October 17, 2008, Newsletter Issue #86: Personal Bankruptcy Law Primer

Tip of the Week

Federal bankruptcy rules are in Title 11 of the U.S. Code and are designed to give you the opportunity for a “fresh start” after a period of personal financial disaster. This is not a U.S.-only concept. If you have a European residency, you are also permitted to file for bankruptcy protection (although the rules are a bit different).

Bankruptcy laws are not a modern idea as the issue is mentioned throughout history, going back as far as ancient Hebrew texts. As an individual, you have two primary options for protection whether you live in California, Florida, Michigan, or any other state. U.S. bankruptcy laws are federal and apply to every state. You can file under Chapter 7, in which you ask the court to erase all debts included in your filing documents. In return, you agree to turn over the majority of your assets to the court. They will convert these items into cash and pay your creditors as much and as fairly as possible.

Depending on where you live, both your state and federal laws allow some “exemptions”, which are items you own that you may keep. Your second choice is filing under Chapter 13, called a “wage earner plan.” In this instance, you are telling the court that you have consistent income, but it is not enough to make the regular payments on your debts. You are asking the court to arrange a modified, lower payment schedule, but not to fully erase your debts. Your bankruptcy lawyers will help you decide which option is best for you .

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