The Different Kinds Of Personal Bankruptcy
It is not easy to make a decision to file for bankruptcy. It is a painful and unpleasant experience but if one’s financial situation seems hopeless, it becomes his/her last resort to get out of the financial quagmire s/he has fallen into.
Under the law, there is more than one type of personal bankruptcy. Chapter 7, known as straight bankruptcy is where part or all of a person’s debts may be dismissed so s/he will be able to repay some of his/her other debts.
As the assets are liquidated, they are determined if they fall under exempt or non-exempt classification. Non-exempt assets differ from exempt assets in that the former are usually the ones that are easy to liquidate or converted to cash.
A Chapter 7 trustee is appointed by the court. The trustee distributes the assets to the creditors who accept them as payment of the debt owed them by the debtor. When the distribution process is done and there are no more non-exempt assets to be distributed, the debtor’s remaining balance is dismissed and the debtor doesn’t have to pay them back anymore.
A debtor is not qualified for Chapter 7 if s/he has a bankruptcy case dismissed within the last 180 days prior to a recent application, and neither are those who had been granted a debt discharge within the last 6 years. Remember that each state has varying laws with regards to which assets are to be exempted or not.
If a person wants to file for Chapter 7, s/he has to pass a test to prove that his/her income is below the state’s median income required for a corresponding family size. Failure to meet this requirement disqualifies the applicant for a Chapter 7 filing but instead has the option to file for Chapter 13 bankruptcy.
This Chapter 13 is the second type of bankruptcy under the U.S. Bankruptcy Code. In this type of bankruptcy, it is the court that has the supervisory powers to oversee how the filer’s debts are reorganized.
Under Chapter 13, the court will request the applicant to submit a 3- to 5-year repayment plan in which the court will have to approve. Prior to its final approval and immediately after submission of the plan, the filer has to start making payments to the court. It is then the court who will pay the creditors.
During the time that continuous payments are being made to the court, a hearing will be conducted to determine the exact amount to be paid. The judge will rule on the plan and the debtor will continue payments until the plan is completed. The remaining part of the loan is to be discharged and the debtor is no longer liable for it.
As bankruptcy laws are complex and changes constantly, it is a good idea to seek an advice of a bankruptcy lawyer on how to proceed in addition to checking other bankruptcy websites that offer comprehensive information that can arm you with the knowledge before taking the jump to bankruptcy filing.
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