In its most basic form, a debtor is a person who owes someone else money. A creditor is the person who is owed money. For example, If John loans Mary fifty dollars, then John is the creditor of Mary, and Mary is the debtor of John.
Bankruptcy is the legal method for a debtor to "discharge" or obtain relief from the debts you owe. While no debtor is guaranteed a total discharge of his debt, most debtors who file for bankruptcy are given such relief. One of the primary purposes of the bankruptcy act is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start.
Any person can file for bankruptcy protection from creditors. In addition, most businesses and charitable organizations may also qualify for bankruptcy protection.
As soon as your case is officially filed with the court, creditors are legally prevented from attempting to collect on any debt owed to them by you. This means that creditors must stop all collection activity, including: telephone calls, harassing letters, repossessions, foreclosures, lawsuits and wage garnishments. Once the case is concluded, the court may enter a "discharge." A discharge is a total release of a debtor from any further personal liability for his or her pre-bankruptcy debts. Typically, dischargeable debts include credit cards, unsecured notes and loans, gambling debts, and secured debts, such as car and house loans if the secured property is returned to the creditor.
A Chapter 7 bankruptcy is commonly referred to as a "liquidation" bankruptcy. The trustee takes any non-exempt property from the debtor and sells it, and distributes the proceeds to the creditors on a proportionate basis. The court then issues a discharge. It is not uncommon, especially in California for the debtor to not own any non-exempt property, and therefore, the trustee takes nothing.
A Chapter 13 bankruptcy proceeding lets you rearrange your financial affairs, repay a portion of your debts and put yourself back on your financial feet. The typical reasons for filing a Chapter 13 bankruptcy include saving a house in which you are in arrears, payment of back taxes, alimony or child support. You repay your debts through a Chapter 13 plan. Under a typical plan, you make monthly payments to the bankruptcy trustee, who is appointed by the bankruptcy court, for three to five years. The bankruptcy trustee distributes the money to your creditors.
For individuals filing for bankruptcy protection, certain property is protected from creditors in bankruptcy. This property is known as exempt property.
Exactly what property is protected depends on the exemption scheme chosen. California has two schedules of exempt property. Determining what property is exempt requires a complete understanding of the laws governing residency and the California exemption laws. You should seek professional advice in dealing with exemption issues.
Generally, all of the property you own at the time of the bankruptcy filing becomes the property of the bankruptcy estate. Certain property is exempt and you will be able to keep that property. California has two schedules of exempt property. The set of exemptions you should use depends on the nature and value of your property. Often, all of your assets can be protected.
Unfortunately, it will. However, most individuals are able to rebuild their credit within a few years. If you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been affected. A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.
The Fair Credit Reporting Act prohibits the reporting of outdated information about consumers. With a few exceptions, credit-reporting agencies can only disclose a bankruptcy during the ten years after the date of filing.
There is never a quick answer to this question. Generally, if you can pay off your debts within three to five years then filing for bankruptcy is not a good idea. If this is not possible, then filing may be a viable solution to eliminate your financial obligations. If you are contemplating filing for bankruptcy protection, it is in your best interest to seek advice of a bankruptcy attorney who can evaluate your individual circumstances to determine which course of action is best for you.
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