Bankruptcy planning and petition filing is the heart of many debt reduction plans and for a good reason: It’s part of the founding of the United States of America.
The founding fathers knew how debt could become a bondage which destroyed lives, and knew that a vibrant economy needed to allow people to fail and get second chances. With this in mind they installed bankruptcy into the very Constitution of the United States of America. Article 1, Section 8, Clause 4 of the Constitution authorized Congress to create uniform Bankruptcy laws. The founders knew that Bankruptcy was so important that the first Bankruptcy laws were passed in 1800, just over a decade after the Constitution became effective in 1789.
Today countries all over the world are envious of how the USA’s bankruptcy laws have helped our economy be vibrant and grow. Several countries have used the USA’s laws as inspiration or a model for their own system.
The USA has two basic types of banruptcies. Liquidation Bankruptcies and Reoganization Bankruptcies. We also help people with the tongue-in-cheek named “Chapter 20” which combines the two.
A liquidation bankruptcy is one where you keep the assets you’re allowed to as a matter of law, and everything else is given to the Bankruptcy Trustee (A federal employee whose job it is to help manage bankruptcies on behalf of creditors). The Trustee distributes the assets they got from you, all legally dischargable debts are discharged, and you go your merry way.
I’ll be honest, this is my favorite type of bankruptcy. When they work they work great, they’re over fairly quickly, and they allow my clients to get on with their lives. This is the type of bankruptcy most people think of when they think of a bankruptcy.
But unfortunately, these don’t work for everyone. Some debts can’t be discharged or reduced in Chapter 7, some people simply have too much income to qualify for Chapter 7, or a host of other reasons can stop someone from choosing a Chapter 7.
But we can help many people who think they don’t qualify. For instance, we can help you convert assets that the trustee would get into assets that are protected. We can help show that you have special circumstances that should allow you to get a Chapter 7 despite your income. Most importantly, we can help you carefully examine your total circumstances and make the right decision if a liquidation bankruptcy will really work for you
A reorganization bankruptcy is one where, under the guidance of the court and under the management of the Bankruptcy Trustee, you come up with a multi-year plan (between three and five years), to pay off as much of your debts as you can and then much of the remaining debts are discharged.
While these are great in theory in the real world, as the law currently stands, they have some serious issues. The current guidelines about what the plan can be like doesn’t leave Chapter 13 debtors with enough “wiggle room” in their budgets to deal with many emergencies like sudden car repairs, medical emergencies, or with enough to deal with social and family obligations like Christmas presents or the simple joys in life like vacations. Because of that people often end up going into court to ask for modifications to their plans were are onerous and time consuming to get. Or worse, they ignore the court and then their bankruptcy fails. Simply put, the law expects people to live in a manner that most people can’t manage in the real world.
So I prefer to try to figure out some way to get my clients into a Chapter 7 if at all possible and practical.
This may make you ask the question, then why do a Chapter 13 at all. The answer is simple: Sometimes it’s either all you qualify for or it allows for things that a Chapter 7 doesn’t.
People who have too much income for a Chapter 7 can often qualify for a Chapter 13. And certain debts that can’t be reduced or modified under a Chapter 7, can be under a Chapter 13. The most famous of these are second mortgages and home equity loans. Under a Chapter 7 these can’t be modified or discharged in post bankruptcy actions. But under a Chapter 13 they can sometimes be reduced or discharged entirely. That’s a strong reason to do a Chapter 13 if those are the debts that are weighing you down.
And if you do need a Chapter 13 I’ll help you get the best plan possible. A plan that lets you live a real life and helps reach a successful outcome.
If you look in the United State Bankruptcy code you won’t find a Chapter 20 plan, but the term has popped up as kind of a bankruptcy joke. But it’s really simple. It’s when a person files a Chapter 7, and then as soon as they get their discharge, file a Chapter 13. This is legal, ethical, and sometimes very useful.
The reason you would do this is because if the facts are good, it lets you enjoy the benefits of getting a quick and powerful discharge under Chapter 7, and the ability to modify certain or discharge certain debts under Chapter 13, such as second mortgages and home equity loans.
Taken together this strategy can effectively help you get a real fresh start on life.
Bankruptcy planning is an essential part of the bankruptcy process, so what is it?
It’s simply helping you get into the best position possible to make your bankruptcy as smooth and painless as possible. And it can sometimes take months or even years. As we sit down and go through your assets and liabilities we find that you have more assets than a bankruptcy would allow you to keep. But with a thorough understanding of the law we can help you keep those assets or use them in such a way that they can’t be reached any longer.
A simply example is that many retirement accounts are untouchable in bankruptcy. If you have $3000.00 that you can’t save from the trustee with your regular exemptions, but haven’t made any contributions to your retirement accounts, or maybe don’t even have a retirement account, we can get you to make that contribution and save that money for your future.
That’s just one example, but there are many that are legal and moral and can help you set yourself up for a bright future. We do our best to make sure our clients get the best outcome they can and get the planning they need.