A survivor of a natural disaster may need to consider filing for bankruptcy depending on their financial situation.
What is involved in the bankruptcy process?
When someone wants to file for bankruptcy, the individual must complete credit counseling at least 180 days before filing for bankruptcy and must have pay statements at least 60 days before filing the petition for bankruptcy. Bankruptcy begins when a petition is filed in the bankruptcy court by an individual, as a couple, corporation, or some other type of entity. When filing a petition, the debtor must file a statement listing assets, income, liabilities, the names and addresses of all creditors, along with how much is owed. Once this is done, this will prevent debt collection actions, like lawsuits or wage garnishments, from proceeding. Their creditors will be notified once the petition is filed. What happens next depends on the type of bankruptcy that is being filed.
Chapter 7 Bankruptcy
A Chapter 7 Bankruptcy is called Liquidation. A debtor must be under income maximums to be eligible for this type of bankruptcy. If a debtor’s income is over the eligible amount, then they must file a Chapter 13 Bankruptcy. A trustee will be taking control of all the debtor’s assets and then liquidate those assets, meaning they will turn them into cash. The cash will then be used to pay off creditors who have secured claims. There is certain property that is exempt from being liquidated. If there are no assets to liquidate, that is called a “no-asset” case. Creditors who have unsecured claims will only get payment if the case is an asset case, and then only if the creditor files proof of claim with the court. When a bankruptcy court discharges an individual’s debt, that individual no longer must pay off that debt. Once the petition is filed, the whole process can take a few months to get the discharge.
Chapter 12 Bankruptcy
A Chapter 12 Bankruptcy is called Adjustment of Debts for a Family Farmer or Fisherman with Regular Annual Income. If an Oklahoma family farmer with regular income is struggling to pay off his, he can typically file for this type of bankruptcy and propose a plan to pay back any debts over a maximum period of 5 years. A trustee will be appointed to make sure the creditors are paid back as planned. This type of bankruptcy allows a family farmer to continue their business operations while this payback plan is going on.
Chapter 13 Bankruptcy
A Chapter 13 Bankruptcy is called Adjustment of Debts of an Individual with Regular Income. People tend to favor a Chapter 13 Bankruptcy rather than a Chapter 7 Bankruptcy because a Chapter 13 Bankruptcy allows a debtor to keep their property that a Chapter 7 Bankruptcy would liquidate. A Chapter 13 Bankruptcy allows a debtor to create a plan to pay back the creditor over a time frame of usually 3-5 years. There will be a hearing where the court will approve or reject the debtor’s repayment plan. The court will appoint a trustee, as a middleman, to make payments to creditors based on the individual’s expected income. While Chapter 7 Bankruptcy will discharge the debt of the individual, a Chapter 13 Bankruptcy does not. The individual will still have to pay the debt, although some of the debt is eliminated. While the plan is in effect, the individual cannot be sued or have his wages garnished by creditors.
Which debts are not discharged in bankruptcy?
For each chapter of bankruptcy, there are different debts that are discharged. Section 523 of the Bankruptcy Code is the best source to determine which debts are and are not discharged for that bankruptcy. Typically, student loans, late child support or alimony payments, damages for willful and malicious injuries to person or property, debts gained from fraud, and government-imposed fines or penalties are not discharged. But again, you should look at the Code provisions for the type of bankruptcy you wish to file for a complete list. You should also seek out a bankruptcy attorney to help you with the process.
