Bankruptcy Law Information
General Bankruptcy Law Questions
Is bankruptcy bad?
In calendar year 1999, approximately 1.3 million individuals sought the relief from debts and claims of creditors by filing for bankruptcy, down slightly from the 1.4 million in calendar 1998. With that huge number of people seeking relief from their debts and the claims of their creditors, much of the stigma of "going bankrupt" has gone away.
In addition to providing relief from debts and obligations for individuals, hundreds of such long established blue chip companies as Dow Corning, Montgomery Ward, Penn Central and Texaco have used the provisions of the bankruptcy laws.
Are there different types of bankruptcy?
Yes, and they are known by the title of the Chapter of the Federal Bankruptcy Act in which they appear. Each "Chapter" contains a different set of laws and rules.
What debts are not discharged by bankruptcy?
Not all debts are discharged. In general, liens (such as mortgages and security interests in cars) are non-dischargeable as are some other types of obligations including:
(1) Federal, state and local tax claims (subject to specific time rules)
(2) Customs duties
(3) Spousal support
(4) Child support
(5) Most student loans
(6) Secured debts
(7) Fines and penalties imposed by government agencies
(8) Debts incurred due to false statements made with the intent to deceive
(9) Fraud committed in a fiduciary capacity, such as embezzlement or larceny
(10) Punitive damage claims for "willful and malicious" acts
(11) Debts not listed on the forms and schedules filed with the Court
(12) Drunk driving obligations
A non-dischargeable debt is one that will survive the bankruptcy proceeding. The debtor still has the obligation to pay this debt; the creditor has every right to collect.
Can a creditor ask a debtor to reaffirm the debt?
Yes, this means that the creditor is asking that the debtor pay the debt anyway, even after it has been discharged. A debtor may be willing to do this if there is a co-signer or guarantor of the debt (such as a family member, friend or employer) that the debtor does not wish to leave saddled with the debt. Also, a debtor may want to reaffirm a debt in order to avoid having a secured creditor take the collateral securing the debt. A creditor may also ask a debtor to reaffirm the debt before he (the creditor) will agree to do business with the debtor again.
It is important to remember that a reaffirmed debt is not wiped out (discharged) in bankruptcy. Once you reaffirmed a debt, you cannot stop. If you do, the creditor can sue you (or repossess the property) for the balance owed.
This only applies in Chapter 7 consumer bankrutpcy. This will not happen generally in a business Chapter 7.
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