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Bankruptcy Laws – What You Need to Know

Most individuals who are suffering through a financial crisis – either due to poor financial decisions or rough circumstances – do not realize the consequences of being caught in such a predicament. Unfortunately, if they do undergo such a predicament, most don’t know how to get out of it.

Bankruptcy is, to put it simply, a legal proceeding involving a person or business that remains unable to pay outstanding debts for an extended period of time. These proceedings based on a complex legal system in the United States serves to give such individuals or businesses a ‘fresh start’.

Bankruptcy is a federal right that is governed and regulated by federal law as decreed by the U.S Bankruptcy Code and Rules. This includes individual state-specific laws that apply to the residents, conducted by the Federal Bankruptcy Court.

Types of Bankruptcy Cases

In the state of Virginia there are essentially four different kinds of Bankruptcy cases. They are:

  • Chapter 7 – Asset Liquidation

Often times called the ‘Straight Bankruptcy’, in Chapter 7, a third party trustee, appointed from a panel gathers and sells the debtor’s (the individual who owes the money) nonexempt goods to pay off the creditors with the proceeds according to priority.

  • Chapter 11 – Reorganization (or liquidation)

Chapter 11 is meant for those individuals that wish to reorganize the state of their business affairs and liquidate their assets. In chapter 11, the debtor, in full control of his assets, is allowed a certain duration to offer a plan to reorganize resources and subsequently pay off the creditors.

  • Chapter 12 – Family Farmer and Fisherman Reorganization

Chapter 12 is a specific bankruptcy law that allows the family fisherman and farmers that maintain a regular income, to reorganize their debts and repay the creditors with a stable and sustainable plan.

  • Chapter 13 – Payment of Some Debt from Regular Earnings

Individuals with a regular income and earning who have procured secured (against collateral – mortgages or car loans) or unsecured debts of above a certain set limit may file for a Chapter 13 Bankruptcy. These debtors are often able to keep their property, prevent mortgage foreclosures and obtain a broader discharge of debts.

According to the 2005 Bankruptcy Act, all individual debtors who file for bankruptcy are required to undergo a credit counseling course and financial management instructional course.

The two most commonly filed Bankruptcy claims in the state of Virginia are Chapter 7 and Chapter 13. The first step in the process of filing for Bankruptcy is hiring a trusted attorney to discuss your case and weigh all the available options. However here is a brief overview of the Bankruptcy process:

  • Apply the 2005 Bankruptcy Act Means Test which determines if you are eligible to file for a Chapter 7 or Chapter 13 Bankruptcy.
  • Gather paperwork and details. Itemize current sources of income, monthly expenses, debts, properties and possessions and all major transactions for the past two years. An attorney can do this for you or you can proceed on your own.
  • Determine which property is exempt based on the Virginia Bankruptcy Exemptions
  • Proceed to filing a two page petition at your Virginia District Bankruptcy Court.
  • Upon filing an automatic stay goes into effect that prevents creditors from approaching you directly
  • Court assumes control of your debts as well as property and a trustee is appointed that helps negotiate between a debtor, his counsel and a creditor until a decision is made.

In case you are considering filing for bankruptcy or are just looking for some information regarding your case, we, at The Law Office of Matthew T. Schottmiller, PLLC are dedicated in providing you with all the help you need.

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