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Bankruptcy Article
Chapter 7 Bankruptcy and Chapter 13 Bankruptcy
and what steps you need to take
by Zip E News
Chapter 7 bankruptcy is often referred to as
liquidation because a bankruptcy trustee can liquidate (convert to
cash) your non-exempt assets to pay part of the your outstanding
bills. The term liquidation is rather misleading, since most people
who file for Chapter 7 bankruptcy do not have any exempt assets, and
thus there is no actual liquidation. Visit
ADS Financial for
your debt options.
Chapter 7 bankruptcy cases move relatively
quickly, and you may receive your discharge in just a few months. A
discharge will eliminate unsecured debts like credit card debt,
medical bills, most personal loans, judgments resulting from car
accidents, deficiencies on repossessed vehicles, some older tax
debts, payday loans, and garnishments. Certain debts are classified
"non-dischargeable debts" and cannot be discharged, or can only be
discharged under very specific circumstances. These include child
support, most student loans, and many tax debts.
Before filing for Chapter 7 bankruptcy, you will
have to qualify through a Chapter 7 means test. Although there was a
lot of media hype about the means test disqualifying people from
filing for Chapter 7 bankruptcy when it was introduced in 2005, the
truth is that more than 96% of potential Chapter 7 petitioners still
qualify. In the unlikely event that you are one of those few who do
not, you may still file under Chapter 13 bankruptcy.
Before Filing your Chapter 7 Bankruptcy Case,
You Must Receive a Briefing from a Credit Counseling Agency
The law requires that you receive a Credit
Counseling Briefing from a certified credit counseling agency before
you may file a Chapter 7 bankruptcy petition. The agency will
explain financial management and how to do a budget analysis, and
will also discuss alternatives to bankruptcy. While there are some
hardship exceptions to this rule, most debtors will have to get this
briefing, and failing to do so before filing may result in your case
being DISMISSED.
Get Protection from Your Creditors when You File
for Bankruptcy
A fresh financial start may be in sight following
these steps. You will first have to complete your credit counseling
session and then provide all of the necessary information to your
attorney, who will review your situation and prepare a bankruptcy
petition. You will have to list personal information, including all
of your income, assets, expenses and debts, on your bankruptcy
petition and any related forms and schedules. You will also have to
include any applicable exemptions to which you're entitled.
From here, your attorney files the petition in
local bankruptcy court, which will appoint a bankruptcy trustee to
your case. In most cases, an "Automatic Stay" is entered to prevent
creditors from taking any further action against you outside of
bankruptcy court.
You Have to Do Your Part to Get Your Bankruptcy
Discharge
Be sure to follow your attorney's advice and do
not attempt to conceal your property, destroy any financial records,
violate any court order or make enormous, last-minute charges on
your credit cards. Please note that you may only file for Chapter 7
bankruptcy once in eight years. Understanding the Chapter 7
bankruptcy timeline is critical to making good decisions for your
financial future.
Chapter 7 Bankruptcy Exemptions Protect Your
Property from Creditors
Exemptions protect certain property from
liquidation in bankruptcy. The specifics vary from state to state.
Exemptions typically include your primary residence, tools, work
equipment, vehicle, certain items of personal property and numerous
other categories of property.
In most cases, exemptions will protect all of
your property. If not, your court-appointed bankruptcy trustee can
liquidate your non-exempt assets to pay your creditors. However, a
trustee will only liquidate in most cases if he or she can obtain
enough money from a sale to make a significant payment to your
creditors.
Keep Your Car - and Other Assets - by
Reaffirming Secured Debts
While Chapter 7 bankruptcy may help eliminate
unsecured debts, secured debts are generally not separated from the
assets that secure them. That means that if you want your car loan
discharged, you'll have to give back the car.
However, if you want to keep your car (or another
asset that serves as security for a debt) you may be able to
negotiate a reaffirmation agreement with your creditors in Chapter 7
bankruptcy. By reaffirming a debt, you agree to continue making
payments in exchange for the right to keep your property.
The Final Step
Before getting your bankruptcy discharge, you
must complete an approved Debtor Education Course: a personal
financial management course required by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005.
Chapter 13 Bankruptcy
Attorney’s
are quick to point out the benefits of bankruptcy, while dismissing
the affect of that decision on your credit rating.
Bankruptcy can remain on your credit rating for more than 7
years. ADS Financial
using debt settlement will also repay creditors at a reduced rate
without declaring bankruptcy. Remember the new bankruptcy laws are
more intricate to process thus allowing attorney to charge much more
for their service than in the past (attorneys are paid first not
your creditors).
