CHAPTER 17 Straight Bankruptcy: The Most Common Form of Bankruptcy

Mr. Smith makes a modest income and has few significant assets.

He rents an apartment. He is struggling to pay his rent because of his mounting credit card bills and other debts. He defaults on payments to many creditors and receives collection letters and phone calls every day at home and on the job. He has consulted with a credit-counseling service, and they have told him his best option is to file bankruptcy. What type should he file?

WORKING WITH A LAWYER

There are a number of ways for debtors to find bankruptcy at­torneys to represent them:

• The American Board of Certification certifies lawyers spe­cializing in bankruptcy. They divide specializations into con­sumer bankruptcy, business bankruptcy and creditors’ rights. You can search for such attorneys at Www. abcworld. org/search.

AN ALTERNATIVE FOR FARMERS AND \Ls FISHERMEN: CHAPTER 12

Family farmers and family fishermen have the option of a special type of bankruptcy under Chapter 12 of the Bankruptcy Code. It is one of a series of special farm aid provisions enacted to help farmers and fishermen sur­vive periodic economic slumps and save their family farms or commercial fishing operations.

When Are Debts Discharged?

The bankruptcy court enters a discharge order relatively early in most Chapter 7 cases, usually from four to six months after you file your petition. In Chapter 13 cases, you make full or partial payment to creditors under a court-confirmed plan over a period of time, which can be as long as five years, and then receive a discharge. However, remember that debtors cannot obtain a dis­charge under Chapter 7 or 13 until they have taken an approved course in personal financial management. (See chapter 15 for information on these credit courses.)

COUNSELING AGENCY IS "APPROVED&quot

Section 111 of the bankruptcy law provides that the bankruptcy court clerk shall "maintain a publicly available list" of approved agencies and "instructional courses" for would-be bankruptcy filers. The U. S. trustee or bankruptcy administrator must review the qualifications of nonprofit credit agencies to ensure that they meet certain standards. For example, the law requires that an agency be approved only if it can demonstrate that it:

YOU’LL STILL HAVE TO PAY THESE DEBTS

Ordinarily, after a bankruptcy discharge you must still repay:

• fines and penalties imposed for violating the law, such as criminal court fines and criminal restitution;

• debts your forget to list in your bankruptcy papers, unless the cred' tor learns of your bankruptcy case or the creditor could no longer file a claim after learning of the bankruptcy;

Getting Credit After Bankruptcy

A 2007 study by University of Iowa law professor Katy Porter de­termined that many consumers are able to receive credit even after filing for bankruptcy. Ninety-six percent of those who filed bankruptcy received credit card solicitations one year after filing for bankruptcy.

USE BANKRUPTCY WITH CAUTION

Bankruptcy may be the best, or only, solution for extreme financial hard­ship. But as noted earlier, it should be used only as a last resort, since it always has long-lasting consequences. The record of a bankruptcy can remain in your credit files for as long as ten years; this is a long time in today's economic system, in which so much depends on having good credit. Moreover, there are limits on how often you can fully benefit from certain forms of bankruptcy. Moreover, you may lose any equity you have in your home or car, since that property might be sold and the equity re­alized for the benefit of your creditors.

FILING FOR BANKRUPTCY

Filing for bankruptcy is a very personal, very serious decision. Most people file when they have made a good-faith effort to repay their debts, but see no other way out of debt. Once the de­cision has been made, a person or business may declare bank­ruptcy by filing a petition with the U. S. Bankruptcy Court—that is, a request that the court provide protection and relief under the Bankruptcy Code. The person filing for bankruptcy—the debtor—must provide information about his or her assets, liabil­ities, income, and expenditures, a certificate to prove that he or she has undergone credit counseling within 180 days of filing, tax returns, a photo ID, and evidence of recent payments from employers. Complete disclosure, candor, and honesty are re­quired. Often, debtors have a lawyer prepare and file their bank­ruptcy petitions and other information for them, although some debtors do represent themselves.

LEGAL FOUNDATIONS OF BANKRUPTCY

Article I, Section 8, Clause 4 of the Constitution authorizes the U. S. Congress to pass “uniform laws on the subject of bankrupt­cies throughout the United States.” In keeping with this autho­rization, Congress has created an intricate body of law that governs bankruptcy, most recently the Bankruptcy Abuse Preven­tion and Consumer Protection Act of 2005. This law builds upon the Bankruptcy Code that Congress passed in 1978, which was generally effective on October 1, 1979. The Federal Rules of Bankruptcy govern the procedure used in bankruptcy cases and proceedings. Federal bankruptcy judges hear such cases and pro­ceedings, and every federal judicial district has a bankruptcy court; there are ninety such courts in the United States.