Examining Chapter 13 Bankruptcy Law

Aug 5th, 2014 | By | Category: Debt

When bankruptcy becomes a necessity as a result of a bad financial situation, an individual will have to decide whether they should file for Chapter 7 or Chapter 13 bankruptcy. Understanding the differences between them is very important, as they’re separate and unique filings.

Most people who must declare bankruptcy do so by filing for Chapter 7 bankruptcy. This will pay off the money that a person owes by liquidating their assets. Afterwards, the court will take account of the situation and decide how much needs to be paid to creditors.

One hundred percent of the person’s assets won’t liquidated. In some cases, people who file for Chapter 7 bankruptcy are able to maintain their home and car. The liquidation process is based off of specific state laws.

Hot Discussion: Chapter 13 Bankruptcy Law

Chapter 7 bankruptcy laws saw some changes in October of 2005. Now, in order to qualify for Chapter 7 bankruptcy, you needs to have a total income that is below your state’s median and then pass a testing process. If your current assets would enable you to pay for 25 percent of your total debt, you’ll not be in a position to apply for Chapter 7 bankruptcy.

Testing associated with Chapter 7 bankruptcy can be overridden if a special situation presents itself. This occurred after Hurricane Katrina. Individuals who lost everything they had as a consequence of this disaster were allowed to get a fresh start. If, after the testing process, you’re denied the right to present for Chapter 7 bankruptcy, you can make a call to the court, but, because of extra travel and expense, this isn’t always the most advantageous course of action.

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The bankruptcy court judge will be the one to determine whether you can file for a Chapter 7 Bankruptcy and get discharged from your debts in the framework of the new bankruptcy law. First you have to go through a ‘means test’ which calculates your income, your monthly expenses and your financial capability as a borrower. If you passed the test, that ¬Ěs the only time you can file for a Chapter 7 Bankruptcy. If you fail, the judge will require you to file for a Chapter 13 bankruptcy.

A Chapter 13 bankruptcy will put you in a repayment plan. This means you still have to pay back your debts. However, through bankruptcy, your debts will be cut and your creditors will be giving you a much lower interest. Creditors can only impose up to 10% of interest rate to their debtors under the bankruptcy provision. Furthermore, the New Bankruptcy Law has made all repayment plans to become a mandatory five-year term. This gives you a better chance at getting out of your debts more easily.

If you filed for a Chapter 13 Bankruptcy, there is a means to make things even better for you. You have the choice to pay off your debts either in part or full payment by using your home equity to repay your outstanding debts. Acquiring for a home equity loan will also provide you more time to pay back your debts. Inquire from your attorney about this option so that he can personally make the necessary preparations if you do decide to have a home equity loan. It is also interesting to see that a mortgage loan is an excellent way to rebuild your credit.

Chapter 13 bankruptcy provides filers with a specific window of time in which creditors must be paid back and a means to do it. This doesn’t require asset liquidation. The amount you’re obliged to pay is arrested by the court after they have reviewed your personal case.

Chapter 13 bankruptcy refers to personal bankruptcy. It may stop foreclosure and act as a foreclosure defense to provide you time to repay your secured debts (like your home mortgage or car loans). This Chapter is also referred to as the wage earner’s bankruptcy. If you make above the state median income, you may have to file Chapter 13 instead of Chapter 7. Also, if your personal assets are involved with your business assets, as they’re if you have a sole proprietorship, you can avoid issues such as losing your house if you file for Chapter 13 instead of Chapter 7.

In this type of bankruptcy, you have to complete a repayment plan with the bankruptcy court detailing how you’re going to repay your debts. This plan is normally for three to five years, and for it to be approved, you must pass a liquidation test that guarantees payment to the unsecured creditors of at least as much money as you’d have received if your assets were sold and disseminated in a Chapter 7 liquidation. The amount you’ll have to repay depends on your earnings, the level of the loan and the good you own.

This process has also changed due to adjustment in laws regarding bankruptcy filing. Necessary expenses like groceries, rent or mortgage, and utility bills were once fixed by the court, however, this is no longer the case. Now an IRS formula is employed to decide which expenses are deemed to be necessary.

Credit counseling sessions must be attended by everyone who wants to file for bankruptcy before the government would enable them to do so. The government doesn’t want anyone to make a hasty decision to file for bankruptcy and is trying its best efforts to stop people from taking advantage of the scheme by hiding assets. Assets acquired just prior to the application process began can be non-exempted or liquidated by the government, for example.

Bankruptcy proceedings are very serious and you should know which chapter you choose to file under and why before beginning the process. Be warned, bankruptcy lawyers are now charging more for their services since the filing process has become more complicated because of recent shifts in the law.


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