The
centerpiece of your Chapter 13 bankruptcy case is your repayment
plan
Your
repayment plan is an agreement between you and your creditors. Just
as in debt settlement your creditors agree to forgive a portion of
your debts to them in exchange for your commitment to repay your
reduced debts. Many plans require you to make monthly payments to
the bankruptcy trustee-a federal official who is appointed by the
court to oversee your case. The trustee will make distributions to
your creditors. Typically, your repayment plan will last from three
to five years. While you are making payments under a repayment plan,
the creditors listed in your plan cannot take any collection actions
against you, and they are required by law to abide by the terms of
your repayment plan.
Before your
discharge is approved, you must receive financial education
The
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 also
requires financial education. You must complete an instructional
course concerning personal financial management. Your attorney can
refer you to an approved financial management class.
Not all
debtors qualify for Chapter 13 bankruptcy
A
Chapter 13 bankruptcy is not for everyone. You may qualify for a
Chapter 13 bankruptcy only if you can satisfy the following three
requirements:
* You must
have a regular source of income. Because you must be able to meet
the terms of your repayment plan, the bankruptcy law requires that
your income be "stable and regular" if you wish to file a Chapter
13.
* You must
have enough disposable income. The law requires you not only to have
a "regular" source of income, but also to have sufficient
"disposable income." In other words, you must have income left over
after your expenses for basic human needs each month to allow you to
make monthly payments under your repayment plan. There is no set
formula for determining how much income is enough, and the courts
are flexible in determining this. Courts will often require you to
submit a proposed budget to see if you can satisfy these
requirements
* Your
debts must not be too high. If your secured debts (which include
loans you have secured by liens on your property, such as your home
and auto loans, and even IRS tax liens) exceed $922,975, you are not
eligible for a Chapter 13 bankruptcy. Also, your unsecured debts may
not exceed $307,675 (unsecured debts are debts for which you have
not pledged any of your property as collateral-such as most credit
card debt, personal loans, and utility bills.
If you don't
qualify for a Chapter 13 bankruptcy, don't worry; you'll probably be
able to qualify for Chapter 7 bankruptcy.
The Benefits
of Chapter 13 Bankruptcy
Of
course, you will need to work closely with your bankruptcy attorney
to determine whether a Chapter 13 or Chapter 7 bankruptcy is best
for you. This will depend on a number of factors, such as your
income, your expenses, and the nature of your debts. However, in
general, a Chapter 13 bankruptcy case will be better for you than a
Chapter 7 bankruptcy if:
* You are
behind in your payments for property that you want to keep after
bankruptcy. For example, if you are late on your mortgage or
automobile loan, and you want to get current with these payments and
keep your property, you can do this under a Chapter 13 plan.
* You have tax
debts. It is very difficult to discharge your tax debts in Chapter 7
bankruptcy. Furthermore, even if you are able to discharge some tax
debts through Chapter 7, if the IRS has any recorded tax liens
against you, these liens will survive your bankruptcy. They’ll still
be on your record, and the IRS can seize any property you owned at
the time you filed bankruptcy. Accordingly, if a large percentage of
your debt involves unpaid federal taxes, and you have the ability to
repay them over time, a Chapter 13 bankruptcy may be a better
alternative for you than a Chapter 7.
* If you have
nonexempt property you want to keep. If you have a lot of nonexempt
property--property which you would have to give up to your creditors
were you to file bankruptcy under Chapter 7--Chapter 13 may allow
you to keep this property.
* If you have
received a Chapter 7 discharge previously, you cannot file another
Chapter 7 bankruptcy case for eight years.
* To protect
cosigners on your debts. If you had your spouse or parent cosign on
an auto or other personal loan for you prior to your bankruptcy, a
Chapter 7 won't protect your cosigner, and your creditor could go
after your family member for the full amount of your debt. If,
instead, you file under Chapter 13, your cosigner will be fully
protected from your creditors as long as you make your payments
under your repayment plan.
*
Consolidate your student loans. Although you can't discharge your
student loans in a Chapter 7 bankruptcy, you can include them in
your Chapter 13 repayment plan and repay them over time.
Are you
ready to get a fresh start through Chapter 13 bankruptcy?
If
you're hesitating to file a Chapter 13 because of the stigma
involved, or because you have a vague sense that it's wrong, don't
hesitate any longer. Bankruptcy is nothing to be ashamed about. In
fact, Congress passed the bankruptcy laws to encourage financially
troubled individuals to get their financial lives together.
Don’t
forget to examine debt settlement which can reduce your debt while
maintaining financial control. The most comprehensive and cost
effective company offering this alternative is
ADS Financial LLC.
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