Bankruptcy Stops Creditor Harassment
Consumer & Small Business Credit Newsletter
By Attorney Raymond W. Hackbarth, Jr.
Bankruptcy Stops Creditor Harassment
Today, countless people are suffering from financial difficulties. Creditor calls, letters, lawsuits, repossessions, foreclosures and other collection efforts are a daunting challenge to those who are behind on their payments. To put an immediate halt to these creditor actions, many people file bankruptcy.
Automatic Stay
The automatic stay goes into effect immediately upon filing bankruptcy. Thereafter, most creditors and collection agencies are prohibited from taking any action or continuing any actions to collect on most debts. The purpose of the automatic stay in bankruptcy is to provide debtors with a break from the financial pressures of their creditors and ultimately to provide the debtor with a “fresh start.”
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy provides a debtor with relief from creditors by eliminating some or all of the debtor’s debts within a few months. However, some debts are non-dischargeable, such as student loans; alimony; child support; fines, penalties or restitution ordered by a government agency; or certain taxes. In October 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which changed bankruptcy eligibility requirements and procedures. Although the title suggests that the BAPCPA is intended to protect consumers, it was heavily influenced by the credit card and banking industries to force would-be Chapter 7 bankruptcy filers into filing Chapter 13 bankruptcy. Chapter 13 requires the debtor pay back a portion of their debt before the debt is discharged, usually over a period of three (3) to five (5) years.
Keeping Your Property
When filing for Chapter 7 bankruptcy, almost everything the debtor owns at the time of filing becomes part of the “bankruptcy estate” and is subject to the bankruptcy court’s authority. However, with few exceptions, property acquired after filing bankruptcy is not included in the bankruptcy estate. Neither is property that the debtor claims as exempt. The Chapter 7 Trustee, with court supervision, will liquidate (sell) all of the debtor’s nonexempt assets to produce money for distribution to creditors. Therefore, it is important for the debtor to determine what property can be claimed as exempt. Individuals, married couples and persons doing business under a fictitious business name are entitled to claim exemptions. However, business entities, such as corporations, cannot claim property as exempt. In California, debtors cannot use the Federal exemption laws. However, California provides two (2) sets of exemptions from which a debtor may choose, one of which is very similar to the Federal scheme.
Discharging Your Debts
Upon the successful completion of a Chapter 7 Bankruptcy, the debtor receives a Chapter 7 discharge, i.e., any remaining unpaid debt is discharged, and the debtor no longer has an obligation to repay the discharged debts. A Chapter 13 bankruptcy allows for discharge of certain debts non-dischargeable in Chapter 7, such as debts incurred for the purposes of paying taxes or non-support debts owed to an ex-spouse arising from a divorce or separation.