how does bankruptcy work?

[BlahBlahYouToo]

so lets say you or a corp. files for bankruptcy because you have no money to pay the bills.
but you/corp owes a substantial amount of money, and your assets are far less than what you owe.
so they claim all your stuff but it isn't worth as much as what you owe.

ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?
but the ppl you owe money to are the ones that are screwed.
seems like a good deal to me.

 

[her209]

Originally posted by: BlahBlahYouToo
but you're basically free of outstanding debts at this point?

Not from student loans...

 

[silverpig]

Yes, that's essentially how it works.

A popular thing for couples to do when graduating was to remain unmarried, transfer all the debt to one person (student loans, credit cards etc), then have that person declare bankruptcy. All the debt gets wiped out, the couple marries, and then buys the car and house in the person's name who has good credit. 7 years later, all is well in the world for them.

They put a stop to that though as now your student debt (at least here) remains even after a bankruptcy.

 

[silverpig]

Originally posted by: her209

Originally posted by: BlahBlahYouToo
but you're basically free of outstanding debts at this point?

Not from student loans...

How many corporations have student loans? :Q;

 

[UsandThem]

Originally posted by: BlahBlahYouToo
so lets say you or a corp. files for bankruptcy because you have no money to pay the bills.
but you/corp owes a substantial amount of money, and your assets are far less than what you owe.
so they claim all your stuff but it isn't worth as much as what you owe.

ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?
but the ppl you owe money to are the ones that are screwed.
seems like a good deal to me.

Bankruptcy used to work like that, but how the restructured the debt (after lobbying from credit card companies), a person today walks away having to pay back a lot more of the debt. It is not all simply written off.

 

[xboxist]

Originally posted by: BlahBlahYouToo
ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?

What do you think these people get to do exactly, as part of "starting all over?" They're screwed for years. Sure they have their debts lifted off of their shoulders, but now what?

 

[TheoPetro]

Ya the damaged credit (not to mention ego and reputation) due to failure of something you obviously tried very hard at is definitely a good deal/scam...

Some of us take pride in our work and having something like a business fail because of our management is enough punishment. Many times the court will order that a repayment plan be instituted (if ch 11) where the secured creditors will be made almost whole.

 

[DontMindMe]

Originally posted by: xboxist


What do you think these people get to do exactly, as part of "starting all over?" They're screwed for years. Sure they have their debts lifted off of their shoulders, but now what?

I guess everyone's definition of "screwed" is different.

 

[Queasy]

Originally posted by: UsandThem

Originally posted by: BlahBlahYouToo
so lets say you or a corp. files for bankruptcy because you have no money to pay the bills.
but you/corp owes a substantial amount of money, and your assets are far less than what you owe.
so they claim all your stuff but it isn't worth as much as what you owe.

ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?
but the ppl you owe money to are the ones that are screwed.
seems like a good deal to me.

Bankruptcy used to work like that, but how the restructured the debt (after lobbying from credit card companies), a person today walks away having to pay back a lot more of the debt. It is not all simply written off.

It depends on whether the person qualifies for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is a clean wipe. Chapter 13 is basically a repayment plan at reduced rates.

 

[BlahBlahYouToo]

Originally posted by: xboxist

Originally posted by: BlahBlahYouToo
so lets say you or a corp. files for bankruptcy because you have no money to pay the bills.
but you/corp owes a substantial amount of money, and your assets are far less than what you owe.
so they claim all your stuff but it isn't worth as much as what you owe.

ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?
but the ppl you owe money to are the ones that are screwed.
seems like a good deal to me.

ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?

What do you think these people get to do exactly, as part of "starting all over?" They're screwed for years. Sure they have their debts lifted off of their shoulders, but now what?

they do exactly that. they start from scratch. get a job, rebuild their credit.
they're the ones that fucked up. why do you make them out to be the victim?

and i'm thinking not in terms of the person filing bankruptcy, but more in terms of the loaners.
imagine lending a huge sum of money, only to reclaim a small percentage of it back.

in the GM/Chrysler situation, we're talking sums in the billions loaned out and they're getting nowhere near that back.

 

[UsandThem]

Chapter 7 is the bankruptcy provision most frequently used by individuals. It involves the complete liquidation of a debtor's property to pay creditors and wipes out the remaining debts, giving the debtor what's known as a "fresh start". However, the debtor can retain certain property that is specifically "exempt" depending her State's law, such as tools of one's trade, limited equity in a car and house, and some personal effects.

If you use Chapter 7 you may lose your home (depending on your state) but it does enable you to get out from under the burden of debt more quickly.

The post-October 17, 2005, Bankruptcy Code made major changes in this chapter, making the process longer and more expensive and undeniably harder for consumers to shed debts than under the old law. Under one of the key changes, a means test determines whether a debtor can use a Chapter 7 filing or be forced to file a Chapter 13 and repay some of their debts over five years.

