Filing bankruptcy is a growing trend. Several types of bankruptcy are in place to help people who are having a difficult time paying their payments.

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Filing for Bankruptcy and Non-Exempt Assets The fear amongst those filing for bankruptcy is that they will lose their home, car or non-exempt asset. How will chapter 7 or chapter 13 bankruptcy affect possessions?

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Filing for Bankruptcy in Ohio follows the rules and provisions of USC 11 and for individuals usually specifically involves chapter 7, 11 or chapter 13. The major differences between the two chapters deal with whether or not the individual chooses to liquidate their assets (Ch 7), undergo reorganization (Ch 11) or arrange for a repayment plan (CH 13). While the ability of an individual to file for bankruptcy under chapter 11 has been challenged in certain jurisdictions, the courts have ruled it does apply to individual. The easiest and fastest of the three options is under chapter 7.

History of Bankruptcy

The treatment of the issue of bankruptcy has undergone considerable change since its inception. While the word comes from the Italian words for broken bench, holding the meaning of destroying a debtors means for making money, it was during King Henry of England’s reign that formal bankruptcy came into being. In its seminal form, bankruptcy was a process designed for the creditor, and initially made the debtor a criminal liable for punishment ranging from loss of liberty to being pout to death.

Chapter 7 Bankruptcy

This type of bankruptcy is the most common for individuals who have gotten into the position that their monthly income is less than their monthly debt. This is calculated using an average of the individuals’ last six months income, subtracting an allowance for the need to subsist, and comparing it to the monthly debt. This plan affords the debtor the ability to be free of certain debts altogether, while using the assets available to pay of those debts not west aside by the statute. Certain types of debts such as credit cards, store cards, medical and dental bills, unsecured personal loans and some taxes can simply be wiped out. This is the reason that filing bankruptcy has such a harmful effect on ones credit rating, the damage to these creditors is total in regards to their risk in offering the individual credit.

Chapter 11 Bankruptcy

Filing for Chapter 11 bankruptcy is necessary if an individual has more debt than the maximum allowed under chapter 13 (Unsecured debt of $360,475, secured debt of$1,081,400). Chapter 11 allows a trustee, when appointed, to continue operating any business the debtor owns, and institutes a stay clause which prevents creditors from any and all efforts to reclaim assets for a period, typically 120 days. Following this stay, the debtor and creditors can offer an asset restructuring plan for the courts approval.

Chapter 13 Bankruptcy

This form of filing bankruptcy sets up a required payment schedule the individual is required to make to their creditors over a period of five years. The test for whether or not someone must file chapter 13 instead of chapter 7 is their income level. Individuals who make more than the median income for their state are required to file under chapter 13. The method for calculating the income again uses the last six month’s income. This is a common criticism o f the statute, as one who has just lost their job has a significant and immediate loss of income, and the six months in the past have little or no impact on their future economic solvency.

The laws of the United States have tended towards making the burden of financial failure less punitive to the debtor, while keeping the creditors’ needs and the impact of bankruptcies on the economy at the forefront. The laws have been written to try to accommodate both the debtor in crisis and the creditors at risk. Unfortunately, despite the many efforts to ensure the greatest equity possible, a recent study by the Federal Reserve concluded that the debtor that files for bankruptcy does not recover completely. Those who file find that even many years later there are significant impediments to financial activity, especially as it relates to credit. The stigma of bankruptcy leaves residual economic hurdles that fail to provide the fresh start the crafters of the statutes had originally intended.

Sources:

Cornell University: Title II Bankruptcy

© 2010 Jennifer Terry