Bankruptcy is never easy to go through, no matter how prepared you are or how aware you are of the process. Knowing what your rights are in bankruptcy, a bit about the process, and what to expect can help make dealing with it easier and can help you get through the process.
There are safeguards in bankruptcy that can help protect you and your property, and those are exemptions in bankruptcy.
What is Bankruptcy?
Bankruptcy put as simply as possible, is a dissolution of debts that the debtor has no means of paying. This can apply to individuals, married couples, businesses, and business partners.
Bankruptcy has different types that correspond to the business or individual that is filing and to the circumstances that are present at the time of bankruptcy.
Bankruptcy is a reset button of sorts that allows the filer to get rid of or to dissolve debts that they are struggling to pay so that they can get back on their feet and start to recover financially.
Types of Bankruptcy
Bankruptcy is not a one size fits all solution. There are six different types of bankruptcy and each has a different purpose and a different focus.
When you decide to file for bankruptcy, you are going to need to talk with your bankruptcy attorney to find out what sort of bankruptcy is going to work best for you and what is going to fit your particular situation best.
The first type of bankruptcy is chapter 7. This is also referred to as liquidation bankruptcy. With this type, you are going to be liquidating all, or as many as possible, of your assets to help pay off the debt that you have and then writing off the rest.
This is most common with people that own a lot of assets like cars, homes, or other property that can be sold off to pay your debt. This is also very common in businesses that are going to be going out of business and are able to liquidate the inventory and other elements that they had when the business was in operation.
Another type is chapter 13. This is also referred to as a repayment plan and is the most common for individuals. This can be used if you have a home or a car that you want to keep and that you want to keep paying on after bankruptcy.
This type of bankruptcy helps to get rid of a large portion of personal debt but does allow the debtor to reaffirm certain loans and create a repayment plan for some of the debt so that they can restructure and keep paying off some of the debt that they have.
The next type is chapter 11, or large reorganization. This is most often used by large businesses that want to stay in business but simply need to reorganize their debt in a way that they are actually going to be able to pay it.
This is something that must be approved by the court and the people holding the debt and is often used in cases where there are lots of high-value assets that need to be protected.
There is also chapter 12, this is a repayment plan for farmers and fishermen that do not want to sell off property or foreclose. This is more flexible than chapter 13 and does allow these individuals to keep the property that they need for their livelihood but still write off a good portion of debt so that they can move on and start to recover.
Chapter 15 is for international bankruptcies and chapter 9 is for towns and cities that need to file. No matter what type of debt you have, there is a bankruptcy solution that is going to fit your needs and that is going to fit your particular debt.
It is always important to take the time to speak with a bankruptcy attorney to see what is going to work best for you so that you can get your case off to a great start.
What is the Bankruptcy Process?
The first step of the bankruptcy process is to decide if bankruptcy is right for you or if you have other options that might work better. You should look at your debt to income ratio. Are you making less money than you spend each month paying off debt?
Are you struggling to stay on top of payments and are frequently falling behind? These may be early indicators that bankruptcy is a solution you may need to further investigate.
The next step is to speak with an attorney that is well versed in bankruptcy. This is going to first and foremost give you an idea about the options that you have and can start you on the road to finding the right bankruptcy for your particular needs.
Your attorney will talk to you about options, will help you decide if bankruptcy is right for you, and will help you find the right type of bankruptcy for the debts that you have. It will also help you start the process.
After you decide if bankruptcy is right for you, your attorney is going to give you a few tasks. They will have you write down all your monthly bills, the income that you make, any assets that you have, as well as any debts that you have currently outstanding.
This will help your attorney get a better idea of what they are dealing with and what they are going to need to focus on. They will then petition the court for your bankruptcy.
If the court feels that you have enough assets to repay your debt or that you do not qualify, they will deny the bankruptcy. They may also approve it.
If it is approved your attorney is going to reach out to your creditors and give them the opportunity to refute the bankruptcy or to demand that you pay back the debt.
You will then be required to finish a counseling session online about money management and then your case will go to court. Bankruptcy takes a few months to complete.
What are Bankruptcy Exemptions?
So, you have decided to file for bankruptcy and you are afraid that you are going to lose everything. This is not the case. Bankruptcy exemptions are a set of laws that are in place to protect property in the event of bankruptcy so that you do not end up homeless or destitute if you decide to file.
These laws are put in place to protect your property from creditors and to make sure that you are treated fairly through the bankruptcy process.
These exemptions are in place to make sure that creditors do not try to force the sale of your property. So that you are not going to end up without a home or a car or other property after a bankruptcy.
There are a few things that are exempt from bankruptcy that cannot be touched by a creditor in the case of bankruptcy. The first is your home or residence.
A creditor cannot force you to sell your home if it does not exceed the value that is set forth by the state where you live and where you are filing.
Creditors cannot force you to sell your life insurance policies, they cannot force you to sell your burial plot, they cannot force you to sell your clothing or jewelry as long as it does not exceed the value set forth by your state.
They also cannot take your lost earnings settlements, your disability or social security, your settlements that you may have gotten from a car accident, and more.
Creditors are not going to be able to force you to sell your car unless it exceeds the value that was set forth by your state. They cannot make you sell your tools of the trade either.
These exemptions are in place to prevent you from having everything taken away from you in the event that you are filing. It is going to help ensure that you still have the tools and the ability to live a good life, to have the ability to make money or to hold a job and that you are not going to be destitute after filing for bankruptcy.
These exemptions are different from state to state. A state where the cost of living is considerably higher is going to have greater thresholds than those states where costs are lower. A good example would be the value of a car that you can keep in a state like Kentucky versus California.
In Kentucky, the value of a car that you have free and clear and that you have paid off cannot exceed $5,000 before you have to sell it to pay off debt. In California, this number is at least double if not more. Home values are much the same.
Taking the time to talk with an attorney can help you determine what exemptions you are eligible for and what you should do moving forward.
Is Everyone Entitled to Exemptions?
Put simply, no. Not all people filing for bankruptcy are going to qualify for exemptions. A good example would be someone that owns a house that is very expensive that they have paid off.
They are not going to be able to retain this very expensive and very valuable home and still be able to file for bankruptcy. They will be required to sell their home and purchase something less valuable than using the money to help pay off debts.
Also, businesses may not be able to file for exemptions if they have assets that can be sold to pay off debts. Your bankruptcy attorney is going to be able to go over any and all exemptions that you might qualify for and is going to be able to help you determine what you can keep and what must be liquidated in your bankruptcy.
Exemptions do not apply to all bankruptcy as well. Exemptions are most often applied to chapter 7 bankruptcy and to businesses that want to reopen or stay in business despite the bankruptcy.
These exemptions also apply to chapter 13 bankruptcy, which is often an individual that is going to need a place to live and a car, and more.
If you are thinking of filing for an exemption, it is always best to be fully transparent with your attorney and to take the time to really see what is out there in terms of what you can file.
Conclusion
It is always best to go in with an open mind but to know that in some cases, you may be denied the ability to file for exemptions. This is a fantastic way to make sure that you are able to keep your home and that you are not going to be forced to worry about what you are doing.
When you are dealing with bankruptcy it is always best to take the time to talk with your attorney and find out what type of bankruptcy is going to be best, what exemptions you might have, and what else you can do.
Your attorney is going to be able to help you get your bankruptcy taken care of and to make sure that you are given the best chance for success with your bankruptcy.
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