If you are struggling with debt or your business is failing, the government offers bankruptcy as an opportunity to get a fresh financial start. In short, bankruptcy allows you to effectively press pause and redo your financial situation. Bankruptcy laws and exemptions layout what has to be done for an individual to get this financial fresh start and what assets can be exempt or protected during liquidation.
What is Bankruptcy Law in Massachusetts?
Bankruptcy law is a set of federal laws that are handled at the federal level in specific bankruptcy courts. These bankruptcy courts are responsible for all petitions filed for bankruptcy, whether it is for an individual, a company, or a municipality. During a bankruptcy case you have the chance to provide evidence for your financial hardship and to provide evidence for your assets that, when liquidated, could repay debt that you are unable to repay with cash.
What is the Purpose of Bankruptcy Law?
Bankruptcy law aims to give individuals, companies, and municipalities the opportunity to restructure their debt so that they can repay as much of it as possible. There are plenty of situations where individuals encounter circumstances or hard times that may or may not be within their control and that make it impossible to repay the entirety of their debt. Rather than struggling to repay current debt while facing garnished wages and lawsuits, bankruptcy gives individuals or businesses an opportunity to press pause on these types of actions, get their bearings, and find a way to restructure or repay their debt as necessary.
Types of Bankruptcies in Massachusetts
There are many different types of bankruptcies that apply to different situations. Generally speaking, there are subchapters under the 2 main chapters of bankruptcy law used most often (Chapter 7 and Chapter 13) that individuals or businesses can use depending on their situations. The complexity of the sub chapters and the chapters can be easier understood with the help of an attorney.
Chapter 7: Liquidation
Chapter 7 bankruptcy is the type of bankruptcy most often used by individuals. Anyone who resides in a home they own can file for Chapter 7 bankruptcy. This is the chapter used to liquidate your assets, typically starting with the home, after which all of your debts are paid. When you file for Chapter 7 bankruptcy, you are given a completely fresh start with respect to your current debts, however it remains on your record for ten years.
The process of Chapter 7 bankruptcy removes any unsecured debt, including debt such as medical bills or credit cards. The filing process generally costs around three hundred dollars and can take between four and six months. Before you can file for Chapter 7 bankruptcy, you must first adhere to proper credit counseling through an approved credit counselor within the United States Trustee and complete a course on debtor education. To repay your current debts, most of your assets will be sold by the interim trustee, however you will be able to retain some assets. The trustee selling your assets will be appointed by the United States Trustee.
Chapter 13: Repayment Plan
The other option for bankruptcy, equally as common in individuals as liquidation, is Chapter 13. Chapter 13 Bankruptcy is a process to assist you pay back creditors and obtain a clean financy start. You will find three codes under which you can apply for Chapter 13 Bankruptcy, each of which refer to another way of correcting your financial troubles. The first code liquidates your assets to be able to repay creditors. The second code produces a payment plan, and the third code enables you to repay your debts with your regular earnings over a period of 3 to 5 years.
Federal courts have sole jurisdiction over cases of Chapter 13 Bankruptcy. To pursue this process, you must complete a petition in which you list the contact details for each of your creditors with the amounts owed. In the petition, you must also list your earnings, liabilities, and assets. Following a Chapter 13 Bankruptcy filing, creditors cannot sue you, garnish your wages, or make demanding telephone calls. Since each one of the different sections for filing differs, your circumstances are going to be unique.
Chapter 11: Large Reorganization
This chapter is meant for businesses that do not want to close down their operation but simply want to restructure so that they are better able to repay their debt. With a Chapter 11 Bankruptcy, a business is able to stay in operation while negotiating a plan for repayment to their creditors.
Chapter 12: Family Farmers
Chapter 12 Bankruptcies are filed by family farmers and fishermen when filing on behalf of their company. This chapter is very much the same as Chapter 13 and Chapter 7 except that it applies specifically to family farmers and fishermen who need to be able to keep their operation running during the process of the filing.
Chapter 15: Used in Foreign Cases
Foreigners who have secured or unsecured debt in the United States and file for bankruptcy in their home country can use Chapter 15 to simultaneously file for bankruptcy in the United States. This chapter specifically applies to people who are not American citizens but have debt they need to resolve in the United States.
Chapter 9: Municipalities
Chapter 9 is exactly the same as other chapters, but reserved specifically for municipalities. While states cannot use it, municipalities within these states can use it to resolve their debt. With this plan, municipalities are able to find a way to negotiate a settlement, similar to Chapter 12 and 13 for companies and individuals.
How to File for Bankruptcy in Massachusetts?
It is up to you to determine which chapter for bankruptcy is best suited to your situation. Working with an attorney will help you to evaluate your case and make this decision. As an individual, it is most common for you to choose between Chapter 7 and Chapter 13, as there is a federal threshold for Chapter 7 qualification. If you do not pass the means test for Chapter 7, you will have to file for Chapter 13 Bankruptcy.
- The initial steps to filing for bankruptcy include filling out a petition which fits with the specific chapter you are filing under. While the paperwork and fee is different for each chapter, what you must include is typically the same.
- This petition can be completed by an individual, couple, business, or municipality.
- The petition will include information from the creditors to whom money is owed as well as the amounts still owed, your wages, liabilities, and assets.
- The petition and the corresponding filing fee must be submitted to the bankruptcy courts.
- Bankruptcy law in Massachusetts is a federal matter, so there are only specific courts that handle bankruptcy cases.
- Once the petition is submitted to the court, creditors are not allowed to hassle you by filing lawsuits, calling you, tring to collect debt or by garnishing wages.
- The court will then assign a bankruptcy trustee who will be in charge of your case. The trustee takes responsibility for your assets and attempts to get as much money back to your creditors as possible. All objections from creditors or requests for exemptions from you must go through the trustee.
Massachusetts bankruptcy exemptions
When you file for bankruptcy, whether on your own or with the help of an attorney, you can submit a request to the bankruptcy trustee for bankruptcy exemptions. While the trustee’s job is to make sure that you pay creditors as much as possible against your secured and unsecured debt, you will still need enough money to live on day to day, as well as a few protected assets.
Exemptions can be difficult to understand because, when referring to exemption, the language used talks about equity. Equity is the value you have in something, or what that item or property is worth. So, where assets are concerned, getting an exemption for an asset means that the value is legally protected so that the bankruptcy trustee cannot liquidate it in order to repay your debt. Typically personal property that is exempt in federal court as part of bankruptcy code includes:
- Clothing, within reason. This includes clothing that you need to wear day to day, but not necessarily designer clothes.
- Household goods and furniture, within reason.
- A vehicle, typically with a maximum value amount.
- Professional tools that you might need in order to continue working in your job.
- Equity in your home as part of the homestead exemption.
The homestead exemption is different from the other categories of exemptions in that it only applies to situations where liquidating the home provides more money than what you must repay on your debt. In such a case, you will get to keep the difference.
Do Massachusetts bankruptcy laws require an attorney?
Bankruptcy law in Massachusetts does not require you to work with an attorney, however, it can be a much easier process if you choose to do so. Attorneys know the ins and outs of bankruptcy law necessary to keep this a straightforward process. They are familiar with the petitions and legal paperwork involved, and can help if your creditors object to any part of the petition. Attorneys can also submit paperwork to bankruptcy courts on your behalf so that you do not have to always travel to be present in court.
Since each case is different, each level of debt is different, and each chapter of bankruptcy has subchapters, consulting with an attorney can help you avoid critical mistakes which would otherwise result in your case being dismissed. An attorney can review your situation and determine which chapter and subsequently which subchapter is going to offer the best resolution based on your assets, liabilities, and income.