For people who are undergoing severe financial issues, one of the best legal recourse available is filing for bankruptcy. This helps to get huge amounts of debts discharged while offering individuals a chance to have fresh financial beginnings. According to the U.S. Bankruptcy Code, a number of chapters are available to choose while filing for bankruptcy; one must choose the chapter depending on their financial conditions. Chapter 7, also known as “Liquidation Bankruptcy” is one of the most preferred for consumer bankruptcy.
In Chapter 7 bankruptcy, the assets of the individual filing for bankruptcy are sold off and the money so generated is used to make payments to the creditors to clear off the debts. A bankruptcy trustee, appointed by the court, oversees the liquidation of your non-exempted assets and also takes care to distribute the money to any creditor you owe money to.
Though also known as liquidation bankruptcy, not much liquidation of assets takes place in Chapter 7 bankruptcy. As lawyers of Los Angeles based law firm Recovery Law Group explain, most of the limited property that a debtor owns is considered to be exempted and only that which is non-exempt can be liquidated. Since the entire purpose of bankruptcy is to provide an individual with fresh financial start to individuals going through a bad economic phase, stripping them off their possessions will not serve the purpose. Thus exemptions are allowed in bankruptcy proceedings which include filers’ primary residence, automobile, personal property and certain other benefits including retirement account.
It is easier to determine the exemptions when it comes to personal bankruptcy, however, the demarcation is slightly more complex when it comes to business bankruptcy. It is important to take legal assistance to help determine which of your property comes under exempted assets and which one is a non-exempt property. It is also important to avoid making mistakes like intentionally liquidating assets before filing for bankruptcy. In case you are considering bankruptcy, it will be helpful to keep certain things in mind –
- Avoid using your retirement funds: Though being bankrupt is not exactly a nice position to be in, it will not exactly help your cause, if you break into your retirement corpus to pay off your creditors. Emptying your retirement account will not only result in early withdrawal penalty fees but you will also have to pay tax on the money, whereas filing for bankruptcy will protect your retirement funds (they come under exempted property) and thereby your future.
- Don’t make credit card payments using rent money or mortgage payments: The thought of creditors knocking on your door with the threat of lawsuits and wage trimmings can often cause people to panic. However, it is important to keep in mind not to use a mortgage or rent money to pay off creditors. The bankruptcy trustee in charge of your case will make sure that you do not lose your home in the process of paying off your creditors; but if you forgo mortgage payments or rent on time, you may end up on the street due to your miscalculations.
- In case you are planning on filing for bankruptcy, do not sell off your assets to pay cash to your creditors: Many people think that selling off assets like jewelry, cars and other electronic goods to pay off creditors is a good option. However, if you are considering to file for bankruptcy, these actions might be mistaken for disposing of assets or payments made with them equal to favoritism, which may become the cause of the dismissal of your case.
The process of bankruptcy can be quite a complex one for most people. It is therefore essential that you take proper legal assistance from an experienced bankruptcy attorney to determine the best course of action as per your situation.