Bankruptcy law is generally a Federal Law contained in Title 11 of the United States Code. However, few people actually know that Bankruptcies are contained in Article I Section 8 Clause 4 of U.S. Constitution of 1787. Congress is constitutionally obligated to establish uniform rules and uniform laws on the subject of bankruptcies throughout the United States.
Filing for Bankruptcy, could be argued as a Constitutionally guaranteed right for all in America.
The primary goals of bankruptcy law, is to provide an honest debtor who is experiencing financial difficulty with an automatic stay of all debt collection activity and the opportunity have of a fresh start.
The type, form and length of a bankruptcy, will depend largely on whether the debtor files a Chapter 7, Chapter 13 or Chapter 11 bankruptcy and/or the type of debts that you are trying to address.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is what is commonly referred to as “a straight liquidation” designed to be a quick an orderly court-supervised procedure by which a trustee (hypothetically) collects all the assets of the debtor, reduces them to cash, and makes distributions to the eligible creditors.
Liquidation is always subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Your states exemption laws or federal exemption laws outline all specific asset exemptions available to individuals seeking Bankruptcy protection.
Because there is usually little or no non-exempt property (or practically speaking all property can be protected), most chapter 7 cases, do not result in an actual liquidation of the debtor’s assets but instead only result in the discharge of most of debtor’s financial obligations.
Generally, in Florida, a debtor may be able to protect 100% of equity in their primary residence in any bankruptcy chapter.Chapter 7 cases are commonly referred to in Bankruptcy law as: “no-asset cases.”
In most chapter 7 cases, the debtor receives a complete discharge of all dischargeable debts related to the debtor. Therefore, Debtors are released from personal liability for certain dischargeable debts like credit cards, medical bills, civil judgments, wage garnishments and most other loans.
In Chapter 7, a debtor can generally modify theor mortgage through the MMM portal, rescind contracts, surrender secured assets and discharge any debts that may normally arise as result of most contracts however certain debts may not be discharged.
Normally, the debtor can expect to receive a discharge three to four months after the Chapter 7 bankruptcy petition is filed.
Chapter 13 Bankruptcy
Typically, most people can file for chapter 13 bankruptcy protection reorganization. Generally, only persons with disposable income and/or non-exempt assets (that would not be otherwise adequately protected in a chapter 7 bankruptcy) file for Chapter 13 Bankruptcy reorganization. In addition, due to the long duration of the plans any person who has fallen behind with their regular mortgage payments or other secured payment obligations may be able to benefit from filing a Chapter 13 Bankruptcy. This usually includes situation where a debtor is unable to otherwise cure or reinstate their loans and want to avoid a foreclosure and/or maintain their property secured by the debt by coming current over time.
In many cases, the court can also be asked to value the property and reduce the debt to the fair market value of the asset on the date of filing. Although this benefit does not generally apply to a primary residence, it can be applied to reduce or cram most other secured obligation.
Unlike Chapter 7, a chapter 13 bankruptcy is a reorganization (not a liquidation like Chapter 7).
In furtherance of this goal, Chapter 13 bankruptcy provides for the development of a bankruptcy plan that allows a debtor the opportunity to resolve their debts through the equitable distribution of their future monthly income among their creditors, over time.
With the right bankruptcy plan, at the end of a (3) three to (5) five-year period, all debts can brough current, and all remaining unsecured debts can be generally, discharged.
In a Chapter 13, creditor holding an unsecured claim (like credit cards or medical bills) will generally only get a very small distribution from the bankruptcy estate if the case is an “asset or income case” and if the creditors files a timely proof of claim with the bankruptcy court. This can vary from cases to case based on a number of factors.
Chapter 13, is a court supervised process which provides an orderly manner for a debtor to protect their non-exempt assets and to divide their income and the value of their assets proportionately among all the creditors, and over time with some measure of equality and protection.
Chapter 13 Bankruptcy also provides the debtor with the opportunity for a fresh start, free from all the financial obligations incurred prior to filing the bankruptcy.
Generally, in Florida, a debtor may be able to protect 100% of equity in their primary residence in any bankruptcy chapter.
Chapter 11 Bankruptcy