INFORMATION ABOUT BANKRUPTCY

If all of your efforts to resolve your credit problems have failed, the filing of a bankruptcy petition may be the only logical answer to your problem. However, you should carefully consider whether this is a rational step, since filing bankruptcy can have other serious consequences affecting your credit for years to come in the future.

We hope that the questions and answers presented here will assist you in familiarizing yourself with bankruptcy issues and terms. While the material below attempts to answer common questions in this area, nothing provided here is a substitute for the advice of competent counsel. We strongly urge you to consult with an attorney licensed to practice in your state about any particular legal problem you may have.

WHAT IS BANKRUPTCY?

Bankruptcy is a legal proceeding commenced in Federal Bankruptcy Court, through which an individual, couple or business seeks relief from debts and obligations which have become too burdensome. The purpose of the bankruptcy law is to halt the legal actions of creditors, relieve you of serious financial problems, and give you a fresh financial start.

WHAT IS A "CHAPTER 13" BANKRUPTCY?

The "Chapter 13" or "Wage Earner" bankruptcy may be the most helpful form of bankruptcy available to an individual. Contrary to its name, the Chapter 13 petition is available both to individuals receiving public assistance or other forms of regular income, as well as individuals receiving regular wages. In this form of bankruptcy, you consolidate your debts and thereafter repay either the total amount of the debt or a portion thereof, depending upon your particular situation. A Wage Earner Plan allows you to bring any arrearages on secured loans such as your mortgage up to date during the 3 to 5 years proposed in your bankruptcy plan. The bankruptcy plan will also resolve your unsecured debts by either requiring you to pay only a portion of them or, in some instances, providing a nominal sum for these creditors. Under either circumstance, the balance of the debt will be fully discharged when the plan is completed. Finally, all legal proceedings involving your debts are suspended for the duration of the bankruptcy plan.

WHAT IS A "CHAPTER 7" BANKRUPTCY?

The other common form of bankruptcy is the "Chapter 7" or "Liquidation" petition. This type of bankruptcy also suspends all legal proceedings. However, there are no provisions for bringing delinquent secured debts current.

Moderate amounts of furniture, appliances, clothing, jewelry, money in the bank, and equity in a vehicle or your home may be totally exempted under the U.S. Bankruptcy Code from sale by the court appointed trustee. If your assets do not exceed these statutory exemptions, your case, like most consumer Chapter 7 bankruptcy petitions, will be treated as a "no-asset" case, where the court appointed trustee will not sell off any assets. Instead, the trustee will discharge or forgive whatever unsecured debt you have simply based on your not having enough money to afford a reasonable monthly payment schedule. If, however, your assets exceed the statutory exemption, the trustee will attempt to sell any non-exempt assets and distribute the proceeds to your creditors.

HOW LONG WILL THE BANKRUPTCY BE ON MY CREDIT REPORT?

The fact that you filed bankruptcy will appear on your credit history maintained by the various credit reporting agencies for ten (10) years after the commencement of your bankruptcy proceeding. This information may make it extremely difficult, if not impossible, for you to again obtain credit cards or loans.

ARE PENSION PLANS PROTECTED FROM BANKRUPTCY CLAIMS?

According to the 1992 United States Supreme Court holding in Patterson v. Shumate, the Employee Retirement Income Security Act (ERISA) protects benefits from Title I qualified plans from bankruptcy claims.

WHAT ARE TITLE I PLANS, AND WHAT ARE NOT?

Most large pension, profit sharing and 401(k) plans are Title I plans. Some examples of non-Title I plans are corporate plans that cover only the owner (or the owner and spouse), IRAs that are not part of a simplified employee pension (SEP) arrangement, most non-qualified deferred compensation arrangements, and tax-sheltered annuity arrangements that do not provide employer matching or profit-sharing contributions.

DO NON-TITLE I PLANS GET PROTECTION?

The non-Title I plans are governed by the Bankruptcy Code or state law, and state laws differ widely in the degree of protection provided. You should consult with local counsel to learn about the amount of bankruptcy protection, if any.

DESSEN, MOSES & ROSSITTO is happy to assist you in any bankruptcy or creditor matter that arises in either Pennsylvania or New Jersey, the two states in which our attorneys routinely practice. If you have other questions or comments about bankruptcy or any other area in which we practice, please send us an E-mail message with your questions or comments and we will be happy to try to assist you.

LINKS TO OTHER INTERESTING INFO
American Bankruptcy Institute
Bankruptcy Code
Myvesta Debt Counselors
Fair Credit Reporting Act
Fair Debt Collection Practices Act
Truth in Lending Act

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