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Filing for bankruptcy can be a hard choice to make, inevitable as it may be. As of December, 2007 there were 801,840 reported consumer bankruptcy filings in the United States. With job loss increases, layoffs and rising prices, filing for bankruptcy provides a way for hard-hit consumers to survive a failing economy.
The process required to file bankruptcy has undergone some changes as a result of people abusing the system. These changes took effect in 2005 and involve added steps to the process. -
United States Bankruptcy Code lists six types of bankruptcy claims. They are:
1. Chapter 7: Chapter 7 is a Liquidation claim, and is defined as a "no asset" case, meaning the debtor has little to no assets available for liquidation. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act that sets an income threshold for debtors. Debtors whose incomes exceeds this threshold are not eligible to file a Chapter 7 claim.
2. Chapter 13: if a debtor's income level is above the required threshold, Chapter 13 is a possible alternative. Under Chapter 13, or "Adjustment of Debts," the debtor agrees to a repayment plan and is able to keep any assets or property under the filing. Repayment plans range from three to five years. The actual bankruptcy discharge is not granted until the end of this term.
3. Chapter 11: this is a Reorganization claim made available to business owners, and is similar in format to Chapter 13. Business owners agree to a repayment plan, though they do have the option to discharge some of the debt accrued. An expected reorganization of the business is part of the plan process.
4. Chapter 12: classified as an Adjustment of Debts, Chapter 12 is the same claim type as Chapter 13, but is only made available to family farmers and fishermen.
5. Chapter 9: this is an Adjustment of Debts of a Municipality. The same provisions applied under Chapter 11 exist, though this claim is specifically designed for municipalities.
6. Chapter 15: classified as Ancillary and Other Cross-Border Cases, Chapter 15 is only for cases where the debtor shows assets in one or more foreign countries. -
Many Americans are under the assumption that the new bankruptcy laws make them ineligible to file. In some cases this may be true, however the majority of filers may still qualify. Whether a debt meets the income threshold criteria is determined by a "means test," administered by the bankruptcy lawyer. And even if your income level exceeds the threshold limit, filing a Chapter 13 claim is a viable option.
The only other changes present in the new bankruptcy code is a requirement on the debtor's part, to attend some form of credit counseling and education. This can be set up by your lawyer as well. Research your options beforehand to see what eligibility requirements are mandatory.
