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understanding the complexities of bankruptcy law

Mar 1, 2008
In the USA today there have been some dramatic changes made in relation to the Bankruptcy Law. It is important therefore that all should know what these changes are just in case one finds themselves in a situation where they are required to file for bankruptcy.

However, before we look at the major changes that have occurred we need to explain a little bit about the different kinds of bankruptcy one can now file for.

Chapter 7 - Of all the types of bankruptcy one can file for this is the most commonly used. Once a person files for Chapter 7, a trustee is appointed who will oversee the property and assets of the person who has filed for bankruptcy. If they can, they will obtain some of the person's assets in order that they can be sold off and then the money raised is used to pay back the person's creditors. Often after filing a Chapter 7, a person will discover that most of their debts will have been cancelled in their entirety, although many do not realize that not all types of debts are wiped out.

Chapter 11 - This type of bankruptcy filing is more commonly used by businesses, but can be used by individuals as well. However, often because this form of bankruptcy can prove to be expensive and complex it is not one that many people like to use. Also, the people who are most likely to file a Chapter 11 is because they have debts which are above the limits set in a Chapter 13 bankruptcy filing. However, with this particular bankruptcy a business is able to continue operating whilst actually sheltering it from some (again, not all) of its debts.

Chapter 13 - With this form of bankruptcy also known as "Wage-Earner Bankruptcy" a proposed repayment plan will be set up in order to clear your debts. If this is then approved by a court, a trustee is appointed and they will collect the payments from you to distribute to your creditors. It is their job to ensure that you comply with the repayment plan at all times. This does not wipe out your debts.

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.

So in order to see whether a person is actually able to file for Chapter 7, they will need to under go a means test first. If it is found that their income is higher than that considered as the median for where they reside then they will need to file for Chapter 13 instead.

Along with the limit being set at a particular level for Chapter 7 before you can actually file for bankruptcy you need to under go credit counseling beforehand. As part of the new bankruptcy law one also will need to participate in additional counseling in relation to controlling your budget and the best way to manage the debts that you currently have before they can be cancelled.
About the Author
For more insights and additional information about Bankruptcy Law as well as getting a free bankruptcy evaluation from a bankruptcy attorney local to you, please visit our web site at http://www.bankruptcy-data.com
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