Jane Bryant Quinn began the New Year with the following remarks in the January 12, 2009 issue of Newsweek: """"Go insolvent in 2009. If you are at the end of your tether, do not attempt to cling to it. Save what you can""""
Either these commentators are knowledgeable or a large number of individuals follow their advice. USA Today reported on June 3, 2009 that consumer and commercial bankruptcy filings are on track to """"reach a staggering 1.5 million this year, according to a report from Automated Access to Court Electronic Records...In May, the number of bankruptcy filings reached 6,020 per day, up from 5,854 per day in April.""""
This is sobering information, particularly in light of the 2005 legislative reforms that made it more difficult to discharge debts through bankruptcy. And while the majority of the rise in bankruptcy filings is attributable to the financial distress caused by a struggling economy, a shift in perspective may also be a factor.
Some individuals may now view bankruptcy as a preventative measure as opposed to a last resort. ""The right time to declare bankruptcy is when you are financially stuck but still have assets to protect,"" according to Bryant. As more individuals file for bankruptcy, the social stigma diminishes, and individuals examine the legal and financial merits of a bankruptcy filing in greater detail.
A Summary of Bankruptcy
There have always been individuals who are unable to pay their debts, dating back to antiquity, so bankruptcy has a long history. For both debtors and creditors, bankruptcy provides a structure for resolving this dilemma, despite not being an optimum solution.
The origin of the term bankruptcy is the Latin bancus, the trader's counter, and ruptus, shattered. (During the time of the Caesars in Rome, a merchant or trader unable to pay his debts would have his market bench damaged or removed by a court-appointed official, who would then auction off the debtor's property to the highest bidder.)
In the late 1500s, during the reign of Henry VIII, the first English bankruptcy law was enacted in England, laying the foundation for bankruptcy laws in the United States. Under both Roman and English law, a person could not voluntarily declare bankruptcy; creditors were required to do so. Creditors could continue to demand repayment of all outstanding debts in addition to confiscating assets. Some laws permitted imprisonment or even physical punishment for a debtor who failed to repay.
There are two fundamental types of court-authorized bankruptcy in existence today: liquidation and reorganization. In the United States, liquidation is referred to as Chapter 7 Bankruptcy, which refers to the chapter of the bankruptcy code that permits the sale of assets. Reorganization bankruptcies can be filed under Chapters 11, 12, and 13, with Chapter 13 applicable to the majority of individuals. Chrysler and General Motors each filed Chapter 11 bankruptcy. When you file for bankruptcy, the court prohibits your creditors from collecting debts without court authorization.
Chapter 7 - Liquidation
In a liquidation bankruptcy, you turn over your personal property to the bankruptcy court, which then sells it and uses the proceeds to pay your debts (or as much as possible of them). Once the process is complete, prior creditors have no further claim to payment, but the bankruptcy remains on your credit report for 10 years, which may result in borrowing restrictions or denials if you apply for credit during that time.
You may not have the option to file for Chapter 7 liquidation bankruptcy under the 2005 law. If your income exceeds the state median income for families of the same size, you must submit to a bankruptcy means assessment. This test establishes a budget for you based on the minimum acceptable standard of living. If, after imposing this budget, the court determines that you have $100 or more per month in disposable income that could be applied to debt repayment, you may be forced into a Chapter 13 repayment plan instead of Chapter 7 eligibility.
Reorganization in Chapters 11, 12 or 13
In all types of reorganization bankruptcy, the debtor must submit a repayment plan to the bankruptcy court. Typically, payment arrangements span three to five years, and not all debts are treated equally. Some debts must be recovered in full, while others may require a percentage, and others may not be repaid at all.
Certain obligations cannot be discharged or """"forgiven."" These include debts you neglect to list in your bankruptcy papers, child support and alimony, the majority of student loans, fines and penalties for breaking the law, tax debts, and judgments for personal injury or death resulting from drunk driving.
During the period of repayment, the court will place restrictions on your spending. In many instances, a court trustee will garnish your wages and make payments to your creditors.
At the conclusion of the repayment period, creditors may grant you credit if you have made your payments as agreed. The bankruptcy will remain on your credit report for six years, however.
Protection of Property in Bankruptcy
The bankruptcy laws permit debtors to exempt certain assets from liquidation in order to satisfy their creditors. Homesteads or personal residences, qualified retirement accounts, college savings accounts, and certain categories of trusts are typical exemptions. These exemptions are intended to prevent petitioners from losing everything, but they frequently pose potential ethical and legal challenges, with severe financial repercussions if abused.
The federal government permits each state to determine which assets qualify for exemption, and there is considerable variation in the types of assets that qualify. Some states have generous exemptions, some do not. Individuals contemplating bankruptcy may recognize that certain assets may be exempt from bankruptcy if they can be transferred to a third party. Or, they may determine that it would be advantageous to establish residence in a different state, where the bankruptcy exemptions are more advantageous. This awareness leads to exemption planning, as described by some bankruptcy attorneys.
Individuals must be aware that """"transfer of assets prior to filing is generally a 'no-no,'"" according to a legal guide published on avvo.com by Leon Bayer, a Los Angeles bankruptcy attorney with 29 years of experience. Bayer continues, """"Do not hide, conceal, transfer, or fraudulently encumber non-exempt assets. It is likely to result in the denial of a bankruptcy discharge, and the trustee can still recover the property or its value from whoever it was given to.""""
The Value of Properly Positioning Assets
Indirectly, the issue of insolvency highlights the significance of proactive risk management. While you are aware that you cannot transfer assets in anticipation of filing for bankruptcy, the ramifications of a potential future bankruptcy may cause you to reconsider the current ownership of your assets. Which assets would you wish to safeguard in the event of a financial setback that could result in bankruptcy or a lawsuit? Planning (and action) undertaken at this time may be your best defense against giving up years of hard work to pacify creditors or litigants.
No one desires to declare bankruptcy. Nobody desires to be involved in an automobile collision. However, while the majority of responsible individuals recognize the importance of auto insurance, a much smaller proportion actually secure """"insurance"""" on their assets, either through the vehicles they drive or the financial structures surrounding them.
Due to the complexities of bankruptcy law and the variations between states, it is crucial that all asset transfers be supervised by competent legal counsel. You should inform your licensed insurance or investment professional of your intentions, as they can provide assistance with the specifics of correctly titling assets, based on their industry expertise.
Insolvency is a complicated legal procedure. If you are contemplating bankruptcy, you should not move forward without qualified, professional legal counsel. Our organization does not provide legal or tax advice.""
" - https://www.affordablecebu.com/
