Personal Bankruptcy – What is it?
When a person has too many debts, they can ask for help through a process called personal bankruptcy. There are two common types: Chapter 7 (liquidation) and Chapter 13 (reorganization). In Chapter 7, the person has to sell some things they own to pay back their debts. This can include their home, car, personal items like furniture, electronics, clothes, and even money they earn after filing for bankruptcy. But, some things are usually safe from being sold, like tools needed for work, retirement plans, and benefits like unemployment or social security.
Chapter 13 is a bit different. It's for people who have a steady income and can make a plan to pay back some or all of their debts over three to five years. After that time, most of their remaining debts are wiped clean. But, there are some debts they still have to pay, like taxes, child support, alimony, student loans, court fines, and debts from fraud.
Other Sources of Help
The State of Michigan has information on filing for Bankruptcy.
Should I consider filing for Bankruptcy?
Even if you have a lot of debt, bankruptcy might not be the best choice. This is especially true if you don't have a lot of money or things that can be sold to pay back your debts. This is called being "judgement proof." Even if a court says you owe money, there may not be a way for the person you owe to collect it. This can happen if you don't have many assets, or if your income comes from sources that are protected by law, like social security benefits. Even if you are judgment proof, you should still aim to pay back your debts. You can’t go to jail for not paying your debts, but it will have a negative impact on you in other ways, like destroying your credit score, impact your ability to rent or buy a home or a car, and maybe even wage garnishment.
NCLC also has an article on When (and When Not) to File Bankruptcy.
What are the Potential Benefits of Filing for Personal Bankruptcy?
One of the main benefits of filing for bankruptcy is something called an automatic stay. This is a rule that stops most actions to collect debts right away. These actions can include lawsuits, wage garnishments, and annoying phone calls from creditors (people or businesses you owe money to). This stay remains in place until the bankruptcy case is finished. It gives people a break from debt collectors while they go through the bankruptcy process.
What are the Potential Downsides to Filing for Personal Bankruptcy?
Bankruptcy is a big deal. It can hurt your credit score and stay on your credit report for up to ten years. This could make it harder to get loans or jobs in the future. Before you can file for bankruptcy, you must get credit counseling and fill out a lot of forms. After you file, you have to go to a meeting where a government official and the people you owe money can ask you questions.
During a bankruptcy case, anyone can say they don't want the person to have their debts wiped clean. This can happen if the person hides things they own, lies about transferring things they own, destroys or hides their financial records, or lies under oath. In Chapter 13, the person might not get their remaining debts wiped clean if they don't make payments as agreed, or if they had debts wiped clean under Chapter 13 in the last two years or under Chapter 7 or 11 in the last four years.
Can debts to tribes be discharged in bankruptcy?
The law about debts to Native American tribes is complicated. Tribes have a special protection called sovereign immunity, which means they can't be sued without their permission. This protection has been confirmed by the U.S. Supreme Court. But, there are some exceptions. If a tribe says it's okay to be sued, or if Congress says it's okay, then they can be sued. In 2023, the Supreme Court said that the Bankruptcy Code makes it clear that all governments, including tribes, can have debts owed to them wiped clean in bankruptcy.
How are Per Capita payments handled in bankruptcy cases?
In bankruptcy cases, payments from tribes to their members are usually counted as income. But how they're treated can change based on the type of bankruptcy, where the person lives, and their specific situation. In Chapter 7, these payments might be part of what is used to pay back debts, but the person might be able to protect them. In Chapter 13, these payments could be included when figuring out how much the person can pay back. This can be different in different states, so it's important to talk to a lawyer who knows about both tribal law and bankruptcy law.
How are tribal General Welfare Payments handled in bankruptcy cases?
In bankruptcy cases, payments from tribes to their members for their general welfare are treated differently. This is because tribes have a special status and these payments are unique. They often come from money the tribe makes or from federal funding. How these payments are treated is decided by bankruptcy law and special protections for tribes and their money.
According to the Bankruptcy Code, payments from tribes to their members for their general welfare might be safe from being used to pay back debts. This is because of the special status of tribes and the idea that these payments are important for the wellbeing of tribal members. This protection is also backed up by other federal laws and court decisions that protect tribes and their money.
Additionally, the treatment of these payments may also be influenced by the nature of the bankruptcy filing, whether Chapter 7 or Chapter 13. In Chapter 7 cases, the bankruptcy trustee may have limited ability to access tribal payments due to their exempt status. In Chapter 13 cases, where the debtor proposes a repayment plan, the payments might impact the debtor's disposable income calculation and thus their repayment capacity but remain largely protected.
It is important for debtors receiving tribal general welfare payments to disclose these payments in their bankruptcy filings and to assert their exemption. Legal precedents and specific statutes protecting tribal assets should be carefully reviewed to determine the applicability of exemptions in individual cases.
Conclusion
To sum it up, bankruptcy can help you start over by getting rid of many debts and stopping people from asking you to pay them back. But it also has big effects that can last a long time, so you must think about it carefully. It's very important to know what help you can get from the bankruptcy rules and what they can't do. Talking to a lawyer is a good idea because bankruptcy law is hard to understand.