If your debt load is out of control and there is no realistic chance that you could ever pay it off, Bankruptcy may be your last option. Filing for Chapter 7 bankruptcy is a tough decision that shouldn't be undertaken lightly. However, if you're in a difficult financial situation that just keeps getting worse, it may be the opportunity you need to seek broad protection against creditors, regain control of your financial life, and rebuild your credit after bankruptcy with the help of friendly lenders.For example, if you owe $20,000 on your credit cards and your minimum monthly payment is $600, how would you survive with a monthly income of $1,000? Getting in debt is bad enough but continue to suffer and make bad decision is worse. Don't live another day in financial torment, take action and reshape your fiscal future by considering all the financial options including bankruptcy.
Remember filing bankruptcy is not easy, it is a difficult decision that you’ll have to live with for rest of your life. Filing is not free either, It is going to cost you money in attorney’s and court fees. Bankruptcy laws also change frequently and with the new bankruptcy law is in effect, the landscape has changed for those who are considering bankruptcy. Some filers with higher incomes won't be allowed to use Chapter 7, but will instead have to repay at least some of their debt under Chapter 13. All debtors will have to get credit counseling before they can file a bankruptcy case -- and additional counseling on budgeting and debt management before their debts can be wiped out. And, because the law imposes new requirements on lawyers, it may be tougher to find an attorney to represent you in a bankruptcy case.
One of the main reasons why people hesitate to file and continue to suffer financially s lack of information on bankruptcy laws and confusion that is out there. If you want to consider bankruptcy as an option, you must have a good understanding of the process and how it can help you. Most Bankruptcy attorneys would allow for a free initial consultation but that’s is misleading. Attorneys are in a business of making money by capitalizing on bankrupt people and your lack of information on bankruptcy laws and process could cost your dearly in long run.
Before we explore bankruptcy process, it is important that we discuss some of the common terms used in bankruptcy laws.
|
 Chapter 7 Bankruptcy – You’ve probably heard about chapter 7 bankruptcy filing. Do you know what it really means and how it is different that chapter 13?
Chapter 7 bankruptcy is often referred to as liquidation because a bankruptcy trustee can liquidate (convert to cash) your non-exempt assets to pay part of your outstanding bills. The term liquidation is rather misleading, though, since most people who file for Chapter 7 bankruptcy do not have any non-exempt assets, and thus there is no actual liquidation.
Also you just can’t go to a court and select chapter 7 for bankruptcy. Before filing for Chapter 7 bankruptcy, you will have to qualify through a Chapter 7 means test. Although there was a lot of media hype about the Chapter 7 bankruptcy means test disqualifying people from filing for Chapter 7 bankruptcy when it was introduced in 2005, the truth is that more than 96% of potential Chapter 7 petitioners still qualify. In the unlikely event that you are one of those few who do not, you may still be able to file under Chapter 13 bankruptcy. |
|
The Chapter 7 means test is a two-step process which begins with a median income comparison. Explaining this first step of the Chapter 7 bankruptcy means test in more detail, your monthly income is compared to the median income in your state for a family that is the same size as yours. If your income is at or below the median income, you qualify for Chapter 7 bankruptcy. If your income is higher than the median income, it doesn’t mean that you can’t file for Chapter 7 bankruptcy, but rather triggers the second step of the Chapter 7 bankruptcy means test.
Calculating disposable income and unsecured debts is the second step of the Chapter 7 means test. If your disposable income over the next five years is less than $6,000 ($100/month), you "pass" the Chapter 7 bankruptcy means test and can thus file for Chapter 7. A local bankruptcy attorney can further explain how disposable income is calculated. If your disposable income during that five year period is greater than $6,000 but less than $10,000, you may still be able to file for Chapter 7 bankruptcy protection, depending upon your allowed expenses
Once you’ve qualified for chapter 7 filing, your case moves relatively quickly, and you may receive your discharge in just a few months. A discharge will eliminate unsecured debts like credit card debt, medical bills, most personal loans, judgments resulting from car accidents, deficiencies on repossessed vehicles, some older tax debts, payday loans, and garnishments. Certain debts are classified "non-dischargeable debts" and cannot be discharged, or can only be discharged under very specific circumstances. These include child support, most student loans, and many tax debts.
Under the old rules, most filers could choose the type of bankruptcy that seemed best for them - and most chose Chapter 7 (liquidation) over Chapter 13 (repayment). The new law will prohibit some filers with higher incomes from using Chapter 7.
Counseling Requirements
Before you can file for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency approved by the United States Trustee's office. (To find an approved agency in your area, go to the Trustee's web site, www.usdoj.gov/ust, and click "Credit Counseling and Debtor Education.") The purpose of this counseling is to give you an idea of whether you really need to file for bankruptcy or whether an informal repayment plan would get you back on your economic feet. Counseling is required even if it's obvious that a repayment plan isn't feasible or you are facing debts that you find unfair and don't want to pay. You are required only to participate, not to go along with any repayment plan the agency proposes. However, if the agency does come up with a repayment plan, you will have to submit it to the court, along with a certificate showing that you completed the counseling, before you can file for bankruptcy.
Toward the end of your bankruptcy case, you'll have to attend another counseling session, this time to learn personal financial management. Only after you submit proof to the court that you fulfilled this requirement can you get a bankruptcy discharge wiping out your debts. (The web site above also lists approved debt counselors.)
