax debts.
Bankruptcy Attorneys/Lawyers at South Jordan Law Office handle all type of bankruptcy law. For FREE Consultation, Call Us at (801) 769-0258.