Chapter 13, which has also been known as a wage earner's plan, is an interest-free repayment plan where a debtor repays at least some of his or her unsecured debts with regular payments over five years. Under the new bankrtupcy law, effective for filings on and after October 17, 2005, more bankrtupcy filers will have to choose Chapter 13's repayment plan because of the application of a complicated, two-part means test.

Generally the creditors expect to get more than they would have received from the debtor's estate if the debtor had sought a complete liquidation under Chapter 7 Bankruptcy.

One of the important benefits of Chapter 13 is that the debtor generally can more easily continue to live in his or her home. If the debtor fails to comply with the Chapter 13 plan, the Court will usually dismiss the bankruptcy case

Another advantage of Chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the Chapter 13 plan. Doing this may lower the payments.

The disadvantage of Chapter 13 to the debtor is that the debts can linger for years, burdening future income.

 

[Paperdoc]

A general answer is that it depends heavily on where you are, and what are the local laws relate to bankruptcy. As you can see above, there is more than one way to proceed, and which is right depends on your circumstances. I've not done this, but my understanding in Canada, where I live, is that even after the bankruptcy process is finished, you still formally owe the missing money, although in practice most of the creditors will have agreed to only a partial repayment. However, federal and provincial governments here have given themselves special rights that put them at the head of the line of creditors. Moreover if this is a corporate bankruptcy, the corporations' Directors may be held personally responsible for corporate debts to governments. And I've seen bank loans (which really are private contracts) that are granted only on condition that the business owner(s) sign an agreement that they personally are responsible for the company's debts to the bank if the business fails. So powerful lenders often find ways to protect themselves from the "protection" of incorporation.

Of course, there is the general rule that someone with a bankruptcy on their record will have a hard time getting credit again in the future. They might have escaped paying all they owed before, but they'll have a tough time getting any loan ever again.

 

[Mark R]

The whole point of bankruptcy is to wipe your debts clean (or reduce to a level where you can make some sort of contribution).

The reason for its existence is to encourage business people to take risks. A capitalist economy needs entrepreneurs who are willing to take risks; as there are only a limited number of people with the necessary personalities and skills, you don't want them to give up forever if they screw up. Slap them on the wrist, give them a few years to learn from their mistakes - but don't destroy them.

At the same time, it encourages money lenders to take some responsibility for who they lend money to - i.e. it helps discourage usury where money is lent at exorbitant rates to people who would be unable to repay it. If the lender knows that the borrower screws up, they could be severely out of pocket, then they are motivated to weigh-up, more carefully, the risks.

 

[ElFenix]

Originally posted by: UsandThem

Originally posted by: BlahBlahYouToo
so lets say you or a corp. files for bankruptcy because you have no money to pay the bills.
but you/corp owes a substantial amount of money, and your assets are far less than what you owe.
so they claim all your stuff but it isn't worth as much as what you owe.

ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?
but the ppl you owe money to are the ones that are screwed.
seems like a good deal to me.

Bankruptcy used to work like that, but how the restructured the debt (after lobbying from credit card companies), a person today walks away having to pay back a lot more of the debt. It is not all simply written off.

he asked about a corp, which doesn't have that. a corp in liquidation gets liquidated, and there is no damage to the individual's credit. of course, in small corps the principles were often have to personally guarantee any loans.

the bankruptcy change wasn't as bad as you've made out. more than half of people pass the means test into chapter 7 just because their income is lower than the median. another good chunk pass the means test after going through the next couple of pages of the test. even if you fail the means test, if you can show that you can't write a chapter 13 plan you can still probably get into a 7 (i just put someone into 7 that way even though they'd failed the means test). and if push comes to shove, you can file as a 13 and then convert to a 7 and not deal with the means test at all because the law is so poorly written.



and don't feel too bad for the creditors. they build the risk of bankruptcy into the interest rate they charge everyone.

Originally posted by: xboxist

Originally posted by: BlahBlahYouToo
ok, so now you have nothing, your credit is ruined, but you're basically free of outstanding debts at this point? and you get to walk free and start all over?

What do you think these people get to do exactly, as part of "starting all over?" They're screwed for years. Sure they have their debts lifted off of their shoulders, but now what?

the credit reports that i pull as part of due diligence prior to putting someone into bankruptcy estimate that credit rating will improve to well better than the pre-bankruptcy rating within a year of the bankruptcy.

it's not like people get fired for filing ch 7. assuming you've got a job, you've now got highly positive cash flow. yes, you're going to have to pay higher interest rates for anything for the next few years, and you'll always answer 'yes' to the question 'have you ever had a bankruptcy'

 

[OCGuy]

A complete discharge is still rather easy if you can prove you do not make enough money to pay your bills.


If you make good money and are just trying to get rid of debt, they will now just restructure it for you.