Money Sense Tips

Sometimes people end up with more debt than they can handle. Often it is not due to irresponsibility, but to circumstances beyond one’s control. Job loss, unexpected medical expenses and other such situations can cause finances to take a sudden turn for the worse. When such things happen, bankruptcy can ease the financial burden.

Bankruptcy should only be used when all other alternatives have been exhausted. It remains on your credit record for ten years, making it difficult or impossible to obtain loans and other types of credit. But in some cases, it is a debtor’s only hope for relief. If you’re considering bankruptcy, it’s important to know which type is best for your situation.

Chapter 7

Chapter 7 is the most common type of bankruptcy for individuals. It requires the debtor to turn all non-exempt property over to a trustee. The trustee then liquidates the property, distributing the proceeds to creditors to lower the debt. The remainder of the debt is usually discharged, as long as it doesn’t fall into categories that are ineligible for discharge.

Those filing for Chapter 7 bankruptcy must pass a means test to show that they are unable to repay their debts. Generally, they must have a total income below the mean income for their family size in their state. Those who do not qualify for Chapter 7 usually qualify for Chapter 13.

Chapter 11

Most Chapter 11 bankruptcies are filed by businesses, but individuals are also eligible for this type of bankruptcy. This type of bankruptcy is costly and complicated, and is only appropriate for individuals under certain circumstances that involve large amounts of debt and assets.

In Chapter 11 bankruptcy, the business (if applicable) may continue to operate. A repayment plan must be written and approved by creditors and the bankruptcy court. A trustee is not appointed unless there has been some sort of wrongdoing by the filing party.

Chapter 13

Chapter 13 bankruptcy is the second most common type of bankruptcy filed by individuals. In order to qualify, debtors must have an adequate amount of disposable income and their debt must fall below limits set each year.

Instead of turning over assets and having the debt remaining after their liquidation discharged, the debtor proposes a repayment plan in which he will repay creditors over a period of three to five years. Creditors may object to the payment plan, but the bankruptcy court has the final say as to whether it is accepted. The debtor is allowed to keep his property, and he pays creditors a reduced amount.

Bankruptcy is not something to be taken likely, but sometimes it is necessary to help debtors get a fresh start. A bankruptcy attorney can help determine whether you should file, and if so which type of bankruptcy is appropriate for your situation.

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Bankruptcy

Have you read the latest news about amusement park operator Six Flags filed for bankruptcy? This is unbelievable. Is it really necessary?

For those who feel that they are in serious financial distress, bankruptcy may have crossed their minds. Bankruptcy is not something to be taken lightly. While your debt may be wiped clean, there are far-reaching consequences for that “new freedom”.

When a person’s debt has risen to a level that they can’t hope to get under control, they may consider filing for bankruptcy. For a consumer there are two bankruptcy choices: Chapter 7 and Chapter 13. Chapter 7 bankruptcies involve wiping out the debts in part or in their entirety and liquidating assets to do it. Chapter 13 bankruptcies are more of a debt restructuring plan that gives you more time and a plan to pay back a portion of the debt that is owed to creditors.

Bankruptcy damages a person’s credit. A bankruptcy judgment stays on credit reports for as long as ten years. During that time, any credit that is applied for will disclose the bankruptcy to the creditor. If filing Chapter 13, you still have to pay back part of your debt and the judgment stays on your credit report for ten years.

In the past, people have taken advantage of the bankruptcy laws. For instance, people have been able to file more than once for Chapter 7 bankruptcy. They have used it as their own personal “debt eliminator”.

Each state decides on what assets they will exempt from being seized during a bankruptcy hearing. Knowing that, some may use available cash to purchase those items (homes, cars, etc.) in an effort to avoid payment and still retain the stuff they purchased. In this instance, creditors receive little or nothing from the bankruptcy settlement.

The new laws concerning bankruptcy have changed this. Whereas courts used to have the leeway of deciding who could file for Chapter 7 bankruptcy, there are now criteria that must be met first. In order to file for Chapter 7 bankruptcy, a person has to have an income that is below the median income for the state where they live. Their income must be put through a calculation that determines if they have enough disposable income to pay twenty-five percent of their outstanding debt.

More people that file bankruptcy will have to file under Chapter 13. The courts decide what a person could pay from the information provided to them. There is an allowance made for rent/mortgage, food, and other pertinent bills. With the new bankruptcy law, standards set by the IRS determine allowable values for each of these bills. A certain amount is exempted, and the payments are determined from the rest.

Because there are more hoops to jump through, bankruptcy lawyers are charging more for their services. The whole process of bankruptcy will cost the filer more than before, which will make them think twice about the process. Credit counseling sessions are also required as a precursor to filing for bankruptcy. A credit counselor may determine that they can help you and thus eliminate the need for bankruptcy proceedings.

Bankruptcy should always be a last resort. While it will give you a clean slate, it comes at a price.