Knowing The Rules Of Bankruptcy Helps Get Over It Faster
Bankruptcy is something that people in deep financial mayhem can be thankful for because it is a way out of debts; or at least, allows a legal solution to face financial troubles fair and square.
For anyone to have a good use of it, knowledge about the rules of bankruptcy particularly the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is crucial. It was signed by President George W. Bush last April 20, 2005 and took effect starting October 17 of the same year. Its provisions are dispensed by the United States Trustee Program which is a component of the US Department of Justice.
This new Bankruptcy Law of 2005 bears reforms founded on the old Bankruptcy Law of 1978 in order to curtail the prevalent bankruptcy abuses and fraud. With the reforms, the requirements to become eligible to file and to get the debts discharged are made more stringent. This was expected to lower the number of people filing for bankruptcies. Surprisingly, however, the number did not diminish which is a proof of the deep economic predicament confronting many debtors in this generation.
The most important rules of bankruptcy that apply for individuals are Chapters 7 and 13 and Chapters 7 and 11 for business. What are the important aspects of each of these Chapters?
1. Chapter 7 is an option for both individual and business bankruptcies that can make most of the unsecured debts written off within 90 days after filing. The bankruptcy, however, stays on the credit report for 10 years. It allows the debtors to wipe out debts but it will require the liquidation or selling of assets and the proceeds to be distributed among the creditors. This means losing valuables like real estate, cars, precious jewelries, expensive art pieces and high-priced electronic gadgets. Chapter 7 makes a good option if there is nothing much to lose in terms of assets or non-exempt property like a house or car. The rules with regards exemptions vary greatly between states. For instance, the debtors can keep their homes in Florida and Texas, but in majority of states the exemptions have limitations in terms of amount of home equity. Other exemptions for assets like clothes and retirement savings also vary from state to state. The only common exemptions are the federally exempted 401K accounts, Social Security income and individual retirement accounts.
2. Chapter 13 is referred to as the wage earner’s repayment plan. This type of bankruptcy allows the debtors to keep their assets while setting up a three- or five-year repayment schedule of all or a part of their debts with the creditors. This remains for seven years on the credit report.This type of bankruptcy is ideal for the filers who have lagged in their payments due to a temporary situation but who are can just as easily bounce back because of the potentials of the debtor. A successful filing of Chapter 13 can even merit the removal of all interests on the repayments once these are already scheduled.
3. Chapter 11 is also called as the Reorganization under the Bankruptcy Code. This is the chapter that provides for the reorganization of a business interest like a corporation or partnership. This allows for companies to keep operating with its management undertaking the day-to day operations but with the critical decisions being made by the bankruptcy court. The arrangement keeps the business earning with its income being used to pay off debts. Yet, companies filing for bankruptcies may also seek relief if it so decides and which is provided for by Chapter 11.
There are requirements that make filing hard such as the computation of ‘current monthly income’ and passing of ‘the means test’ in Chapter 7 which is regarded as the potentially most advantageous type of bankruptcy. There are also counseling sessions required; one is the pre-filing counseling and the other one is the post-filing debtor education from accredited counseling entities. Filers must also stay aware that there restrictions on the kinds of debts that can be discharged; child-support, alimony and taxes can never be discharged. Purchases of luxury items and cash advance especially those made before the filing debts cannot also be discharged.
Knowing the rules of bankruptcy can help debtors better plan their moves. For instance, bankruptcy may appear for 7 to 10 years on the credit report but the credit score can be repaired. In fact, there are legal firms that can help you improve your credit score and start getting credit lines again sooner than you think possible.
