Bankruptcy laws are intended to protect people from creditors and the bankruptcy option has been used by many successful and bright people. Insolvency leads to bankruptcy and the need for bankruptcy protection. Bankruptcy provides a way to begin anew. There are three bankruptcy options in the United States. Depending on your country, the laws may be different:
Chapter 13 Bankruptcy
Provides for creation of a plan for partially satisfying your creditors with a payment arrangement over a period of time.
Chapter 11 Bankruptcy
Refers to businesses reorganization.
Chapter 7 Bankruptcy
Allows most or all debts to be discharged.
What does bankruptcy do?
When you or your company files for bankruptcy it generally will automatically and immediately put a stop to creditors’ collection attempts. Filing for Chapter 7 may cancel most of your debts without requiring further repayment. This can also include taxes owed. In certain cases surrender of non-exempt property may be required.
Bankruptcy requires prudent planning. Many have rushed into filing bankruptcy but still lost their property, had non-discharged debt, and remaining tax liabilities.
Planning can produce a structure in which some assets remain for the benefit of your family after filing bankruptcy. Planning can ensure that nothing is owed to the state or the IRS. In the event bankruptcy is necessary, an attorney can provide advice on benefits and safeguards that can be taken. Defrauding the courts will prevent debts from being discharged and will incur court costs and interest along with subjecting you to possible criminal charges.
A few states have specific laws regarding asset protection and bankruptcy, so in these states filing bankruptcy provides a state exemption against all creditors. In Chapter 13 bankruptcy an asset protection plan can allow payment of arrears on a car loan, mortgage, or other loans to prevent asset seizure.
Filling for Bankruptcy and Your Assets
Bankruptcy and the assets you own will be discussed when you meet with your lawyer. To exempt assets from liquidation the lawyer will file the necessary paperwork. Otherwise creditors can demand assets be liquidated. Furthermore, a debtor increases the risks of loss of assets to creditors if a lawyer is not consulted. To move assets from one person to another does not protect those from creditors. If any property exchange has been made within the year creditors can take a look back to see that. The new owner of the property can lose the property if a creditor finds that the debtor has moved the property to another owner. This is called a claw back rule. A denial of discharge can take place in the case of giving away or selling property.
If you are filing for bankruptcy, it is not necessary to surrender all assets because not all of the physical property is on the exemption list. Creditors have no right to property until the court declares thatthe property is no longer exempt.