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The Different Chapters of the U.S. Bankruptcy Law

The more than 1.5 million Americans who filed for bankruptcy in 2010 clearly shows the financial hardship suffered by many individuals and families in the U.S., especially by those falling in the lower-income bracket. These financial problems are not caused by reckless spending, that’s for sure, but by job loss and cost of medical treatment.

Besides loss of job, a direct effect of the 2008 – 2009 Great Recession and the struggling economy, and an accident or illness that requires medical treatment, other causes of financial hardship that hit many Americans like plague were divorce, reduced pay, and death of a bread-winner in the family. These have resulted to families and individuals diverting available funds to basic needs rather than to paying debts and monthly bills; these, in turn, lead to debts accumulating, eventually growing to an amount that makes these impossible to settle.

It will take only about three months before creditors start referring bad debts to collection firms. These firms have only one purpose: to make debtors pay. Thus, they do not hold back employing whatever tactics they have in their bag, especially those that will scare debtors and make them decide to pay.

Overwhelming debts can definitely cause too much stress and worry. These, however, cannot ruin any person’s life, thanks to bankruptcy, a legal way of freeing oneself from unsurmountable debts. Bankruptcy is the government’s way of helping individuals, families and businesses find the best way they can pay their debts and regain control of their finances. Protection from creditors and collection agencies, which is provided by the U.S. Bankruptcy Code, is made through the Code’s different chapters, each designed to address debtors’ specific financial situation. This Bankruptcy Code’s different chapters include:

– Chapter 7 – also known as liquidation bankruptcy. Under this chapter, a court-appointed trustee is tasked to liquidate all non-exempt assets and properties surrendered by a debtor (non-exempt assets may include a second house, a vacation house, a second vehicle, expensive tools or musical instruments, jewelry, etc.). The cash raised will be used to pay a debtor’s secured debts and the remaining amount, if there is any, will be returned to the debtor.

Secured or non-dischargeable debts include government-related debts, child support, alimony and student loan (under certain conditions). Other debts, which a debtor has, like credit card bills, medical bill, past utility bills, personal loans, and so forth, are called dischargeable debts ; the court can decide to free a person from these debts.

– Chapter 11, which is also called business bankruptcy, allows a business to restructure its finances (repayment plan) for more affordable payments. Though Chapter 11 is risky, time-consuming and expensive, many small corporations, limited liability companies, and partnerships choose it because it is the only chapter that allows firms to restructure and continue business operations.

Chapter 12 is designed for families of farmers and fishermen with a regular annual income, which own and operate the fishing or farming business, or which own at least 50% of the farming or fishing business.

– Chapter 13, which is a reorganization or restructuring type of bankruptcy, allows debtors to design a debt payment scheme. A Chapter 13 plan usually lasts for three years, but may be extended to five years if allowed by a court. Unlike in Chapter 7, a debtor is not required to surrender any of his or her properties for liquidation.

In the Ryan J. Ruehle Attorney at Law, LLC, website, it is said that getting back to financial solvency, no matter how difficult your financial situation may be, is always possible; thus, losing hope, while this may be understandable, is still a very poor and lame excuse. By filing for bankruptcy through the help of a highly-skilled bankruptcy lawyer, regaining control over your financial is now within reach.

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