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Frequently Asked Questions about Bankruptcy
Q: Are there alternatives to filing bankruptcy?
A: If the debtor's financial problems are only temporary, he
or she can simply ask creditors to accept lower payments or
grant an extended payment schedule. Creditors may be
receptive to these ideas if the debtor has been a prompt
payer in the past or if they wish to avoid the inconvenience
of a bankruptcy proceeding. Consumer credit counselors can
also help creditors work out a repayment plan. Some of these
advisors work for non-profit agencies, so they charge no
fees, but others charge a fee or may even be unscrupulous
and should therefore be avoided.
Q: Does a Chapter 13 bankruptcy discharge eliminate all
debts?
A: A Chapter 13 bankruptcy discharges only those debts
provided for by the plan. In addition, a Chapter 13
discharge does not affect outstanding debts or ongoing
obligations for spousal and child support; educational
loans; drunk driving liabilities; criminal fines and
restitution obligations; and certain other long-term
obligations that extend beyond the term of the plan, such as
home mortgages.
If you are so overwhelmed with debt that you do not see any
way to pay your bills, a bankruptcy may be what you need for
a financial “fresh start.” Whether Chapter 7 bankruptcy or
Chapter 13 bankruptcy is right for you, the Law Offices of
Andrew G. Adams, III, in Richmond, Virginia, will see that
you are treated fairly by the bankruptcy court and your
creditors. The firm advises clients throughout eastern
Virginia, including the communities of Richmond,
Chesterfield, Henrico, Hanover, Fredericksburg,
Spotsylvania, Petersburg, Prince George, and Stafford.
Bankruptcy - An Overview
Even the hardest workers and the most diligent bill-payers
can find themselves with more debts than they can pay as
they become due. In such cases, filing bankruptcy may
provide a solution to what seems like an insurmountable
problem. If you or someone you know is facing serious
financial challenges, it is very important to seek the
counsel of an experienced bankruptcy attorney. Once
considered a last resort, bankruptcy has evolved into an
accepted method of resolving serious financial problems. The
bankruptcy lawyer's goals are to help debtors make a fresh
start and ensure that creditors get paid. A skillful
attorney can guide you through the complicated legal maze of
bankruptcy.
Bankruptcy law is primarily federal in origin and therefore
varies little from state to state. The United States
Constitution grants to Congress the power to establish
uniform bankruptcy laws throughout the United States, which
ensures consistency and predictability in how bankruptcy
proceedings are conducted. The individual states do,
however, retain jurisdiction over certain debtor-creditor
issues that are not addressed by and do not conflict with
federal bankruptcy law, such as which property remains
exempt from creditors' claims.
Commercial and Consumer Bankruptcy
Both businesses and individuals may file for bankruptcy.
Commercial bankruptcy is a remedy available to businesses
that are unable to pay their debts. Options include
liquidation, in which many of the business's assets are sold
and the proceeds are divided among the creditors, and
reorganization or restructuring, in which the business
continues to operate according to a plan that allows for at
least partial payment to creditors. Consumer bankruptcy, by
contrast, is a method by which individuals may be able to
get out from under insurmountable debt and make a fresh
start, albeit with a negative impact on their credit
ratings. As in commercial bankruptcy, there are two options:
liquidating assets to pay off creditors, and filing a
wage-earner plan that allows the debtor to retain more
assets while working to pay off his or her debts. An
experienced bankruptcy attorney can help you choose the
right course of action for your particular situation.
Chapter 7 Liquidation
Bankruptcy law provides two basic forms of relief: (1)
liquidation, and (2) rehabilitation, also known as
reorganization. Most bankruptcies filed in the United States
involve liquidation, which is governed by Chapter 7 of the
Bankruptcy Code. In a Chapter 7 liquidation case, a
bankruptcy "trustee" collects the debtor's "nonexempt"
property (as opposed to the property that the debtor is
allowed to keep and that is not subject to the creditors'
claims) and converts it into cash. The trustee then
distributes the resulting funds among the various creditors
according to an order of priority described in the
Bankruptcy Code. Not all creditors receive the full amount
owed through this process; in fact, some may receive no
payment at all. When liquidation and distribution are
complete, the bankruptcy court may discharge any remaining
debts of an individual (non-business) debtor. If the debtor
is a corporation, it ceases to exist after liquidation and
distribution, and there is therefore no reason for further
discharge because the creditors cannot seek payment from an
entity that no longer exists.
Chapter 11 or 13 Reorganization
In a rehabilitation or reorganization, the option often
preferred by the courts, creditors may be provided with a
better opportunity to recoup what they are owed. This type
of bankruptcy is governed by Chapter 11 or Chapter 13 of the
Bankruptcy Code. Chapter 11 generally applies to individual
debtors with excessive or complex debts, or to large
commercial entities like corporations. Chapter 13, by
contrast, generally applies to individual consumers with
smaller debts. Farmers and municipalities may seek
reorganization through the Code's special chapters, Chapters
12 and 9, respectively. Reorganization provides debtors with
a greater opportunity to retain their assets if they agree
to pay off their debts according to a plan approved by the
bankruptcy court. If the debtor fails to adhere to the plan,
however, the court may still order liquidation.
"Voluntary" and "Involuntary" Bankruptcies
Most bankruptcy cases are filed by the debtor and are thus
considered "voluntary bankruptcies" (although few would
"volunteer" to be in this position). Once a bankruptcy
petition is filed, the debtor is immediately entitled to
relief from creditors through the bankruptcy procedure known
as the "automatic stay." The automatic stay freezes all
debt-collection activity and forces creditors to allow the
bankruptcy court to determine how payment will be made.
Not all bankruptcy proceedings are voluntary, however. Under
Chapters 7 and 11, creditors, too, have the option of filing
for relief against the debtor, in which case the proceeding
is called an "involuntary bankruptcy." Involuntary
bankruptcies are allowed only when certain minimum
thresholds are met; for instance, there must be a minimum
number of creditors and a minimum amount of debt. The debtor
has the right to file a response to an involuntary petition,
after which the court will determine whether the creditors
are actually entitled to relief. If the court dismisses an
involuntary bankruptcy filing because it has no merit, the
creditors may be ordered to pay the debtor's attorneys'
fees, damages for any losses the debtor experienced because
of the bankruptcy, and even punitive damages to punish the
creditors for the frivolous or abusive filing of a petition.
An experienced bankruptcy attorney can provide essential
advice whether you are a debtor considering voluntary
bankruptcy or facing an involuntary bankruptcy proceeding,
or a creditor seeking relief through an involuntary
bankruptcy.
Conclusion
Lawyers specializing in bankruptcy law can help both debtors
and creditors overcome obstacles to the repayment of debt.
Their expertise often extends beyond bankruptcy to include
debt repayment and collection options that can circumvent
the need for a bankruptcy filing. Experienced bankruptcy
attorneys have the knowledge and expertise to help their
clients get out from under formidable debt and emerge as
productive citizens, and can also assist their creditor
clients in collecting what is rightfully theirs.
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