Bankruptcy

Over the past several years, an enormous number of people have seen assets decline in value, jobs disappear, and debts become increasingly burdensome. The bankruptcy courts were created as a part of the federal government very early in our history to ensure consistency and fairness in the debt relief process and to avoid the inherent unfairness of the process in Old England. Today, there are a number of options if you are in trouble with debt.

Allows for discharge of all qualified unsecured debt. This is the Chapter most affected by the Bankruptcy Reform Act of 2005 (which was pushed through by the creditor's lobby). You must qualify for Chapter 7 by meeting a "means test." Essentially, this means that your income after allowable expenses does not exceed an amount predetermined by the court in the area you live in. There is no hard and fast figure and it depends on a number of variables including the number of people in the household.

Under Chapter 13, the debtor develops a plan that is approved by the court for payback of a percentage of the total debt amount over a period of 3 to 5 years. This Chapter also allows the debtor to include past due mortgage payment in the go-forward plan. This Chapter is a bit more complicated and requires the debtor to have a steady income stream over the course of the plan.

This Chapter involves the reorganization of a small business or an individual with debt which exceeds the Chapter 13 limit. Like Chapter 13, a plan is developed to repay debt or a percentage thereof. Under Chapter 11, the Court, the Trustee, and the creditors may be much more active in the administration of the plan.

Who should file for bankruptcy? - Obviously, there is not easy answer to this question. It's a very personal decision and not to be taken lightly. There are people who try to abuse the system and the courts and appointed trustees are very good at ferreting out those who would file to avoid valid legal consequences. But there are far more who, through circumstances outside of their control, find themselves in need of relief, and a new start.