Different Types Of Bankruptcy

When someone needs financial help, different types of bankruptcy will give a debtor relief from debt that is too deep to repay. This type of legal action stops creditors from harassing the debtor and allows him to take a new look at his financial picture and find a plan that will allow him to start over. Finding this plan may also help deplete the amount owed. But many people do not know much about this process and how to find their way through the legal morass of complex laws and contract obligations. Many would be wise to hire an attorney to draw up a financial plan. Others can help themselves by downloading free forms for filing bankruptcy and doing it themselves. A lot depends on how complicated the person's financial affairs are and how well he understands business law. The lawyer's responsibility is to know the law and advise the person on how best to handle the overwhelming debt.

Making this decision is a serious step, and the person who files needs to take into account all the ramifications of declaring himself insolvent. It will affect the borrowers credit rating and his ability to borrow money in the future. Therefore, finding free forms for filing bankruptcy should be a last resort. But sometimes, people can find themselves in a situation not of their control that brings on terrible debt, such as the loss of a job, an injury in which the borrower cannot work, or piled-up medical debts. In these cases, different types of bankruptcy may be the only solution. Some people have found that one method of avoiding becoming bankrupt is to negotiate with the lenders to work out individual payments. Some nonprofit organizations will help a person through this process; however, some creditors are not willing to negotiate with borrowers. For the person who decides to continue with the plan to claim a bankrupt state, free forms for filing bankruptcy can be found on the Internet. Most people should consult a legal specialists to help them through the process in the courts. If documents are filled out wrongly, the petition may be dismissed in court and the creditors are then free once again to take action against the debtor. This would be especially difficult is the owner is facing a foreclosure or a repossession. The correct petition in court will stop these actions by creditors and allow the debtor to repay the back payments over time.

There are four different types of bankruptcy--chapters 7, 11, 12, and 13. Chapter 11 applies to businesses, but can apply to someone who has an extremely large debt, and chapter 12 usually applies to farmers. Most individuals file under chapters 7 and 13. With chapter 7, the filer should have few assets and mostly unsecured debt. To qualify, the filer takes a Means Test to determine whether the filer has the right monthly income to qualify. This means that the family must have an average income that is equal to or less than the median income in his state. If a person has equity in a home or other property, he shouldn't file for Chapter 7 because his assets may be liquidated to pay the creditors. Under Chapter 13, the filer can keep his property and files a plan to repay the debt over a period of several years; therefore, the assets are not sold to pay for the debt, as what often happens in chapter 7. For both types of legal actions, the debtor is assigned a counselor or trustee who helps make up the plan to pay off the debt. Once the plan is made, the court either approves the plan or orders changes to the plan. Once the court has approved the plan, the debtor must follow through with it until all has been completed. In Chapter 13, the debtor is assigned a trustee to help manage the accounts and see to it that the borrower follows through with what he has promised to do about his finances. In both cases, the debtor is protected from creditors' harassment.

It is essential to understand the different types of bankruptcy because some are not appropriate legal action for certain individuals. On October 17, 2005, a new law was put into effect called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which prevents people with high incomes to file with chapter 7. Instead, the applicant must file with Chapter 13. In chapter 7, the debtor's property may be sold to raise some money for the creditors, therefore people who own property will want to avoid this action. One exception to this rule is when a homeowner's house is homesteaded. That means that no one can touch the home, not even those who want to recoup their losses in a bankruptcy. However, debtors may have to turn over their income to the government. For those who struggle with money, Solomon writes in the Bible, "For wisdom is a defence, and money is a defence: but the excellency of knowledge is, that wisdom giveth life to them that have it. (Eccles. 7:12). When debts rise, God is a refuge who can take the anxious heart and give peace. Different types of bankruptcy can solve some of the problems people have with too much debt. Finding free forms for filing bankruptcy on the Internet can be the first step in that process.

Changes In Bankruptcy Laws

A record number of people filed for bankruptcy seeking protection from creditors, but with the coming changes in bankruptcy laws, future filings may decrease, or at least that is the hope of congress and the US bankruptcy courts. Record numbers of Americans are drowning in excessive debt. The answer to the stress and burden of obligations for many households has been to protect themselves legally with filing a Chapter 7 or Chapter 13. Yearly, the number of those filing against creditors has risen, and the government has taken notice. Bankruptcies costs the court and losing creditors millions of dollars. The new bankruptcy law in 2005 will attempt to curb some of the abuse.

With a Chapter 13 filing, consumers and families could reconstruct their debt and be bound to court procedures for a limited time. This chapter allows for some debt elimination and an organized method to getting other debt completely paid off. The court and a trustee oversee the entire process and prioritize repayment. Repayment schedules can extend for up to five years. Although Chapter 13 is a true legal filing, it is viewed as more positive than a Chapter 7, because it allows for creditors to regain some of their funds.

Historically, a Chapter 7 filing has proven to be the most popular with consumers. With this avenue, there is the liquidation of assets to pay off debt. If there are no assets available, then debt is completely discharged and the family is given the opportunity to start completely over financially. The law varies from state to state, but most states protect certain assets from liquidation. These assets can include home equity, cars, and household items. Chapter 7 was constructed to aid persons in tragic or crisis situations, such as with the victims of the recent hurricanes. But, there has been extreme abuse of bankruptcy by consumers and now the biggest changes in bankruptcy laws effect those filing for Chapter 7 protection.

Most individuals that seek bankruptcy will now have to consider a Chapter 13, unless their income is below a certain level. These changes in bankruptcy laws will force consumers to repay debt to creditors. Other changes in bankruptcy laws have been executed as well. Those filing must now offer extensive paperwork and income proof within limited time restrictions. The amount of documentation and hassles are in place to not only properly prove the need, but to discourage consumers from abusing an easy process. The new bankruptcy law in 2005 also mandates that families receive credit counseling before filing and again after filing, to prohibit multiple filings. Personal credit counseling is intended to help consumers manage future finances more effectively.

There are also special provisions for natural disaster victims. Not all changes in bankruptcy law will apply to those who have financial difficulties due to hurricanes Katrina and Rita. The families that survived the hurricanes, but have been financially devastated, may not have to meet all of the new requirements. Some of the differences may include not seeking credit counseling and added consideration for these families' increased expenses.

Experts cite that with the new bankruptcy law in 2005, the way consumers view debt should radically change. Now, bankruptcy should not be an easy option for negating a heavy debt situation. The hope from the government is that not only will costs and filings lower, but that consumers will seriously consider how much debt they carry in their financial portfolios. The changes in bankruptcy laws hold promise to do just that.

There has already been a drop in Chapter 7 filings with the new bankruptcy law in 2005, which went into effect in October of 2005. Perhaps the record number of filings documented in 2005 were in part due to consumers rushing to obtain protection before the new and stricter procedures went into play. The mounting debt problem in America is currently being addressed by several entities, credit extenders included. Credit cards are attempting to help bankruptcies decline by restructuring payments and minimum payments due. But, the attack against excessive debt must ultimately come from the consumer.

The question of bankruptcy for Christians is a difficult and complex matter. There are devastating circumstances that can lead families to seek legal protection. But, the Bible is clear that Christians are to be examples of Christ and demonstrate His character in all of their dealings. "And whatsoever ye do in word or deed, do all in the name of the Lord Jesus, giving thanks to God and the Father by him." (Colossians 3:17) Perhaps with the changes in laws, Christians can seriously reflect on how excessive debt and unpaid bills mirror Christ's image to the unbelieving world. Christians are to be in the world but not of it. Following the path of materialism, comfort, and convenience is following the path laid forth by the world.

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