Filing for bankruptcy is a difficult choice. In fact, most individuals are really reluctant to choose this option. But life is unpredictable and certain situation may force individuals and couples to pick this route. Historically, bankruptcy was reserved for traders that might not pay their debts, but eventually, this legal protection was adopted in USA and extended to ordinary citizens. Bankruptcy laws have evolved over time, and the new law in April 2005 has impacted the filing of bankruptcy greatly. Consumers don't have the liberty to choose freely the type of bankruptcy they will file. Congress has included new stipulations that regulate who could file a Chapter 7 bankruptcy.
Chapter 7 bankruptcy is a full debt wipeout. The slate is basically wiped clean, and the consumer could start fresh. Unfortunately there is always some abuse of anything; thus, the rules have changed. The new rules for filing a chapter 7 bankruptcy include the following: credit counseling, means examination, and disposable income examination. A consumer should seek out credit counseling 6 months prior to filing a bankruptcy. The agency that provides the counseling must be one that's approved by the U.S. Trustees' office. If there is a cost, the consumer is responsible for this fee. After completing this counseling, the consumer can carry on with filing for bankruptcy. Congress included this provision to endorse individuals to attempt all avenues before filing for bankruptcy. Furthermore, a consumer can hire an attorney and become that attorney's client. The lawyer will present documentation to the court that verifies the monthly and yearly salary of the client. Then, the court will perform what is called a "means test."
This includes taking the income of the client and comparing it to others in the state. The court creates a mean standard from looking at the monthly income of all workers within the state. If the client's income is equal to or under this number, the client's attorney may proceed with filing for bankruptcy under Chapter 7. Those with incomes greater than the mean standard must be subjected to yet another test. The judge will take the monthly pay of the client and subtract all essential living costs. This allows the judge to see what'll be left for creditor payments. If the amount isn't high enough, the judge will be able to permit this client to carry on with filing a bankruptcy under Chapter 7 laws.
Chapter 13 bankruptcy is totally different than Chapter 7. This type is basically debt reorganization. The court will come up with a repayment plan for the client. Oftentimes, the payments to the creditor are less than before. The court is able to demand that certain interest and other costs be taken off of the debt amount. The creditor should accept the payments the judge orders the client to pay. Most Chapter 13 bankruptcies take 3 to 5 years to complete. However, filing for bankruptcy under Chapter 13 laws will stay on a citizen’s credit for 7 years. A Chapter 7 bankruptcy will stay on a credit report for 10 years. Filing for bankruptcy is a huge choice and should be considered with much thought and suggestions. However, this choice can be the best one for many that have faced economic chaos and crisis.
