Bankruptcy allows individuals and businesses to eliminate, reduce and/or extend debt. We represent clients under all chapters of the bankruptcy code (Chapters 7, 13 and 11).
One alternative to bankruptcy is a negotiated settlement
with one's creditors. However, extreme caution needs
to exercised here, since as recently reported in the
New York Times, debt settlement companies that promises
large reductions on the debt for allegedly only small
amounts paid by the consumer are often disappointing
and potentially fraudulent. As reported in the New York
Times in several articles, the New York State Attorney
General's Office has initiated an inquiry into the debt
settlement industry based on their charging of large
fees for relatively modest results.
Federal bankruptcy law (Title 11 of the United States Code,
otherwise called the "Bankruptcy Code") was enacted
to allow the honest debtor, who is unable to meet his/her
financial obligations, to obtain a fresh financial start
or to reorganize his/her financial affairs. Bankruptcy
law accomplishes this goal by providing debtors with a
legally enforceable mechanism through which they may: (1)
eliminate, reduce and/or extend most debt, and (2) protect
themselves, subject to certain qualifications, during the
bankruptcy case, from pursuit and harassment by their creditors.
At the same time that bankruptcy law seeks to give relief
to the debtor, it is also the goal of bankruptcy law to
deal equitably with a debtor's creditors by: (1) protecting
the creditors against fraud, (2) treating similarly situated
creditors in an equal manner, and (3) providing the creditors
with constant notice and an opportunity to be heard during
the bankruptcy case.
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Who Can File for Bankruptcy
Protection?
With only certain limited exceptions, an individual (alone
or together as a married couple) or a business (a sole
proprietorship, partnership, or corporation) may file for
bankruptcy protection. While debtors filing for bankruptcy
protection are usually "insolvent" (meaning that
they are either unable to pay their debts as they become
due, or that their liabilities are greater than their assets),
insolvency is not a requirement for a voluntary bankruptcy
filing.
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What Are the Potential
Benefits of a Bankruptcy Case?
A bankruptcy filing is often used as follows:
By individuals to eliminate overwhelming credit card debt, medical bills, and other types of debt;
By individuals or businesses to save their house or other real property from foreclosure or to save their car or other assets from repossession;
By businesses, under a cash flow squeeze to obtain a "breathing spell" from their creditors in order to reorganize their financial affairs or to sell off assets;
By individuals or businesses to extend or resolve burdensome tax liability; and
By businesses to stop eviction from leased real property or repossession of leased equipment.
The above uses of bankruptcy are not exclusive and a bankruptcy
case can be used for other purposes. However, an individual
or business contemplating filing a bankruptcy case should
carefully review their goals with a bankruptcy attorney since
bankruptcy law can be complex. A bankruptcy attorney will
be able to determine whether the above goals can be achieved
depending upon the particular circumstances of a situation.
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What Are the
Alternatives to Bankruptcy?
While filing for bankruptcy protection is often an option
chosen by debtors in resolving serious financial problems,
there are also non-bankruptcy options that may provide
an alternative to a bankruptcy filing. Some of these options
involve out of court "workouts" or settlements
with creditors. Other options entail answering the creditor's
complaint (within 20 or 30 days) and defending against
a creditor's pursuit of debt by either challenging the
legitimacy of the debt or the methods by which the creditor
has attempted to pursue the debt.
In some situations, non-bankruptcy options are available
and preferable. However, a bankruptcy filing is often the
most direct and powerful tool for a debtor to deal with serious
financial problems. Nonetheless, it must be stressed that
bankruptcy is not the solution for every problematic financial
situation, and that in some cases, bankruptcy entails certain
risks.
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What Are the Basic Types
of Bankruptcy Cases?
There are three basic types of bankruptcy cases: A Chapter
7 liquidation, a Chapter 13 "wage
earner's bankruptcy," and a Chapter
11 reorganization. These basic types of bankruptcy cases
are named after their respective chapters in the Bankruptcy
Code and are appropriate to different situations. A Chapter
7 bankruptcy case may be used to eliminate or "discharge" most
debts of an individual or to liquidate a business. A Chapter
13 bankruptcy case may be used by an individual or by
a sole proprietorship business, that has a regular income,
in order to pay debt over a period of time, and is often
used by debtors who seek to save their house or other real
property from foreclosure or individuals with other problematic
debt who do not choose Chapter 7 because
of equity in their assets. A Chapter
11 reorganization case may be used by a business or an
individual to reorganize its financial affairs while continuing
to own, manage, and operate its property.
The mechanics, requirements, and rights involved in these
different types of bankruptcy cases vary drastically and
how they may apply to a particular case can also vary greatly
depending on the particular circumstances and parties involved
in a case.
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Can a Credit
Rating Be Rebuilt After a Bankruptcy Filing?
Persons and businesses contemplating filing for bankruptcy
protection are often undergoing serious financial problems
that have already, or will shortly in the future, appear
on their credit reports. While a bankruptcy filing would
also appear on a person's credit report, the bankruptcy
filing has the advantage of dealing with and potentially
solving some of the financial problems inherent in the
situation. Therefore, after a bankruptcy filing, a person
is often better situated to repay new creditors and in
time can be a better credit risk than they were prior to
the bankruptcy filing. A bankruptcy attorney can advise
persons filing for bankruptcy protection as to the methods
by which they can rebuild their credit rating.
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When
can or should a bankruptcy case be filed?
A bankruptcy case becomes an option when a person or family
is unable to pay its bills as they become due. If this
is a temporary problem and it is possible to catch up
with unpaid bills, a bankruptcy case may not be necessary.
But if the problem persists and the household is falling
further behind, than the bankruptcy option should be
considered. When credit cards and other bills are not
paid for several months they start to call to demand
payment. When they fail in resolving their debt they
turn over the account to collection attorneys who start
litigation to obtain a judgment. This process usually
occurs between five (5) months to one (1) year. Therefore
if you are overwhelmed with bills and do not expect your
finances to improve in the coming months the bankruptcy
option should be considered. If you have been in collections
already and there are judgments threatened or already
obtained against you, it is detrimental to your finances
and to your credit rating to allow such difficulties
to persist and a bankruptcy case to protect your wages,
bank account, assets and credit rating becomes advisable
in the majority of situations. The bankruptcy case will
immediately protect you from your creditors and help
you to discharge or eliminate the obligation to pay the
vast majority of debts, such as credit cards, personal
loans and hospital bills. In most cases you will be able
to keep your cars and home. Please call us to discuss
whether a bankruptcy case will help you with your financial
difficulties.
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