Though the bankruptcy laws have been changed, bankruptcy is still available for most people. There are two types of bankruptcy used by most individuals; Chapter 7 liquidation and Chapter 13 wage earner plan.
First, lets learn the lingo:
Debtor - the person filing for bankruptcy
Creditor - the company owed money
Secured Debt - any debt where the creditor can take some type of property if the debt is not paid. Common examples include mortgages and car loans.
Unsecured Debt - those debts where there is no collateral for the debt - most credit cards and personal loans fall into this category
Nondischargeable debt - those specific debts that Congress says you can't avoid through filing a bankruptcy. There are a number of nondischargeable debts. Those encountered most frequently are taxes, student loans and domestic support obligations such as child support and alimony.
Means Test - an economic litmus test to see if you are eligible for relief under Chapter 7 or if you need to file a chapter 13 bankruptcy. This is a new element of bankruptcy law added when the laws were changed in 2005. The first part of the test compares your annual household income with the median household income for the same size household in your state. If your median income is less than the state's median income, you are eligible to file for relief under Chapter 7. If your income is higher than the state's median income, you may still be eligible for relief but you will have to complete an extensive analysis of your expenses to determine if you can file for chapter 7 or not.
Exempt property - that property which the State has determined you are allowed to keep despite filing for bankruptcy. In general, individual debtor's can generally exempt $12,000 in equity in assets plus $21,625 in equity in a home. However, there are certain categories of property that you can keep regardless of value, like retirement assets.
Chapter 7 - is the liquidation provision of the bankruptcy code. The debtor is permitted to keep his/her exempt property, wipe out all dischargeable unsecured debt and start fresh. If you have a house or car that you want to keep, you are allowed to keep them if you meet the equity limits (exempt personal property is limited to $12,000 per person and real property is limited to $21,625.00) and can afford to maintain the monthly payments. If you can't afford to keep these items, you can return them to the secured creditor and discharge any remaining obligation to the creditor. You get a fresh start as soon as your discharge is entered.
Chapter 13 - is the wage earner plan. This type of bankruptcy allows you to keep all of your assets, no matter how much they are worth, but you have to make a payment each month to a bankruptcy trustee. This payment is used to catch up on past due mortgage or car payments, pay outstanding taxes, or pay unsecured creditors. It is the chapter used by homeowners who have fallen behind on their mortgage payments but want to try to keep their house. At the conclusion of your chapter 13 plan, your mortgage payments are current and you have paid some portion of your unsecured debts. Any remaining unsecured debt is discharged and you start fresh.
Which chapter is right for you? Do you need to file bankruptcy or is there another way to handle your bills? Call today to discuss your particular situation. Your initial telephone consultation is free. I can generally answer your questions and help you determine the right direction for you.
Don't wait until your situation is beyond help. Despite what the credit card companies say, most people file for bankruptcy too late to take advantage of all of the benefits that might otherwise be available. Get the information you need to make an informed decision and take back control of your finances. A fresh start is right around the corner.