If you find yourself swimming in debt and can’t seem to find a way out you need to realize you’re not alone. This is probably one of the most difficult circumstances you’ve ever been in, and filing bankruptcy is one of the hardest choices you’ll ever make. So let’s make sure you understand exactly what is involved when filing bankruptcy and how it will affect your life. This guide will assist you to understand the process of bankruptcy from behind the scenes.
As you may know bankruptcy and its qualifications have changed dramatically over the last three years. In October 2005 federal law made it more difficult to file Chapter 7 bankruptcy which totally liquidates your obligations in favor of Chapter 13 bankruptcy which is a repayment plan of at least a portion of your debt.
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Chapter 13 bankruptcy rules dictate that people who have precious assets like a home or other valuable property (which is not covered by Chapter 7) discharge usually filed for Chapter 13 bankruptcy. Those who file Chapter 13 bankruptcy are also required to be wage earners that have stable enough income to repay a part or all of the debt through installments over 3 to 5 year period.
Chapter 13 bankruptcy is usually a three-year payment process, but can extend to five years in some cases depending on approval by the judge. All that collection efforts by creditors must cease during this period.
The critical difference between Chapter 13 bankruptcy and Chapter 7 bankruptcy is that with Chapter 13, all payments are not released immediately. Instead the debtor will reimburse their creditors over a time span of five years. Careful planning of monthly payments, and an expanded schedule submitted to the court are requirements. Additionally, debtors who file Chapter 13 bankruptcy are able to keep their homes provided they adhere to the payment schedule. Secured debt payments can also be lowered. So in a sense Chapter 13 is similar to debt consolidation programs for credit card users.
To be eligible for filing bankruptcy, the individual will need to have secured debts valued at over $800,000 in unsecured debt valued around 300,000. That’s that are not eligible under Chapter 13 are student loans, drunk driving penalties, criminal offenses and the like.
When filing for Chapter 13 bankruptcy one will need to petition with the court in their appropriate jurisdiction. Within 20 days the individual filing will need to submit it payment plan. At that point the court will appoint a neutral trustee who will act as a mediator between the creditor and debtor. One to two months after submitting the payment plan, the creditors will be called into a conference by the judge, who will then confirm the repayment plan. At this point it is up to the debtor to pay on time or they risk the chance of reverting back to chapter 7 bankruptcy.
Chapter 7 bankruptcy is one you file for liquidation. During this bankruptcy proceeding your assets will be sold as directed by the judge to pay off your creditors. It is essentially a bankruptcy proceeding for consumers who don’t have enough money to pay off their creditors.
In order to buy this some time to recover financially and satisfy creditors, consumers may file for Chapter 7 bankruptcy. A Chapter 7 bankruptcy claim relinquishes your nonexempt property to the bankruptcy trustee. At this point the trustee will proceed to liquidate the property (convert to cash), and subsequently distributed to your creditors.
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