Your-Mind-and-Body

For individuals there are two types of bankruptcy including Chapter 7 in which all of their debts are essentially eliminated and Chapter 13, in which their debts are paid off over a 5 year period of time, supervised by a trustee from your court.

Businesses cannot file under chapter 7 nor 13, they must instead file under Chapter 11. They will be able to use Chapter 11 to renegotiate their debt and too generally reorganize them so they can get back on the road to financial health.

A quick consultation with a bankruptcy attorney will help determine which of the types of bankruptcy the individual qualifies to file under. There are certain tests administered to determine if the individual qualifies to file Chapter 7 under the new bankruptcy laws.

Basically, an income calculation will determine if the person has a current monthly income, after allowable expenses that are less than the average income in the state in which they reside. If their income is higher than the average, they will have to file for Chapter 13 bankruptcy.

If an individual is given a green light for chapter 7 bankruptcy, he or she will be able to eliminate all debts including the secured and even unsecured debts. But it is possible that some of the individual’s assets will be confiscated and sold off so as to pay off some of the individual’s debts.

Clearly out of chapter 13 and chapter 7 bankruptcies, it is chapter 7 which will provide the most financial relief.

The paying off of debt over time

If a person does not qualify for Chapter 7 bankruptcy, they might consider a Chapter 13 plan, which requires making monthly payment to a court trustee who then sends payments to all creditors listed as part of the repayment plan.

Of the two types of bankruptcy this helps a person meet their financial obligations while keeping creditors from taking collection actions against the debtor.

Many people often used to start with I chapter 13 bankruptcy, but then found themselves financially incapable of meeting their obligations and so managed to move into a chapter 7 bankruptcy.

However since 2005 when the all-new bankruptcy laws became law, the only way to qualify for chapter 7 bankruptcy is to come up with a below average monthly income result in the courts means test.

If the person has the means, current income level, to pay off their debts, they are restricted to filing for Chapter 13 whether they like it or not.

Regardless of the type of bankruptcy you have filled, all initial payments will go to the creditors which have the status of what is considered to be priority access. Priority access will generally go to your passed income taxes, any student loans you may have, other government related obligations etc.

Once all of your creditors with priority access have been dealt with the payments to unsecured creditors will start to take place.

When you’ve filed bankruptcy the fact that you have done so can stay on your public record for as long as 10 years into the future! So you really must carefully consider all your options before taking on a bankruptcy, bankruptcy should always be your last option.

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This entry was posted on Thursday, August 7th, 2008 at 2:25 am and is filed under Self Improvement. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.