Personal Bankruptcy

COVID19 has done significant damage to the American economy. Between job loss, over extension of credit and loss of savings, people are being forced to make difficult decisions, pay mounting debts and bills or put food on the table. Bankruptcy can be an alternative solution to this situation.

Bankruptcy is not just for business debtors. The Bankruptcy Code is a federal law which provides consumer debtors with a federal right to relief from crushing medical, credit card and other personal debt. Yet bankruptcy is a serious remedy which, many still believe, should be undertaken only as a last resort after credit counseling and exploring all other reasonable economic alternatives.

Future credit may or may not suffer with the filing of a bankruptcy proceeding. Indeed, it is not unusual for creditors to approach debtors after the conclusion of a bankruptcy case to offer new credit. These offers of new credit may be based on the principle that debtors have resolved their financial difficulties, that they have no more debt, and that they cannot file again for at least eight years. Sometimes an offer for new credit requires a co-signer or must be secured against a savings account. In any case, the decision to file or not to file for bankruptcy relief needs to rest on your existing financial condition, not on your future credit expectations. In other words, you should seek bankruptcy court protection in those situations where no other option makes sense.

Again, the chief purpose of a consumer bankruptcy is to provide an honest but unfortunate debtor with a fresh financial start. This fresh financial start is intended to allow individuals and sole proprietors who have become locked in debt to free themselves and engage in newly productive lives unshackled from their past financial problems.

Generally, there are two types of consumer bankruptcies. In the first, often referred to as straight bankruptcy or Chapter 7, the idea is that a debtor's nonexempt assets are to be converted to cash and distributed to creditors according to certain statutory rules.

Under most circumstances, however, there is little or no nonexempt property to deal with and the debtor will retain all of his or her property fully sheltered from creditor harassment in order to obtain the fresh financial start. At the end of the proceeding, the debtor receives a discharge, which relieves him or her from any responsibility to pay most typical unsecured personal debts and prohibits creditors from making further attempts to collect those debts.

There are exceptions. For example, criminal fines, penalties or restitution payments are special debts not included in a discharge in typical cases. Nor are most fraudulent charges, student loans, sales or withholding taxes, or spousal support and child support. Relief is sometimes available for federal and state income taxes more than three years old under certain circumstances. The rules can be complex and some people do not qualify for tax or special debt relief under Chapter 7.

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In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, you must provide the following information:

A list of all creditors and the amount and nature of their claims;

The source, amount, and frequency of the debtor’s income;

A list of all of the debtor’s property; and

A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

The second type of consumer bankruptcy proceeding is frequently referred to as a Chapter 13 bankruptcy or wage-earner plan. Here, the debtor proposes a plan to repay some or all of his or her outstanding debts when sufficient income exists to support such repayment. A Chapter 13 bankruptcy often is used by consumer debtors needing to protect non-exempt assets or to save their home from foreclosure sale. Chapter 13 bankruptcy filings may become more commonplace as a result of the recently enacted Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). Unlike a Chapter 7 bankruptcy, usually all or most of the debtor's nonexempt property is protected, although significant relief typically does not extend to the above-mentioned special debts. Co-signers may be protected by the bankruptcy court stay pending plan confirmation. After the plan is confirmed by the bankruptcy court, the debtor will continue making payments to the Chapter 13 trustee for a period of 36 to 60 months, depending upon their income under the BAPCPA means test. At the end of the Chapter 13 proceeding the debtor, with certain exceptions, is no longer personally liable on most unsecured debt still remaining unpaid.

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The third type of consumer bankruptcy proceeding is frequently referred to as a Chapter 12 bankruptcy or the family farmer or fisherman bankruptcy. Chapter 12 is designed for "family farmers" or "family fishermen" with "regular annual income." It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. Chapter 12 is more streamlined, less complicated, and less expensive than chapter 11, which is better suited to large corporate reorganizations. In addition, few family farmers or fishermen find chapter 13 to be advantageous because it is designed for wage earners who have smaller debts than those facing family farmers

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You worked hard but sometimes life’s circumstances are beyond your control. As the country reels from the staggering economic effects of COVID-19, there are options available. We strive to provide our clients with the tools and expertise needed to navigate this tumultuous time and are committed to helping our clients weather this storm. Contact us below for additional information or to make an appointment.

We are a debt relief agency. We help people file for relief under the Bankruptcy Code.

We can help you

If you need assistance reorganizing your finances and are considering filing for Chapter 7 bankruptcy protection we can help. We will take the time to understand your financial situation and determine if a personal bankruptcy is the best option for you. We are innovative in our approach and can help you overcome your financial challenges in these unprecedented times.

Somma Law PLLC is a Debt Relief Agency under federal law. We help people file for bankruptcy relief under the Bankruptcy Code.