Bankruptcy in Tough Times

Lately, I’ve been getting calls from people in the marine industry about how to file for bankruptcy. The callers are generally hard working folks whose bills piled up after they were knocked off course by a financial storm. I remind callers that they aren’t alone. 

Just a few months ago, the riverboat Delta Queen was sold to TAC Cruises when Ambassadors International Inc. concluded its bankruptcy case in federal court. In 2009, Hawaii Superferry filed for bankruptcy.

The same legal concepts of bankruptcy law used by corporations can serve ordinary folks. Individuals generally use Chapter 7 for basic personal bankruptcies. The idea behind bankruptcy is to give people a clean slate, so they aren’t catastrophically swamped by a massive wave of debt. 

Here are a few bankruptcy basics:

People can file for bankruptcy with or without an attorney. Do-it-yourself kits are available online. The federal bankruptcy court website provides forms and other resources. But if someone owns a house and other significant assets, it makes sense to consult with an attorney to figure out which assets you can hold on to and which ones have to be used to pay back creditors.

A bankruptcy filing stops creditors and bill collectors while the action is pending in court. If the court decides that bankruptcy relief should be granted, the petitioner (person filing for bankruptcy) is relieved of personal debt such as credit card and hospital bills, and unsecured loans. It does not eliminate obligations on student loans.

The playing field changed six years ago with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It is now tougher to use bankruptcy to wipe the slate clean of debt. For example, people whose income is above the median income for their state may have to enter a repayment plan if certain other conditions are met. Applicants must also undergo credit counseling. Further, a $125,000 cap was placed on the homestead exemption. 

For basic information on the bankruptcy process, visit http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics.aspx.

 

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