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DISCLOSURES REQUIRED UNDER SECTION 527 AND 342 OF THE BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005. NOTICE
Notice Mandated By Section 342(b)(1) and 527(a)(1) Of The Bankruptcy Code
Notice Mandated By Section 342(b)(1) and 527(a)(1) Of The Bankruptcy Code
PURPOSES, BENEFITS AND COSTS OF BANKRUPTCY
The United States Constitution provides a method whereby individuals, burdened by excessive debt, can obtain a "fresh start" and pursue productive lives unimpaired by past financial problems. It is an important alternative for persons strapped with more debt and stress than they can handle.
The federal bankruptcy laws were enacted to provide good, honest, hardworking debtors with a fresh start and to establish a ranking and equity among all the creditors clamoring for the debtor's limited resources.
Bankruptcy helps people avoid the kind of permanent discouragement that can prevent them from ever re-establishing themselves as hardworking members of society.
Types of Bankruptcy
The Bankruptcy Code is divided into chapters. The chapters which almost always apply to consumer debtors are chapter 7, known as a "straight bankruptcy", and chapter 13, which involves an affordable plan of repayment.
An important feature applicable to all types of bankruptcy filings is the automatic stay. The automatic stay means that the mere request for bankruptcy protection automatically stops and brings to a grinding halt most lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut offs, and debt collection harassment. It offers debtors a breathing spell by giving the debtor and the trustee assigned to the case time to review the situation and develop an appropriate plan. In most circumstances, creditors cannot take any further action against the debtor or the property without permission from the bankruptcy court.
Chapter 7
In a chapter 7 case, the bankruptcy court appoints a trustee to examine the debtor's assets to determine if there are any assets not protected by available "exemptions". Exemptions are laws that allow a debtor to keep, and not part with, certain types and amounts of money and property. For example, exemption laws allows a debtor to protect a certain amount of equity in the debtor's residence, motor vehicle, household goods, life insurance, health aids, retirement plans, specified future earnings such as social security benefits, child support, and alimony, and certain other types of personal property. If there is any non-exempt property, it is the Trustee's job to sell it and to distribute the proceeds among the unsecured creditors. Although a liquidation case can rarely help with secured debt (the secured creditor still has the right to repossess the collateral if the debtor falls behind in the monthly payments), the debtor will be discharged from the legal obligation to pay unsecured debts such as credit card debts, medical bills and utility arrearages. However, certain types of unsecured debt are allowed special treatment and cannot be discharged. These include some student loans, alimony, child support, criminal fines, and some taxes.
In addition to attorney fees, there is a filing fee that must be paid to the Bankruptcy Court.
Chapter 13
In a chapter 13 case, the debtor puts forward a plan, following the rules set forth in the bankruptcy laws, to repay certain creditors over a period of time, usually from future income. A chapter 13 case may be advantageous in that the debtor is allowed to get caught up on mortgages or car loans without the threat of foreclosure or repossession, and is allowed to keep both exempt and nonexempt property. The debtor's plan is a document outlining to the bankruptcy court how the debtor proposes to dispose of the claims of the debtor's creditors. The debtor's property is protected from seizure from creditors, including mortgage and other lien holders, as long as the proposed payments are made and necessary insurance coverages remain in place. The plan generally requires monthly payments to the bankruptcy trustee over a period of three to five years. Arrangements can be made to have these payments made automatically through payroll deductions.
In addition to attorney fees, there is a filing fee that must be paid to the Bankruptcy Court.
Chapter 11
By and large, chapter 11 is a type of bankruptcy reserved for large corporate reorganizations. Chapter 11 shares many of the qualities of a chapter 13, but tends to involve much more complexity on a much larger scale.
Chapter 12
Chapter 12 of the Bankruptcy Code was enacted by Congress in 1986, specifically to meet the needs of financially distressed family farmers. The primary purpose of this legislation was to give family farmers facing bankruptcy a chance to reorganize their debts and keep their farms.
As with chapter 11, chapter 12 does not usually pertain to individuals whose debts are primarily consumer debts.
What Bankruptcy Can and Cannot Do
Bankruptcy may make it possible for financially distressed individuals to:
- Discharge liability for most or all of their debts and get a fresh start. When the debt is discharged, the debtor has no further legal obligation to pay the debt.
- Stop foreclosure actions on their home and allow them an opportunity to catch up on missed payments.
- Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
- Stop wage garnishment and other debt collection harassment, and give the individual some breathing room.
- Restore or prevent termination of certain types of utility service.
- Lower the monthly payments and interest rates on debts, including secured debts such as car loans.
- Allow debtors an opportunity to challenge the claims of certain creditors who have committed fraud or who are otherwise seeking to collect more than they are legally entitled to.
Bankruptcy, however, cannot cure every financial problem. It is usually not possible to:
- Eliminate certain rights of secured creditors. Although a debtor can force secured creditors to take payments over time in the bankruptcy process, a debtor generally cannot keep the collateral unless the debtor continues to pay the debt.
- Discharge types of debts singled out by the federal bankruptcy statutes for special treatment, such as child support, alimony, student loans, certain court ordered payments, criminal fines, and some taxes.
- Protect all cosigners on their debts. If relative or friend cosigned a loan which the debtor discharged in bankruptcy, the cosigner may still be obligated to repay whatever part of the loan not paid during the pendency of the bankruptcy case.
- Discharge debts that are incurred after bankruptcy has been filed.
Bankruptcy's Effect on Your Credit
By federal law, a bankruptcy can remain part of a debtor's credit history for 10 years. Whether or not the debtor will be granted credit in the future is unpredictable, and probably depends, to a certain extent, on what good things the debtor does in the nature of keeping a job, saving money, making timely payments on secured debts, etc.
The section titles in this agreement are for convenience only and have no legal or contractual effect.
Veronica Deaver, Attorney at Law
(972) 562-8863 | Fax: (972) 529-7002
veronicadeaver@msn.com
1700 Redbud Boulevard, #310 (In the First United Bank Building)
McKinney, TX 75069
8:00 a.m. – 5:00 p.m., Monday – Friday
Evenings and Saturdays Available by Appointment
