Bankruptcy laws were established to provide those who can no longer meet their credit obligations with a legal avenue to eliminate or reorganize and pay off debt through court supervised payment plans in order to get a new start. There are also corporate bankruptcy laws under which businesses can do the same. The laws that govern bankruptcy proceedings are mandated by federal statutes and bankruptcy cases are therefore handled by the federal court system. This means legal proceedings and qualification requirements are the same regardless of the state in which you may live.
the Bankruptcy Abuse Prevention and Consumer Act of 2005 changed who is eligible to file Chapter 7 and Chapter 13
Though there are several types of bankruptcy, those that apply most often to the majority of cases are Chapter 7, Chapter 11 and Chapter 13. Chapter 11 is for businesses and partnerships, and Chapter 7 and Chapter 13 are the two primary bankruptcy options available for individuals, though provisions under each also apply to businesses and partnerships as well.
By filing for Chapter 7 or Chapter 13 Bankruptcy individuals receive protection under the law for negating or reorganizing debt through the court system. Chapter 7 bankruptcy requires liquidation of the debtor’s property, including assets like cars and residences. The funds generated by the liquidation of these assets are used to pay creditors.
Under Chapter 13, the debtor reorganizes assets and establishes a payment plan for settling debts through the court system. The payment plan is set up for a particular period of time – typically three to five years, and is income based. Payments are made to the bankruptcy trustee and the trustee’s office distributes funds to creditors.
Qualification for Bankruptcy
The qualifications for bankruptcy were previously quite lax. However, the Bankruptcy Abuse Prevention and Consumer Act of 2005 changed who is eligible to file Chapter 7 and Chapter 13. Under the current law, individuals must undergo a rigorous accounting process which includes the examination of all living expenses, income, assets and debts. This process is called a “means test”. If the individual is truly unable to pay off debts owed, then he or she qualifies for bankruptcy under one of these two chapters.
A bankruptcy attorney will be able to determine, based on the means test, whether you qualify for filing Chapter 7, Chapter 13, or both chapters. If you qualify for both, you will need to decide which chapter you should file and a bankruptcy lawyer can educate you on the differences in order to help you make the right decision for you and your specific circumstances.
Chapter 7 Qualification
Provided you meet the bankruptcy eligibility standards under the means test, you qualify for Chapter 7, regardless of the amount of debt you have. Chapter 7 is designed to discharge unsecured debt, or debt in which you did not have to put up any collateral in order to get credit. Examples of unsecured debt include medical bills, credit cards and utility bills. It is important to realize that under Chapter 7, you will lose property, which may include your home.
In addition to passing the means test, you must also complete an approved credit counseling course prior to filing and a debtor education course after you’ve completed the filing process but before your case is finalized. Your bankruptcy attorney will provide you resources for completing these required courses.
Chapter 13 Qualification
In order to file for Chapter 13, you must meet the eligibility standards, including passing the means test. You must also have a combination of secured and unsecured debt. Chapter 13 is designed to allow debtors to consolidate bills and make a single payment through the bankruptcy trustee to pay off creditors. This form of bankruptcy allows you to keep some of your property, like your car and your home, while still getting a fresh start by wiping out much of your debt.
You must additionally complete a pre-filing credit counseling course and a post-filing debtor education course, just as those filing Chapter 7 are required. Your bankruptcy attorney can assist you in locating approved courses for satisfying these requirements.
Other Chapters of Bankruptcy
While most individuals are perhaps the most familiar with Chapter 7, Chapter 13 and possibly Chapter 11 Bankruptcy, there are other chapters under the law. These include:
- Chapter 9, which is designed to provide debt relief for cities, towns and other municipalities. Only municipal entities can qualify under this chapter of bankruptcy law.
- Chapter 12, which is specifically designed to provide debt relief for “family farmers” and “family fishermen”. Farms and fisheries that are partnerships or businesses owned and operated by families may qualify for Chapter 12.
- Chapter 15, which governs cross-border bankruptcy proceedings. Under this chapter, cases involve parties from multiple countries, and as such, filing Chapter 15 requires the holding of international debt.
In order to determine if you qualify for bankruptcy you should consult a bankruptcy attorney. Bankruptcy lawyers typically provide a no cost consultation to determine eligibility and to discuss filing options. Click here (Insert no-follow link to the free evaluation page) for a free evaluation of your bankruptcy case by a bankruptcy attorney in your area.