Bankruptcy is a legal proceeding to which a
debtor (individual or business) that is
having financial difficulty can turn for
economic relief. If you are unable to pay
your bills due to job loss, family crisis,
lack of cash flow, medical costs, etc.,
bankruptcy can, in most cases, give you a
“fresh start”.
A
Bankruptcy may make it possible for you to
discharge or eliminate most or all of your
debt (credit cards, medical bills, personal
loans, utility bills, etc). It can stop
foreclosure on your house and give you an
opportunity to catch up on missed payments.
It can also stop wage garnishment, debt
collection harassment and similar creditor
actions.
Bankruptcy cannot, however, cure every
financial problem. Types of debts that
cannot be discharged are child support and
alimony, certain other debts related to
divorce, most student loans, criminal fines
and various taxes, to name a few.
A
Chapter 7 Bankruptcy is known as a
“straight” bankruptcy or “liquidation”. If
the debtor qualifies for a Chapter 7
bankruptcy based upon the value of his or
her assets and the level of income (as
discussed below), the debts will be
discharge without any payments being made.
It does not require a debtor to give up
property unless the value of that property
exceeds certain limits, called “exemptions”.
This type of bankruptcy is not available to
individuals whose debts to be discharged
include mortgage payments or car loans,
unless the debtor is prepared to lose
possession of the house or car that secures
that debt. If the debtor is behind on such
loan payments, wants to keep that property
and can now afford to make those payments,
then a Chapter 13 Bankruptcy may be the
proper option.
A
Chapter 13 is called “debt adjustment”. It
requires debtors to file a “plan” to pay
their debts (or part of their debt) on a
monthly basis over a period of years. The
real advantage of a Chapter 13 is that it
allows you to keep valuable property (home,
car) which might otherwise be lost so long
as you can afford to make the payments which
are required under the plan.
Due
to recent changes in the law that went into
effect on October 17, 2005, whether a debtor
can file a Chapter 7 Bankruptcy now also
depends upon the debtor’s level of income.
If that income is below the median income
for that particular family size, then the
debtor may file a Chapter 7 Bankruptcy. If
that income is above the median income for
that particular family size, then the debtor
must submit to a “Means Test”. This requires
an in depth analysis of expenses and income
which is then used to determine whether the
debtor is still eligible to file a Chapter 7
Bankruptcy or will instead be required to
file a Chapter 13 Bankruptcy .
The
new Bankruptcy law also now requires debtors
to undergo mandatory credit counseling as a
prerequisite to filing for bankruptcy and a
debt management course as a prerequisite to
receiving a discharge. In most cases, these
can be done over the phone or online.
Although the new bankruptcy law instituted
many new changes, and several additional
hurdles, to filing for bankruptcy
protection, the essential elements are still
in place for providing individuals with a
fresh start toward future financial
stability.
GETTING STARTED:
Enter your valid social
security number here to begin
work on our user-friendly online bankruptcy
questionnaire. (Please note that all of your
personal data is handled in a secure
fashion. See our
privacy policy.)
