Bankruptcy is a legal process in a specialized federal court to help individuals and businesses get rid of debt or repay debts under the protection of the bankruptcy court. All bankruptcy cases are filed in federal bankruptcy court in the area where you live or where your business is located. There are two main categories of bankruptcy: “liquidation” and “reorganization.” Liquidation bankruptcy (also called Chapter 7 bankruptcy) is usually used by individuals (and sometimes by businesses) whose expenses are greater than their income, and who cannot pay their debts. One of the main purposes of liquidation bankruptcy is to wipe out certain debt and give you a fresh start. In an individual liquidation bankruptcy, the court will discharge certain debts that you owe, which means that the debts do not have to be paid. In exchange for the discharge, though, your nonexempt property (if any) may be sold, and the money used to pay your creditors. Reorganization bankruptcy can be used only if you have sufficient income to pay most of your debts over a period of time. There are several types of reorganization bankruptcies, but Chapter 13 is the type most commonly used by individuals or consumers. In Chapter 13 bankruptcy, you keep all of your property, but you must make monthly payments over three to five years to repay all or some of your debts. Reorganization bankruptcy requires that you file a repayment plan that has to get approved by the bankruptcy court. Once you have filed bankruptcy, your creditors cannot go after your assets by garnishing your wages, repossessing your car, foreclosing on your house, or cutting off your utility services. This is called the “automatic stay.” At the end of the bankruptcy process, all of your debts are discharged or wiped out, except those debts that cannot be discharged in bankruptcy, such as child support, spousal support, student loans (except under extraordinary circumstances), and most tax debts.
Bankruptcy laws focus on helping individuals solve and repay their debts after they have suffered heavy losses. In Utah, there were bankruptcy laws as early as 1800. However, the first voluntary bankruptcy laws were allowed through the Acts of 1841 and in 1867. These laws along with the Bankruptcy Act in 1898 also called the Nelson Act are what our modern debtor/creditor relation system are based on. It is common to hear that a person in a bad financial situation may “declare bankruptcy. Bankruptcy law is not always the first career path that law students think of, but it can be quite exciting and fulfilling.
Where Do Bankruptcy Laws Come From?
Federal bankruptcy laws, which govern nearly all bankruptcy proceedings, are statutory laws outlined in Title 11 of the United States Code. Because one code governs all bankruptcy proceedings in the country, this area of law tends to be very uniform and precise. In fact, many bankruptcy attorneys find this area of practice enjoyable for that very reason – often the answer they are searching for is outlined directly in the code itself. In particular, there are three common types of bankruptcy proceedings. Chapter 7 of the Code applies to individual petitions, while Chapter 11 proceedings are filed by businesses. Finally, Chapter 13 proceedings govern wage earners; petitions under this chapter ask the court for more time to allow a debtor to pay off his or her debts while earning a steady income.
What Do Bankruptcy Lawyers Do?
Bankruptcy lawyers may work on behalf of debtors (the individuals or businesses who owe the debt) or creditors (the individuals or entities to whom a debt is owed). In a bankruptcy proceeding, the ultimate goal is to benefit both the debtor and the creditors, by allowing creditors to become satisfied while still allowing debtors a fresh start financially. Bankruptcy lawyers on both sides of the equation work to facilitate this goal. On a typical day, a lawyer working on a bankruptcy case may draft motions and proceedings to be filed in court, as well as draft responses to motions and other filings. Bankruptcy lawyers engage in and review discovery documents, and hold meetings with clients and adversaries to discuss how best to move forward. Motions filed in bankruptcy cases will be set to be heard by the court, and lawyers will have to be prepared to argue them. However, junior attorneys in bankruptcy firms may not always get to court to argue these motions – that practice is often left up to the more experienced attorneys.
Because of the variety of tasks performed by a bankruptcy lawyer, a variety of skills are needed as well. Bankruptcy lawyers must have a strong understanding of the Bankruptcy Code, as well as excellent legal research and writing skills. Lawyers in this field must be prepared to communicate with clients, as well as negotiate with adversaries in pending proceedings, so strong “people skills” are a must. Finally, litigation skills are a necessity, even though newer attorneys may not argue in court right off the bat. Bankruptcy lawyers should be ready to argue motions filed in court at any time; a full understanding of the filings involved, as well as well-practiced speaking skills, are a must in this field.
