Rebecca Wilder, the pen name for an "economist working in the financial services manufactures in Boston, Ma," had this headline in a December 28, 2009 newsneconomics.com article: "The Hottest Trend in 2009: Declaring Bankruptcy".
Jane Bryant Quinn kicked off the New Year with these comments in the January 12, 2009 issue of Newsweek: "Go bankrupt in 2009. If you're reaching the end of your rope, don't try to hold on. Save what you can."
Either these commentators know their stuff, or a lot of people are following their advice. A June 3, 2009 Usa Today narrative reported that consumer and market bankruptcy filings are on a pace to "reach a astonishing 1.5 million this year, according to a narrative from self-acting way to Court Electronic Records...In May, the number of bankruptcy filings reached 6,020 a day, up from 5,854 in April."
This is sobering information, especially in light of legislative reforms enacted in 2005 that made it more difficult to use bankruptcy as a legal procedure to erase debts. And while most of the increase in filings is due to the financial distress inflicted by a struggling economy, a change in attitude may also be a factor.
Some may now see bankruptcy as a preemptive part rather than an act of last resort. Quoting Bryant: "The right time to go bankrupt is when you're financially stuck but still have assets to protect." As more people file for bankruptcy, the collective stigma diminishes, individuals are taking a closer look at the legal and financial merits of a bankruptcy filing.
An summary of Bankruptcy
Bankruptcy has a long history, going back to aged times, because there have all the time been people who find themselves unable to pay their debts. While not an ideal solution, the process of bankruptcy provides a buildings for resolving this dilemma, for both debtors and creditors.
The word bankruptcy comes from the Latin bancus, the tradesman's counter, and ruptus, broken. (In Rome at the time of the Caesars, a merchant or tradesman unable to pay his debts would have his bench in the shop place whether broken or removed by a court-appointed official, who would then auction off the bankrupt person's asset to the top bidder.)
The first English bankruptcy law was passed in England in the late 1500s while the rein of Henry Viii, and provided the foundation for basis for bankruptcy laws in the United States. Under both Roman and English law, bankruptcy was not something an individual chose; rather it was forced upon them by their creditors. Also the seizing of assets, creditors could continue to examine reimbursement of all outstanding debts. If the debtor failed to repay, some laws allowed for imprisonment and even physical punishment.
Today, there are two basic forms of court-authorized bankruptcy: liquidation or reorganization. In the Us, liquidation is known as chapter 7 Bankruptcy, which refers to the chapter of the bankruptcy law that allows your assets to be sold off. Reorganization bankruptcies can fall under Chapters 11, 12 and 13, with 13 applying to most individuals. Chrysler and general Motors both filed under chapter 11. When you file for bankruptcy, the court prohibits your creditors from taking performance to derive debts without the approval of the court.
Chapter 7 - Liquidation
In a liquidation bankruptcy, you put your personal asset in the hands of the bankruptcy court, which sells it and uses the proceeds to pay your debts (or as much of your debt as possible). Once the process is completed, old creditors have no supplementary claim of payment, but the bankruptcy stays on your prestige history for 10 years, which may result in restriction or denial if you effort to borrow money while that time.
Under the new law passed in 2005, you may not have the option of filing a chapter 7 liquidation bankruptcy. If your earnings exceeds the midpoint earnings for the same size family in your state you must submit to a bankruptcy means assessment. This test essentially establishes a allocation for you, based on a minimum suitable of living. If after imposing this budget, the court believes that you have 0 or more per month in disposable earnings that you could apply towards your debt repayment, you may be pushed into a reimbursement plan under chapter 13 instead of qualifying for chapter 7.
Chapter 11, 12 or 13 - Reorganization
In any reorganization bankruptcy, the filer submits a reimbursement proposal to the bankruptcy court. Payment plans commonly cover three to five years, and not all debts receive equal treatment. The law requires that some debts must be repaid in full, while others may need a percentage, and some may not be repaid at all.
There are some debts that cannot be discharged or "forgiven." These comprise debts you forget to list in your bankruptcy papers, child retain and alimony, most pupil loans, fines and penalties as a result of breaking the law, tax debts, and judgments for personal injury or death caused by driving while intoxicated.
During the reimbursement period, the court will place restrictions on how you can spend money. In many cases, wages will be garnished by a trustee of the court, who will make the payments to your creditors.
Provided you make your payments as promised, it is possible that creditors will grant you prestige at the end of the reimbursement period. But the bankruptcy will stay on your prestige history for six years.
Asset safety in Bankruptcy
Bankruptcy laws allow filers to exempt sure types of assets from liquidation for village with their creditors. Typical exemptions comprise homesteads or personal residences, powerful relinquishment accounts, college salvage accounts and some types of trusts. These exemptions are designed to keep filers from losing everything, but often create some possible ethical and legal challenges - with necessary adverse financial consequences if abused.
Federal government allows each state to decree which assets are exempt, and there can be quite a divergence in which assets qualify. Some states have generous exemptions, some do not. When individuals are contemplating bankruptcy, they may perceive that sure assets might be excluded from bankruptcy if the asset could be transferred to someone else. Or they might finish that it would be advantageous to construct home in a different state, because the bankruptcy exemptions are more favorable. This awareness leads to what some bankruptcy attorneys call "exemption planning."
While some measures can be taken to enhance the status of exempt assets, individuals must understand that "transfer of assets prior to filing is commonly a 'no-no,' " according to Leon Bayer, a Los Angeles Bankruptcy lawyer with 29 years of experience, in a legal guide posted on avvo.com. Bayer continues: "Do not hide, conceal, transfer, or falsely encumber non-exempt assets. Doing so carries the risk of being prosecuted for committing bankruptcy crimes, it is likely to result in the denial of a bankruptcy discharge, and the trustee can still recover such property, or its value, from whoever it was given to."
The significance of Correctly Positioning Assets
Indirectly, the issue of bankruptcy emphasizes the significance of forward-thinking risk management. While you know you can's expect to replacement assets in expectation of filing bankruptcy, the ramifications of a possible hereafter bankruptcy may cause you to consider how your assets are owned right now. In the event of a financial setback, one that might result in whether bankruptcy or a lawsuit, which assets would you want protected? Planning (and action) undertaken now might be your best defense against sacrificing years of hard work to satisfy creditors or litigants.
Nobody wants to file bankruptcy. Nobody wants to be in an automobile accident, either. But while most responsible individuals identify the value of auto insurance, a much smaller ration certainly result through on securing "insurance" on their assets, whether through the vehicles they use, or the financial structures around them.
Because of bankruptcy's complicated legal issues and the variations between different states, it is prominent that any asset transfers be supervised by competent legal counsel. The licensed insurance or venture professional you work with should be made aware of your intentions, as they can provide aid with the details of properly titling assets, from the perspective of their manufactures expertise.
Bankruptcy is a complicated legal process. For whatever contemplating bankruptcy, you should not go forward unless you have retained qualified, professional legal advice. Our firm does not offer legal or tax advice.
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