How important is it to disclose all of your debts when seeking to file for Chapter 7 bankruptcy? Whether or not failing to list certain debts is an honest mistake or a deliberate action, bankruptcy fraud is a serious offense that can be prosecuted.
Be sure to follow your attorney's advice and do not attempt to conceal your property, destroy any financial records, violate any court order or make enormous, last-minute charges on your credit cards. Please note that you may only file for Chapter 7 bankruptcy once in eight years. Understanding the Chapter 7 bankruptcy timeline is critical to making good decisions for your financial future.
Keep Your Car - and Other Assets - by Reaffirming Secured Debts
While Chapter 7 bankruptcy may help eliminate unsecured debts, secured debts are generally not separated from the assets that secure them. That means that if you want your car loan discharged, you'll have to give back the car. However, if you want to keep your car (or another asset that serves as security for a debt) you may be able to negotiate a reaffirmation agreement with your creditors in Chapter 7 bankruptcy. By reaffirming a debt, you agree to continue making payments in exchange for the right to keep your property.
The Final Step
Before getting your bankruptcy discharge, you must complete an approved Debtor Education Course: a personal financial management course required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Chapter 13 Bankruptcy -
Chapter 13 bankruptcy is a full or partial repayment plan administered by the bankruptcy court. The debtor submits a plan for approval and, when a plan is approved, makes monthly payments to the bankruptcy trustee. The trustee makes payments to creditors in accordance with the terms of the plan. The repayment period may be from 3-5 years. At the end of the repayment period, if all payments have been made according to the plan, remaining unsecured, dischargeable debt may be discharged.
Creditors are not allowed to have any direct contact with the debtor.
Chapter 13 bankruptcy often provides a solution for people who have faced short-term financial setbacks like job loss, illness, or large unexpected expenses. For people who have been derailed by a crisis and fallen behind on their bills, but who have regular income and are in a position to make regular monthly payments, a Chapter 13 bankruptcy plan may allow the breathing room necessary to get back on track. Many people looking to stop foreclosure or avoid repossession choose Chapter 13 bankruptcy, because it combines the automatic stay with the ability to catch up past due payments over a period of three to five years while keeping current payments up to date.
Chapter 13 bankruptcy can be a complicated process, and mistakes in that process can cost a bankruptcy petitioner the protection of the automatic stay, prevent a plan from being approved, or simply delay the bankruptcy process. A local bankruptcy attorney can explain your options and help you determine whether Chapter 13 bankruptcy is the right option for you. Then, if you choose Chapter 13 bankruptcy, a bankruptcy lawyer can guide you through the process, helping to ensure that all filing requirements and deadlines are met and that you've accounted for all of your allowable expenses and proposed a plan that will allow you to make payments while keeping up your regular expenses. As you can see, selecting a capable attorney is the key to the success of chapter 13 filing.
The Chapter 13 Bankruptcy Process
A Chapter 13 bankruptcy case officially begins with the filing of the bankruptcy petition. In most cases, the court will enter an automatic stay as soon as the case is filed, prohibiting creditors from taking any further collection action while the bankruptcy case is pending, or until further order of the bankruptcy court. The bankruptcy court will send notice to all of the creditors listed in the Chapter 13 petition, and will assign a bankruptcy trustee to the case.
Within about 15 days after the petition is filed, the court will send a Notice of Commencement of Case to the bankruptcy petitioner and to all of the creditors listed in the bankruptcy petition. This notice will include important information like the time, date and location of the creditors meeting and the deadlines for claims and/or objections from creditors.
Schedules containing information about the petitioner's debts, assets, income and expenses must be filed within 15 days after the case is commenced. Often, these schedules are filed along with the petition, but where an emergency situation exists-for instance, if the bankruptcy petitioner is filing in order to stop foreclosure or repossession-they may be filed separately so that the petition can be filed immediately, without waiting to collect the required information and documentation for the schedules.
The 15 day deadline also applies to filing the Chapter 13 repayment plan.
The Chapter 13 Bankruptcy Repayment Plan
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy doesn't liquidate assets and clear the slate in a short period of time. Instead, Chapter 13 bankruptcy is intended to help people facing financial difficulty keep their property while gradually catching up on past due balances. A typical Chapter 13 bankruptcy repayment plan is 36 to 60 months long. During that time, the bankruptcy petitioner keeps current payments current, but makes monthly payments toward past due balances. Debts are prioritized, and secured creditors get paid first. Remaining disposable income goes to pay unsecured creditors, in a hierarchy established by the Bankruptcy Code.
If all payments have been made as scheduled, unsecured debt remaining at the end of the plan may be discharged.
Pre-Discharge Requirements in Chapter 13 Bankruptcy
In addition to making payments as agreed under the Chapter 13 plan, Chapter 13 bankruptcy petitioners must complete a U.S. Trustee approved financial management course (often called Debtor Education) before a discharge may be granted. Your bankruptcy attorney may refer you to a Debtor Education course, or you can purchase an approved, online Debtor Education course at Start Fresh Today.
Some Chapter 13 Filers Will Have a Big Change to Their Lifestyle
Under the old rules, people who filed under Chapter 13 had to devote all of their disposable income - what they had left after paying their actual living expenses - to their repayment plan. The new law adds a wrinkle to this equation: Although Chapter 13 filers still have to hand over all of their disposable income, they have to calculate their disposable income using allowed expense amounts dictated by the IRS - not their actual expenses - if their income is higher than the median in their state. And these allowed expense amounts must be subtracted not from the filer's actual earnings each month, but from the filer's average income during the six months before filing.
|