How Can Law Students Prepare For A Career In Bankruptcy Law?
Bankruptcy law is a growing field right now, so this is a good time for law students to look for careers in this area of law. Many firms offer a bankruptcy practice, which typically involve a heavy workload. Students interested in working in this field should look to apply to both small and large firms with an active bankruptcy practice. While in law school, most students will have the opportunity to take a course in bankruptcy law. However, bankruptcy itself is not the only useful class for future bankruptcy lawyers. The following classes will all help to hone the skills and knowledge necessary for those who wish to work in the bankruptcy field:
• Bankruptcy Law
• Consumer Finance
• Tax Law
Bankruptcy is a growing area of the law offering more and more career opportunities for new lawyers. While attorneys in this field must utilize a variety of different skills each day, law students can start preparing early for a career in this fast-paced environment. Attorneys in bankruptcy enjoy the field because the laws are straightforward and the objective is to satisfy everyone involved in the proceedings.
Should You File For Bankruptcy?
Attorneys help clients look objectively at their finances to decide whether a fresh start through Chapter 7, a reorganization of debt through Chapter 13 or another option is best for their situation. If any of the below situations apply to you, bankruptcy could be a good option:
• You are falling behind with mortgage payments and need time to catch up.
• You are living off your credit cards to pay for basic necessities.
• You borrow from one credit card to pay other credit cards.
• You are behind on your car payments and cannot foresee getting caught up.
• Your creditors are demanding more than you can pay.
• You have tax debt.
• You can only pay the minimum on your credit cards.
Draper Utah Advantages and Disadvantages to Bankruptcy
Declaring bankruptcy allows individuals or businesses that are unable to pay their debts to resolve their financial difficulties and start rebuilding their credit. Filing for bankruptcy has many advantages and disadvantages, depending on your situation.
Disadvantages of Filing for Bankruptcy
Because filing for bankruptcy may affect your finances for many years, you should carefully weigh all of your options before filing. Some disadvantages are:
• If you are unable to exempt all of your personal property or real estate under the bankruptcy exemptions, some of your property may be seized by the bankruptcy court and sold to pay your creditors.
• Your bankruptcy will be noted on your credit report for 7-10 years.
• Many credit card companies will automatically cancel your credit cards when you file for bankruptcy. You will have difficulty getting new credit cards or lines of credit.
• A recent bankruptcy filing may hinder your ability to obtain a mortgage or loan for many years.
• Tax refunds from federal, state or local governments may be denied based on your bankruptcy.
• If you are looking for a job or housing, some employers or landlords may look unfavorably on a recent bankruptcy filing.
• You may be precluded from being named a director for limited liability companies.
• After your bankruptcy, some debts, such as student loans, many types of tax debts, liens, support orders (such as child support and alimony), federal and local taxes or fines may be non-dischargeable.
• If you file for Chapter 7 bankruptcy, you will need to wait if you want to file again for at least 8 years. Therefore, if more financial difficulties pile up, you will be precluded from filing for bankruptcy again for some time.
• It can drive up your insurance premiums.
• It can impact a search for employment, since some potential employers run credit checks on candidates for employment.
• Bankruptcy can be embarrassing.
While the last point might seem trivial compared to the other disadvantages, bankruptcy carries a serious stigma, and personal bankruptcy more so. However, it’s important to not let yourself avoid the benefits of bankruptcy (as seen below) just so you can also avoid embarrassment.
Advantages to Filing for Bankruptcy
Despite its disadvantages, in many cases, filing for bankruptcy is the correct course of action. The advantages of filing for bankruptcy are:
• Filing for bankruptcy will trigger the automatic stay, preventing creditors from taking action to collect their debts, prevent creditors from repossessing property such as cars, including calling you, suing you, or sending you letters. This also puts a stop to many evictions, foreclosures, wage garnishments and utility shutoffs.
• You may be able to discharge your obligation to repay any of your dischargeable debts.
• By using the bankruptcy exemptions, many debtors can go through the bankruptcy process without losing any of their property.
• While a bankruptcy filing will remain on your record for 7-10 years, because many debts can be discharged in bankruptcy, many debtors begin improving their credit rating after filing for bankruptcy.
