bankruptcy law - it is probably not what you assume
Friday, February 29th, 2008
Today you will find in the USA that there have been some major changes made in respect to the country’s bankruptcy law. Therefore for all Americans today it is important that they know exactly what these changes are and what effect they may have on them should they need to file for bankruptcy at any point in the future.
Below we will take a look at what changes have been made with regard to filing for bankruptcy. But first, we are going to take a look at the types of bankruptcy that one is able to file for in America at present.
Chapter 7 - This is more commonly known as “straight bankruptcy” or “liquidation” and in which a trustee will be appointed to oversee the bankrupt’s property. Some of the assets that you own will, in some cases, need to be surrendered to the trustee and which they will then sell in order to pay off your creditors. Also through this form of bankruptcy filing, most (but not all) of the debts which you will have incurred will be cancelled.
Chapter 11 - Often Chapter 11 is used by businesses who wish to file for bankruptcy, but on occasions, some individuals may choose to use this as well. But it is very rare because Chapter 11 is extremely costly to file for and also is very complex to deal with. Plus the only people who are likely to use this form of bankruptcy filing are those as individuals whose debts are above the limits set for a Chapter 13 filing (which we look at next). But for a business who files for Chapter 11 it, means that they are still able to operate as a going concern yet are sheltered from some of its debts as well.
Chapter 13 - This form of bankruptcy allows you to set up a proposed repayment plan that will help you with clearing all the debts you have. This will need to be approved by a court and a trustee will be appointed by the court to collect the necessary payments from you and then distribute them to your creditors. The trustee will ensure that at all times you comply with the repayment plan that has been put in place.
Now we have looked at some of the kinds of bankruptcy that one can file for we are now going to take a look at the changes that have occurred in the bankruptcy law. The most important change to take place is with regard to who can actually apply for bankruptcy using Chapter 7. The changes in the law now prohibit those who have a much higher income from actually using Chapter 7.
Before a person is actually able to file for Chapter 7, they will first have to undergo a means test to see what their income actually is in relation to the state’s median. If it is found that their income is higher than this, then they will instead have to file a Chapter 13.
As well as the income limit restriction, anyone who wishes to file for Chapter 7 will actually have to undergo credit counseling before they can actually file their case with the court. Also as part of the new bankruptcy law, a person will need to also undergo additional counseling relating to learning how to control their budget and also the right way of managing the debts that they have. It is only after a person has participated in such counseling then the decision to whether the debts will be cancelled or not is made.