Saturday, August 27, 2011

Advantages and Disadvatages of Filing Bankruptcy - Disadvantages: Part 1

While people many people, including attorneys, may concentrate on the positive aspects of filing bankruptcy, there are some important disadvantages that need to be taken into consideration, on a case by case basis, before filing. This is the first in a 5 part series of a few of those considerations. Before filing, you should consult with a local bankruptcy attorney.

Property At Risk Of Being Lost. While it is true people file bankruptcy to discharge debts, congress never intended for people to be able to keep a lot of stuff while discharge debts. So, what assets can a debtor keep? This will vary somewhat based on what chapter of bankruptcy you are filing, and what state and district you are filing in. Most states have elected to use state exemption laws to determine what one is able to keep, while other states have not elected such laws and use the Federal exemptions. And, if the paperwork you file with the court is not properly filled out, you can loose assets.

If you file a Chapter 7 bankruptcy and have more assets than what the exemption laws allow, then the non-exempt assets will either be administered or abandoned by the Trustee. What does this mean? Well, if the asset is administered by the trustee, it will most likely be sold, while property abandoned by the Trustee will simply be kept by the debtor. When the property is sold, often the buyer is the debtor. That's right, the debtor simply repurchases his or her property in order to retain ownership of their assets. In other cases, the assets are sold to a third party. The trustee then takes the proceeds, pays expenses of administering the estate and distributes the rest for the benefit of creditors.

So, what happens if there is too much stuff to repurchase, but want to keep everything? In this case, often people consider a Chapter 13 bankruptcy. They generally take 3 to 5 years to complete, and in the long run can cost more out of the debtors pocket, but the amount of payments to the trustee to repurchase assets in a Chapter 7 can be spread over 3 to 5 years. So, why not just do a Chapter 13? Well, the debtor also has to pay a trustee's fee, attorney fees are usually higher, and you are in the bankruptcy for a much longer period of time.

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