Bankruptcy Concepts, Essay Example

Introduction

Filing for bankruptcy may become inevitable sometimes depending on your financial status but this may not be allowed at all times by the law. There are many things that will to be looked at including your income as this will also determine what type of bankruptcy you file. Filing for bankruptcy may be the only way for you to regain your financial control although there are many alternatives for bankruptcy such as out of court settlements and debt consolidation loans. People can file for bankruptcy under chapter 7, chapter 11 or chapter 13 bankruptcy (City Bar Justice Centre, 2007).

In the state of New York, people can file for bankruptcy under Chapter 7 or Chapter 13 hence the client in this case would either file under these two as long as he/she qualifies. When someone wants to file for bankruptcy in New York, he /she can file in one of the four federal bankrupt courts available depending on where the person lives but you need to have stayed there for at least six months prior to filing for bankruptcy.

Can the Client File Chapter 7 Bankruptcy?

Chapter 7 provides one of the easiest ways for people in New York to file for bankruptcy and one of the conditions the client will have to meet is having few assets which he/she may not mind losing. Under Chapter 7, any amount of debt one has can be discharged as there is no minimum or maximum amount required and it also takes a short period of time for the case to end. The client can file for Chapter 7 if his/her client is below the median income as applies to the state of New York.

The income levels are about $ 45, 000 for a single wage earner, about $55,000 for a family of two, about $65,000 for a family of three and about $78,000 for a family of four. If the client has filed under Chapter 7 in the last few years which are less than eight years, then he/she may not be eligible for Chapter 7 again. The chapter only provides for people to file under it once every eight years.

As much as the client can file for Chapter 7, not all of the debts involved will be discharged as there are exemptions. These include child support, student loans, government imposed fines, drunken driving liabilities, business taxes among others (legal explorer, 2008). However, debts such as student loans may be dischargable but under special conditions which the client may have to prove (Neil Colmenares, 2005). For instance, the client may have to prove that he/she is in dire financial need for these types of loan to be discharged along with the rest.

Can the Client File Chapter 11 Bankruptcy?

New York State provides for Chapter 7 and Chapter 13 but sometimes Chapter 11 may also be used. This happens when the client has more secured and unsecured debts than those specified under Chapter 13. The said client has just over $400,000 in debt and may not need to use Chapter 11.  Chapter 11 applies to business corporations hence the client may consider this if it is a corporation.

Can the Client File Chapter 13 Bankruptcy?

Chapter 13 provides for individuals who would like a better prepayment plans for repaying all their debts which is usually in over three to five years. If the client feels it is better to pay all the debts and needs to do it on easier terms and conditions, Chapter 13 is open for him/her but only if the conditions are met.

The client can file for Chapter 13 bankruptcy but only he/she has a stable as well as disposable income and the income level is above that set by Chapter 7 as the limit. There are also limitations on the amount of secured and unsecured debts the client needs to have but generally, it should not be more than one million. If the client does not wish to lose property especially items such as cars and houses, he/she can file under Chapter 13 and bring them current so they can be repaid for and remain in his/her possession.

If the client has other loans such as student loans and child support that Chapter 7 does not cover then the only option would be to file under Chapter 13. The client can also file under Chapter 13 if he/she has previously filed for bankruptcy under Chapter 7 and the duration of time between the last and current bankruptcy filing does not allow for another one. Chapter 13 provides for people to file for bankruptcy as many times as they would like.

Advantages and Disadvantages of Filing for Bankruptcy

If the client files for bankruptcy, legal actions against him/her will stop and harassment from debtors will also stop (Legal explorer, 2008).  Hence, bankruptcy offers protection to the client and any debt collection activities or repossessions will stop. Filing for bankruptcy will also help the client keep some of his/her property especially the ones that have been exempted (Michael Schwartz, 2007). If the client files under Chapter 13, he/she may also be able to keep important properties such as cars and homes since foreclosure is avoided. Unsecured debts which the client may owe will also have to be discharged as both Chapter 7 and Chapter 13 provide for that.

One disadvantage of filing for bankruptcy is that it harms the client’s credit history which would make it difficult for him/her to acquire credit in future. However, this will only be the case for ten years and does not mean that the client may never be able to get credit ever (Neil Colmenares, 2005). Not all debts are discharged too especially when the client files under Chapter 7 and the client may still be required to pay for them. There are also a lot of costs that are involved when filing for bankruptcy such as credit counseling fees which is mandatory for all debtors to undergo apart from loss of property (City Bar Justice Centre, 2007). Unless the only option is to file for bankruptcy, sometimes it may be better to seek bankruptcy alternatives.

Client is a Partnership

Chapter 7 and Chapter 13 are considered mostly for personal bankruptcy while corporations may use Chapter 11 when filing for bankruptcy. If the client was a partnership, Chapter 11 would have been most appropriate for it as opposed to the other two. This is because it provides for asset liquidation and business reorganization among other issues when it comes to filing for bankruptcy in such a setting.

Conclusion

Before filing for bankruptcy, it is always important to know how it is going to affect you. This should only be used as a last resort when the alternatives will not do any good to your financial status. It is also important that you find a lawyer who will explain to you all that bankruptcy entails before making a decision. The lawyer is in a position to tell what kind of options you have and also assist you in the process of filing for bankruptcy.

References

Legal explorer. (2008). Answering your legal questions about bankruptcy. Legal Q & A. Retrieved January 16, 2010, from:<http://www.legalexplorer.com/legal/legal-QA.asp?PositionPoint=6&Sid=7>

City Bar Justice Centre. (2007). Personal bankruptcy: Is it right for you. Retrieved January 16, 2010 from: < http://www.abcny.org/Publications/pdf/Individual_Bankruptcy_Pamphlet.pdf>

Schwartz, M. (2007). Advantages/Disadvantages to Filing for Bankruptcy. Law offices of Michael S. Schwartz online. Retrieved January 16, 2010, from: <http://www.bankruptcysupportservices-blog.com/tp-070829170253.shtml>

Colmenares, N. E. (2005). Top 10 misconceptions about bankruptcy. CPA journal. Retrieved January 16, 2010, from; <http://www.nysscpa.org/cpajournal/2005/505/perspectives/p18.htm>