In 2005, new bankruptcy laws were enacted by Congress under the Bankruptcy Abuse Prevention and Consumer Protection Act. Nearly 6 years later, consumers are still confused about BAPCPA and how it forever changed their opportunities to obtain debt relief.
Prior to the new bankruptcy laws, debtors often filed Chapter 7 which allowed them to give back assets used as collateral to secure loans through establishing a bankruptcy trust. Once debtors were paid remaining items are returned to debtors and any outstanding debts written off.
Often referred to as 'fresh start' bankruptcy, Chapter 7 was one of the better options for those who didn't mind relinquishing personal property and valuable assets. In fact, debtors were given the option to reaffirm debts for items such as their house or automobile, so in essence they didn't lose anything other than financial baggage.
Today, the only way to enter into Chapter 7 is if earned income is below state median income levels. For example, the median income for residents in Orange County, California is $68,200. Debtors who earn more will be forced to petition the court for financial relief under Chapter 13 bankruptcy.
Under Chapter 13, debtors must establish a debt repayment plan that can extend for up to 5 years. During this time, debtors remit payments to the bankruptcy Trustee who in turn remits payments to creditors.
Bankruptcy debts are paid based on one of three categories which include: Priority, Secured, and Unsecured. Priority debts encompass items such as IRS taxes, child support, and spousal alimony. Secured debts encompass any loan that is secured using collateral such as real estate or automobiles. Unsecured debts refer to credit card debt, department store or gasoline credit cards, student loans, or medical loans.
BAPCPA requires debtors to undergo the 'means' test to determine how much debt is repaid to creditors. The duration of Chapter 13 payments depends on amount of debt owed, but plans do not extend beyond 5 years.
Chapter 13 payments often impose financial hardship against those who require debt relief the most. These plans can also cause further financial problems for those enduring long term unemployment or in need of ongoing medical care.
If debtors are unable to comply with the payment plan there is a strong possibility that the Trustee will file petition with the court to have the bankruptcy dismissed. If debtors fail out of bankruptcy due to non-compliance they lose court protection unless their attorney is able to plead the case and have Chapter 13 converted to Chapter 7.
Bankruptcy is governed by the U.S. Trustee which is governed by the Department of Justice. Before bankruptcy petitions are approved through the court debtors are required to obtain credit counseling through a Trustee approved credit counseling agency. Debtors are responsible for financial costs associated with counseling. However, many of the approved agencies offer low- or no-cost counseling to those who qualify.
Although personal bankruptcy may seem to be the best option, debtors should take time researching bankruptcy alternatives before filing a petition. Alternative solutions can include mortgage loan modifications, home equity loans, debt consolidation, and debt settlement.
If bankruptcy is the only option, debtors should seek legal counsel and take time to understand the ramifications of new bankruptcy laws. They must also commit to adhering to Chapter 13 payment plans. Otherwise their efforts will be futile.
Prior to the new bankruptcy laws, debtors often filed Chapter 7 which allowed them to give back assets used as collateral to secure loans through establishing a bankruptcy trust. Once debtors were paid remaining items are returned to debtors and any outstanding debts written off.
Often referred to as 'fresh start' bankruptcy, Chapter 7 was one of the better options for those who didn't mind relinquishing personal property and valuable assets. In fact, debtors were given the option to reaffirm debts for items such as their house or automobile, so in essence they didn't lose anything other than financial baggage.
Today, the only way to enter into Chapter 7 is if earned income is below state median income levels. For example, the median income for residents in Orange County, California is $68,200. Debtors who earn more will be forced to petition the court for financial relief under Chapter 13 bankruptcy.
Under Chapter 13, debtors must establish a debt repayment plan that can extend for up to 5 years. During this time, debtors remit payments to the bankruptcy Trustee who in turn remits payments to creditors.
Bankruptcy debts are paid based on one of three categories which include: Priority, Secured, and Unsecured. Priority debts encompass items such as IRS taxes, child support, and spousal alimony. Secured debts encompass any loan that is secured using collateral such as real estate or automobiles. Unsecured debts refer to credit card debt, department store or gasoline credit cards, student loans, or medical loans.
BAPCPA requires debtors to undergo the 'means' test to determine how much debt is repaid to creditors. The duration of Chapter 13 payments depends on amount of debt owed, but plans do not extend beyond 5 years.
Chapter 13 payments often impose financial hardship against those who require debt relief the most. These plans can also cause further financial problems for those enduring long term unemployment or in need of ongoing medical care.
If debtors are unable to comply with the payment plan there is a strong possibility that the Trustee will file petition with the court to have the bankruptcy dismissed. If debtors fail out of bankruptcy due to non-compliance they lose court protection unless their attorney is able to plead the case and have Chapter 13 converted to Chapter 7.
Bankruptcy is governed by the U.S. Trustee which is governed by the Department of Justice. Before bankruptcy petitions are approved through the court debtors are required to obtain credit counseling through a Trustee approved credit counseling agency. Debtors are responsible for financial costs associated with counseling. However, many of the approved agencies offer low- or no-cost counseling to those who qualify.
Although personal bankruptcy may seem to be the best option, debtors should take time researching bankruptcy alternatives before filing a petition. Alternative solutions can include mortgage loan modifications, home equity loans, debt consolidation, and debt settlement.
If bankruptcy is the only option, debtors should seek legal counsel and take time to understand the ramifications of new bankruptcy laws. They must also commit to adhering to Chapter 13 payment plans. Otherwise their efforts will be futile.
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