It wasn’t long ago that the idea of bankruptcy carried with it a strong stigma. People often associated the declaration of bankruptcy with an admission of shame in some way. And while it still isn’t likely that many individuals are proud of entering a Chapter 7 or Chapter 13 bankruptcy, they aren’t subjected to the same societal pressures of the past either. Likewise, few Massachusetts debtors speak openly about their experience with bankruptcy, but their friends and families are less shocked to learn of their insolvency than those in years past.
It might be difficult to understand for a debtor, but the bankruptcy system is actually an aspect of our legal system that all Americans should be proud of. In other countries, when a person or company becomes insolvent, all kinds of inefficient results occur. The individual might be imprisoned, where his creditors would receive no hope of repayment. Or, the creditors might simply institute a parade of lawsuits that the debtor, who is forced to spend the remainder of his money in Court, never has an opportunity to negotiate. Whatever other systems might exist, the U.S. Bankruptcy Code is one of the best. It allows companies and individuals to get out from under their debts and back into the productive side of the economy with unparalleled efficiency. The most common types of consumer bankruptcy filings are as follow:
Chapter 7 Liquidation of Assets
This is the Chapter of the bankruptcy code that most people are likely familiar with. Also known as “liquidation,” the end goal is to have all debts discharged, and many times all assets are liquidated as a result. With the exception of certain exemptions (these items depend on whether Massachusetts bankruptcy or the Federal bankruptcy exemptions are elected), the debtor will not really have any property left after a Chapter 7 filing. If the debtor didn’t have much in the way of assets to begin with, this is a fine result. If in the alternative there are certain assets that the debtor would like to keep, the Chapter 13 might be a better option. Another reason the debtor might file a Chapter 13 is because he or she simply makes too much money to qualify under a formula for income and family size called the “means test.” Visit our sister site to learn more about Chapter 7 means test in Massachusetts.
Chapter 13 Reorganization of Assets
As mentioned above, this Chapter helps debtors restructure or reorganize their assets and debts into a more forgiving payment terms. In exchange, because the debtor is not liquidating, he or she also has the option to retain those assets that he or she wishes to keep. An attorney can help assemble this payment plan that will eventually go before the trustee & court for approval. Like everything under the modern U.S. Bankruptcy Code, however, the plan must adhere to a formula based on the debtor’s family size, income, and total debt before it will be approved. Even then, roughly 2/3 of approved Chapter 13 repayment plans fail before repayment is complete. Whether because a source of income was lost, or because the debtor didn’t change his or her bad debt behaviors, there are infinite reasons why a debtor might not succeed in completing the plan. Whatever the reason or reasons, it is important that the Chapter 13 debtor and attorney adequately plan for unforeseen circumstances down the road.
Filing bankruptcy may be a difficult step to take, but it can also be a huge relief once the filing is done. If you or someone you know is considering such a filing, visit www.mabankruptcylaywers.com for the 24 hour review today.