Principles of Bankruptcy

Your Property -- Filing for bankruptcy protection creates what is called the bankruptcy estate. Your bankruptcy estate will include all of your property, except what is exempt by state or federal Bankruptcy Law. The assets included in the bankruptcy estate will be liquidated in order to pay your creditors.

Exemptions from the bankruptcy estate differ from state to state. A bankruptcy trustee will be appointed by the court to manage the bankruptcy estate, except in North Carolina and Alabama, where the person is called a bankruptcy administrator. It is best to consult a qualified Bankruptcy Attorney to determine what exemptions will apply to you. According to information on the bankruptcy courts’ Web site, no property is ever taken in over 90% of the bankruptcy cases filed.

Any property that was recently given to friends or family will also be considered part of the bankruptcy estate. If you have been tempted to simply give away your property or pay select creditors as a way of avoiding losing property in bankruptcy, the courts and bankruptcy trustee will likely consider this as an attempt to hide assets and reject your petition or bankruptcy plan. If you have already given property away, just make sure that you are up front and list it on the petition. The trustee may reclaim the property from the person you have given it to if they determine that it was given away to prevent creditors from getting any benefit from the property.

Community Property Information -- Property that you own with your spouse is also part of the bankruptcy estate. All property either spouse earns during marriage is owned jointly by both spouses and should be included in a bankruptcy petition. Accordingly, most debt incurred by either spouse is considered community debt even if it is in only one spouse’s name. This does not mean that you must both file bankruptcy. There are times when it is perfectly acceptable for only one spouse to file.

Retirement Accounts -- Most often your retirement accounts are exempted from the bankruptcy estate. Since it will be outside the bankruptcy estate, the accounts are will not be administered by the bankruptcy trustee. Bankruptcy is not designed to punish you. The court and the trustee understand that taking your retirement savings would be detrimental to your future.

Exemptions -- Bankruptcy Exemptions are used to allow you to keep property that is important in rebuilding your life after bankruptcy. The amount and type of exemptions available to you depends upon the state in which you live. Some states allow the petitioner to choose to have either the federal or state exemptions applied to their case. Other states dictate that only the state exemptions can be used.

The Discharge -- A bankruptcy discharge gives you a legal fresh start free of the crippling debt that has caused your financial crisis. Whether it is medical bills from an unforeseen illness or credit card debt that just got out of control, the discharge provides you with a chance to rebuild your finances without the harassment of debt collectors. It comes once you have formally completed the requirements of your particular case and begins your freedom from debt. In a Chapter 7 case, the discharge comes in the mail from the bankruptcy court approximately 2-3 months after your meeting with the trustee. Discharge from a Chapter 13 case comes after all of the payments devised in the plan have been made. A reliable bankruptcy attorney will assist you throughout the process.

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