The United States Bankruptcy Code provides debtors with powerful debt relief options.  For consumers especially, bankruptcy allows for the restructuring, or the total elimination of credit card bills, retail installment purchases, unsecured bank loans, leases, car loans, medical bills, mortgages, and most types of court judgments.  The minute a person files for bankruptcy relief, all collection activities by that person's creditors must stop immediately, including harassing telephone calls, the garnishment of wages, foreclosures, asset repossessions, and civil law suits.  The three most common forms of bankruptcy relief utilized by consumers and businesses are asset liquidations under Chapter 7 of the Bankruptcy Code, wage earner repayment plans under Chapter 13 of the Bankruptcy Code, and debt restructuring plans under Chapter 11 of the Bankruptcy Code.

Under Chapter 7 of the Bankruptcy Code, consumer and business debtors are generally entitled to a total discharge of their debts in exchange for surrendering all of their non-exempt assets to the trustee in bankruptcy, who then liquidates those assets to pay creditors.  In a Chapter 7 bankruptcy, the debtor does not have to surrender (and may therefore keep) certain "exempt property," including clothes, furniture, household effects, automobiles, inventory, equipment, and even equity in a home, so long as the value of those assets is below a certain dollar amount.  While debtors may receive a total discharge of most debts in a Chapter 7 bankruptcy, there are certain types of debts that may not be discharged, such as student loans, taxes, child support and alimony.

With the passage of the Bankruptcy Abuse Prevention Act of 2005, a consumer debtor's eligibility for Chapter 7 bankruptcy relief has been significantly modified.  Under the Act, a consumer debtor is eligible for Chapter 7 relief if the debtor's average gross income for the six months prior to filing bankruptcy is below the State's median income as determined by the United States Department of Justice.  Otherwise, a consumer debtor may only be eligible for Chapter 7 relief if, after taking certain allowable deductions, the debtor's projected disposable income over a five-year period falls under a certain dollar threshold.  Because bankruptcy law is complicated, you should consult an attorney before deciding to file for Chapter 7 relief.

As an alternative to Chapter 7 bankruptcy, consumer debtors will typically file for Chapter 13 bankruptcy relief to stop the foreclosure of a home, or to protect valuable assets that would otherwise be liquidated in a Chapter 7 bankruptcy.  Under Chapter 13 of the Bankruptcy Code, individual debtors with regular income are entitled to a discharge of their debts after completing a repayment plan that is supervised by the bankruptcy court.  In a Chapter 13 bankruptcy, the debtor's repayment plan, at a minimum, must be between three and five years and must usually provide for the payment of all of the debtor's disposable earnings.  In protecting a home from foreclosure, the debtor's Chapter 13 plan must also provide for the repayment, over time, of any outstanding arrearages owed under the terms of a home mortgage.  Because the law with respect to Chapter 13 repayment plans is complicated, you should consult an attorney before deciding to file for Chapter 13 relief.

Finally, as an alternative to both Chapters 7 and 13 of the Bankruptcy Code, consumer and business debtors with substantial assets may wish to restructure their debts under a Chapter 11 plan of reorganization.  In a Chapter 11 reorganization, debtors with complex financial affairs, particularly business debtors, may continue to operate their businesses while their Chapter 11 bankruptcy case is pending.  The debtor may then file a plan allowing for the reduction or modification of debts, including a plan that extends the time to repay large liabilities.  Because Chapter 11 reorganizations are very complicated, you should consult with an attorney before filing for Chapter 11 relief.

The Law Offices of Peter E. Ricciardi is proud to afford debt relief under the Bankruptcy Code, including federally supervised repayment plans and reorganizations.  If you believe that you or your business requires bankruptcy relief, please call us today to learn more about how we can help you.