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FAQ, Trivia and Information on Life in America: Ask-A-Desi

This section will attempt to address some of the Frequently Asked Questions on Life in the US, Canada and North America that immigrants, visitors and others from different cultures attempt to address. If you have any additional inputs or wish  to see more topics addressed, mail us at

In past periods of economic turbulence, American households were able to escape mountains of bad debt—and keep their homes—by declaring bankruptcy. During the weak growth years from 2001 to 2003, for example, nonbusiness bankruptcy petitions averaged roughly 1.5 million per year. Lenders complained bitterly that bankruptcy was too easy, but because financially stressed Americans could write off their credit card and other consumer debt, they had more money available to pay their mortgages.

Bankruptcy and Chapter 11

Bankruptcy Reform Bites Back: For consumers, debt relief is harder to come by. And that's adding to housing woes. "But today's growing problem in the housing market is different—foreclosures are soaring, while bankruptcies, though clearly on the upswing, are running roughly at half the 2001-2003 pace. The reason: A new bankruptcy law, approved by Congress in 2005 after years of debate, makes it much harder for households to get out from under their consumer debt. The result: More people being forced to walk away from their homes, leaving lenders holding the bag. Perversely, a law intended to help the financial industry may be damaging the housing sector, creditors and borrowers alike. "It doesn't matter what you think of the purpose of the new bankruptcy law. The timing is bad," says Susan M. Wachter, professor of real estate at the Wharton School of Business."- BusinessWeek

We have heard “Chapter 11” mentioned when people talk about bankruptcy (Recent one was K Mart filing Chapter 11). What does that mean? Are there different types of bankruptcy?

The United States Federal Bankruptcy Code has provision for four bankruptcy filings:

  • Chapter 7 – Liquidation
  • Chapter 11 – Reorganization
  • Chapter 12 - Adjustment of debts of a family farmer with regular annual income
  • Chapter 13 - Adjustment of debts of an Individual with regular Income

The filing generally depends on the person's financial situation. Reportedly, the most common filing is Chapter 7. Companies, married couples and individuals are allowed to file Chapter 7.

A debtor filing Chapter 7 is essentially scrapping everything and starting over, hoping for a clean financial slate. Basically what happens is that once the filing is underway, an administrator or trustee is appointed to maneuver the sale of the debtor's assets. This does not necessarily mean that everything the person owns is sold. Both federal and state laws allow for certain exemptions, meaning that the debtor might get to keep some property, such as his or her primary residence or personal items like clothing. Once the debtor's assets are liquidated, the trustee pays certain creditors a portion of the money raised. Obviously, not all of the creditors receive money from the proceeds, so many of those financial obligations are "forgiven," or discharged. Once someone has filed for bankruptcy under Chapter 7, he or she cannot file again for seven years, and debts that were not forgiven in a previous filing will not be discharged in the next filing.

It is important to note that there are certain debts for which the debtor will receive no forgiveness. Alimony, child support, taxes and student loans are not discharged under any bankruptcy filing. So, if a lot of your debt falls into these categories, individuals might be better off filing Chapter 13.

Chapter 12 and Chapter 13 are basically the same filing, except that Chapter 12 is for family farmers and Chapter 13 is for other individuals. As long as you have a steady, reliable income, less than $269250 in unsecured debt and less than $807750 in secured debt, you can file Chapter 13. Once the filing is made, the debtor is assigned a trustee. The debtor and trustee develop a proposal for a repayment plan. The court decides whether to accept or alter the plan or dictate another repayment plan altogether. Once the plan is decided upon, it can last anywhere from three to five years.

Bankruptcy! Bankruptcy!!

You may be wondering why someone would file for Chapter 12 or 13 instead of Chapter 7. There are a couple of reasons for this:

Under Chapter 12 and 13 filings, debtors do not have to liquidate their assets -- they actually get to keep everything, not just the items that meet the legal exemption. In most Chapter 12 and 13 cases, the debtor is repaying only a percentage of what he or she actually owes -- sometimes as little as 30 cents to 50 cents on the dollar!

Chapter 11 bankruptcy is very similar to Chapter 13. The main difference is that there is no limit regarding the amount of money owed by the debtor. Originally only intended for large corporations, individuals can now file Chapter 11 as well.

Filing for bankruptcy is not to be taken lightly. It affects your credit rating for many years. The decision to file is best made under the counsel of a financial planner and/or a legal representative.

Links of interest:

  • What's Wrong with This Picture?: Polaroid's passage through Chapter 11 exposes how bankruptcy can give debtors too much power. Ever since Polaroid Corp. slipped ignominiously under Chapter 11 bankruptcy protection in October 2001, it has been portrayed as a textbook case of how bankruptcy proceedings can help a failing company emerge with a promising future. - CFO Magazine
  • Life Advice; Bankruptcy from FirstGov Each year more than 1,200,000 Americans file for protection under the federal bankruptcy laws, according to the American Bankruptcy Institute. Some are credit abusers or are financially irresponsible. But average working families who try to pay all of their bills can find themselves in financial trouble, too. The sudden loss of a job, medical bills, a divorce or even a natural disaster can quickly wipe out a life’s savings. For many, bankruptcy provides a second financial chance......



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Trivia and Questions for Indians and Immigrants in America

General Trivia : Introduction //Dollars and Cents // Social Security Number // About Mail and USPS // Story of The Old Glory // Green Card– Why Not Green? // Telephone Area Codes // Convex Mirrors and Caution // Bankruptcy and Chapter 11 // Radio and TV Broadcasting // Consumerism: Trivia on Wal-Mart. // Retail Trivia // Gas Prices– What's 0.9 Cent? // Roads and Interstate Highways // Road Driving Trivia // Finance 101 // Daylight Saving Time // Trivia on Etiquette

FAQ Disclaimer: All information provided in these FAQ’s is deemed to be accurate by the author.  Due care has been exercised to ensure the veracity of this information and guidelines. However, there may be error (s) and omission (s) and all information is subject to change., and its affiliates do not assume any liability for the information provided herein. The reader is strongly recommended to confirm this information from official sources.

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