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Fundamentals Graduate Study Mortgage 101 Investments 101 |
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| > Class Topics • Graduate Study • Real Estate Valuation • Other Considerations > Filing Bankruptcy • Dictionary of Terms  |
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| Bankruptcy allows for either [1] a
fresh credit start through complete debt relief and release of assets,
or [2] to gradually repay creditors through a court-monitored payment
plan. However, very careful consideration should be taken before filing for bankruptcy. Though debt may be relieved, filing for bankruptcy usually has a highly adverse affect on an individual's credit rating. The filing for a bankruptcy petition normally remains on a person’s credit report from 7 to 10 years. When filing for bankruptcy, the title of debtor is given to whomever is filing the bankruptcy petition and the title of creditor is given to whomever the debtor owes money to. Generally, an individual or company should file in whichever district they hold residence in. For example, in North Carolina, there are three separate federal districts (eastern, middle, and western) which administer bankruptcy cases. There are many separate types of bankruptcy, each within a ‘chapter’ of federal law. There are three types of bankruptcy which commonly occur in North Carolina: [1] Chapter 7 (Straight Bankruptcy) -- This type of bankruptcy is the most common, also known as “liquidation.” All debts are considered null and void if a chapter 7 bankruptcy is filed. A trustee is appointed by the Bankruptcy Court to collect the non-exempt property of the debtor, sell it, and distribute the proceeds among the creditors. [2] Chapter 13 (Wage Earners Plan) -- In filing chapter 13 bankruptcy, debts (or a percentage of debts) are repaid over a three-to-five year period. This repayment plan is administered by a trustee and must be approved by the court in which the debtor is filing for bankruptcy. [3] Chapter 12 (Family Farmer Bankruptcy) -- A chapter 12 bankruptcy is very similar in its agreement to chapter 13, but is restricted exclusively to family farmers. There are many other chapters of Bankruptcy, but the above three are the most common. Other chapters of bankruptcy are rarely used because the situations involved are very rarely applicable to a debtor. A bankruptcy case begins when a petition is filed by a debtor in Bankruptcy Court. With the petition, the debtor must also submit a schedule which includes a list of their assets, as well as a list of debts and creditors to whom those debts are owed. The petition, schedules, and statement of financial affairs are all court-authorized forms which must be completed, signed, and filed with the Bankruptcy Court, along with payment of a filing fee. Finally, one of the most important things to note about filing bankruptcy is that during the bankruptcy proceeding, creditors generally have no rights to the property of any debtor. Both the debtor and creditor should be fully aware that no creditor may attempt to collect their debts or recover any collateral unless they have expressed consent to do so from the Bankruptcy Court. |
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