• Without credit cards, you can learn to live within your income and prevent future financial catastrophes.
• Debtors declaring personal bankruptcy are required to take credit counseling. Therefore, you’ll have education to guide you as you rebuild your credit and learn new financial habits.
Can Your Request for Bankruptcy Be Denied?
Petitions for personal bankruptcies are not denied often, but it is a possibility. One potential reason for denying a debtor’s bankruptcy is dishonesty. If the debtor tried to hide financial assets and records, and this is discovered, their bankruptcy may be denied. The notion behind bankruptcy is total honesty about one’s financial status, and the necessity of creating a clean slate, financially. Bankruptcies may also be denied for technical reasons. For instance, if paperwork work is not timely or is otherwise filed incorrectly, or other conditions for filing a bankruptcy are not met, the bankruptcy petition may be thrown out. It is also possible for the court to convert the debtor’s type, or “Chapter,” or bankruptcy, to one that is deemed more suitable to the debtor’s circumstances. It is best to be completely honest about your financial situation, and handle (or have your lawyer) handle all technical aspects of the proceedings correctly in order to make a bankruptcy petition worth your while.
Who is Eligible to File for Bankruptcy?
To be eligible to file for bankruptcy, within the last six months, you:
• Must have completed credit counseling
• Must not have had a bankruptcy case dismissed due to non-compliance with the court
• Must not have dismissed your own bankruptcy case to prevent creditors from recovering property
How Do I Recover From Bankruptcy?
If you do go through with bankruptcy, it’s important to start rebuilding your financial life right away. While it takes a long time for your credit score to recover, you have a lot of say in how quickly it gets healed.
Here are some steps to take post-bankruptcy:
• Understand why this situation happened. If poor money habits were the culprit, develop a plan to ensure that history doesn’t repeat itself.
• Make and stick to a budget.
• Start rebuilding your credit by responsibly using it. Consider getting a secured credit card.
• Keep track of your credit by obtaining regular free credit reports.
• Build up an emergency fund, so you don’t need to be reliant on credit in a financial jam.
Types of Bankruptcy
The four types of bankruptcy are named for their respective chapters in the Utah Bankruptcy Code. The type of bankruptcy that you file depends on several factors, including whether or not you are an individual or part of a corporation.
• Chapter 7 is what most people mean when they say, “I’m filing for bankruptcy.” This is a liquidation bankruptcy, which means that the trustee sells off all non-exempt assets held by the debtor so that the debts can be repaid to the fullest extent possible. Individuals, corporations and partnerships are all eligible for Chapter 7 bankruptcies. The portion of the debt that can’t be repaid through liquidation is discharged. Businesses generally try to avoid Chapter 7, because it is impossible to conduct business operations. Income generated after the bankruptcy filing is not a part of the bankruptcy — the debtor can keep it.
• Chapter 11 is the most complex bankruptcy filing and the one that most troubled businesses file (although some individuals may file it as well). In a Chapter 11 bankruptcy filing, the debtor continues to function, maintains ownership of all assets, and tries to work out a reorganization plan to pay off creditors. In the past, a business had an almost unlimited amount of time to come up with their reorganization and payment plan. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 impose a 120-day time limit. If the debtor has not submitted a plan within that period, creditors can submit their own plans.
• Chapter 12 is specifically for farm owners. The debtor still owns and controls his assets and works out a repayment plan with the creditors.
• Chapter 13 is like Chapter 11, but for individuals. The debtor retains control and ownership of assets. He also works out a three to five-year repayment plan. Some portion of the debt may be discharged, depending on the income of the debtor. There are also limits on the amount of debt involved.
Lastly, here are a few key bankruptcy terms you’ll want to familiarize yourself with:
• Debt adjustment – The arrangements made for the repayment or satisfaction of debts in an amount or manner that differs from the original arrangements
• Dischargeable debts – Debts that can be erased by going through bankruptcy
• Non-dischargeable debts – Debts that cannot be erased by filing for bankruptcy
• Lien – A charge or encumbrance upon property for the satisfaction of a debt or other duty
• Secured debt – A debt on which a creditor has a lien
• Unsecured debt – A debt that is not tied to any item of property
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506