Consumer Bankruptcy:

Packey Law Corporation provides free initial consultations with Clients to determine if bankruptcy is right for them. There are several different types of bankruptcy, however the most common are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy:

This type of bankruptcy is essentially a liquidation of all non-exempt property. Upon filing a stay from collections is immediately in effect. This means that your creditors should stop calling you. Secured debt as well as unsecured debts, like credit card debt and hospital bills can be discharged in a Chapter 7 bankruptcy. A Chapter 7 bankruptcy generally takes about 90 days after filing to complete.

Chapter 13 Bankruptcy:

This type of bankruptcy is a repayment plan lasting between 3 and 5 years. Like the Chapter 7 upon filing a stay from collections is immediately in effect. Here a consumer essentially tells the court that they can not afford to pay their debts in full and this is what they intend to do about it. If you are late on your house payments this is probably the bankruptcy for you.

In order to file bankruptcy you must qualify:

• There are time limitations on how often you can file bankruptcy

• There are income limitations that will effect the type bankruptcy

• There are debt limits that will effect the type of bankruptcy

• Where you live will determire the location of your bankruptcy

Declaring Bankruptcy

Bankruptcy proceedings begin with the filing of a petition with the bankruptcy court. The filing of the petitions creates a bankruptcy estate, which generally consists of all the assets of the person filing the bankruptcy petition. A separate taxable entity is created if the bankruptcy petition is filed by an individual under chapter 7 or chapter 11 of the Bankruptcy Code.

The tax obligations of the person filing a bankruptcy petition (the debtor) vary depending on the bankruptcy chapter under which the petition was filed.

Generally, when a debt owed to another is canceled the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. However, the canceled debt reduces the amount of other tax benefits the debtor would otherwise be entitled to.

Taxes and Bankruptcy

Some tax liabilities can be discharged in bankruptcy. The type and date of the tax return has a major impact on when a tax liability can be discharged. A detailed review of the tax transcript should be made prior to filing any bankruptcy that includes back tax liability. Unlike other firms, the Packey Law Corporation has experience with back tax liability and bankruptcies.

This information is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions.