Let us navigate the complexities of bankruptcy so you come out in a manageable position.Bankruptcy in sacred text

In advising a bankruptcy client, I often refer to sacred texts that may hold some weight with the debtor. The Old Testament teaches that every seventh year was decreed as a Sabbatical year wherein all debts were released (Leviticus 25:8-54, and Deuteronomy 15:1-3).

The Quran states, “And if someone is in hardship, then let there be postponement until a time of ease. But if you give from your right as charity, then it is better for you, if you only knew.”- Sura Al-Baqara Verse 280.

Bankruptcy has been with us throughout the course of human history. It is a safety valve with which society tempers commerce and credit. Even in societies thought to be lawless, you will find bankruptcy. Even the Yassa of Genghis Khan outlined bankruptcy, however it contained a provision that demanded the execution of anyone who became bankrupt three times.

Chapter 7 Bankruptcy

In Chapter 7, a trustee is appointed to review your property. Any property of value that can not be exempted under either federal or state laws will be liquidated to pay creditors. This is why it is so important to find an attorney with a strong grasp and understanding of the exemption laws and case law. Such an attorney will be able to assure or warn their client usually in the first consultation whether or not any of their personal or real property will be subject to abandonment by the trustee (left to the debtor) or will be assumed by the trustee (taken for liquidation).

In a chapter 7, the filer will receive a discharge of all unsecured debt (not attached to collateral, ie. House, car, or jewelry) owed prior to filing. It also allows discharge of tax debt assessed more than three years before filing and provides an automatic stay of all court proceedings. Also, you can discharge the deficiency on a home mortgage and abandon the property without fear of reprisal, stops wage garnishment, and ends bank executions.

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, you may keep your property, but you must earn wages or have some other source of regular income to be able to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you and pay your creditors.

In a Chapter 13, you will save your home and force the bank into a payment plan on your arrearage. You can discount your unsecured debt to a smaller percentage based on your current income. You can keep valuable assets as long as you can make your payments. Most people filing a 13 bankruptcy are actually in need of the automatic stay to avoid a strict foreclosure or foreclosure by sale. The filing of such a case will immediately stop the foreclosure process and give your client enough time to make other plans such as raising enough money to come up to date with the mortgage or entering into a modification or forbearance agreement with the bank.

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