Personal Bankruptcy

Personal bankruptcy is the determination that an individual is insolvent and is unable to pay their creditors.  Personal bankruptcy is classified by chapters according to the Administrative Office of the U.S. Courts. This article is a brief overview of chapter 7 and 13 bankruptcy. 

Chapter 7 - Liquidation under the Bankruptcy Code

In this chapter, an individual, partnership, corporation, or other business entity can meet the criteria for Chapter 7 bankruptcy despite of the sum of the debt.  The most important reasons for filing a chapter 7 with with a chapter 7 bankruptcy attorney is so that certain debt is discharged and the debtor can make a new start.  In Chapter 7 bankruptcy, the debtor has no liability for the discharged debt.  Only individual debtors can discharge debt under this chapter.  The debtor has to turn over his/her assets to a bankruptcy trustee appointed by the court.  The trustee will commence the process of liquidating all the debtors' non-exempt property.  This is done in order to pay back as much of debt owed to creditors as possible.  The discharge of debt is not absolute and discharging certain types of debt is prohibited.  A Chapter 7 bankruptcy debt discharge does not eliminate certain debts or liens against the debtor’s property.  Some debts that cannot be discharged include child support obligations, student loans, income taxes, property taxes, court fees, fines, and restitution payments.  Concerns about abuse of the bankruptcy protection laws, prompted the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005.  According to the Act, an individual can only file for Chapter 7 bankruptcy once every eight years.

Chapter 13 - Individual Debt Adjustment

In this chapter, the court will adjust an individual’s debt if he/she has a regular income.  This is done so that the individual can keep his/her property while the debt is repaid.  Chapter 13 bankruptcy is used to assist the debtor in restructuring his/her unsecured debt such as credit card and medical debts.  Chapter 13 does not offer release from secured debt.  This means that if a debtor has a mortgage on his/her home, the debtor is still responsible for making the mortgage payments even if he/she has filed for Chapter 13 bankruptcy.  A married debtor filing for Chapter 13 must submit the income, asset, expense, and debt information for his/her spouse regardless of whether the couple is filing a joint petition, separate petitions, or if only one spouse is filing for personal bankruptcy.  If only one spouse is filing for personal bankruptcy, the filing debtor must submit the household's complete financial information to the court, trustee, and creditors.

Under the new bankruptcy laws, if you are filing for personal bankruptcy, you should earn less than the median salary in the state in which you reside.  A debtor filling for personal bankruptcy must also attend mandatory credit counseling classes ninety days prior to filing.  Even though the bankruptcy laws have changed, the majority of people are still eligible to file for personal bankruptcy.  Practicing chapter 7 lawyers can help you qualify and file for personal bankruptcy.

 

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