There are two types of bankruptcy: voluntary, in which the debtor initiates the proceedings, and involuntary, in which the creditors initiate the proceedings to defend their interests and enforce their rights.
There are two types of voluntary bankruptcy: one under Chapter 7 of the Bankruptcy Code and the other under Chapter 13 of the same law.
Once Chapter 7 bankruptcy is granted, the debtor will be required to surrender his non-exempt properties to a trustee, who will then liquidate them and distribute the proceeds to the debtor's unsecured creditors in proportion to how much they lent him. These debts will be discharged upon distribution of the proceeds, regardless of whether or not the liquidated assets are sufficient to satisfy them. The debtor can begin his financial existence from scratch.
Chapter 13 bankruptcy, on the other hand, operates similarly, with one significant exception. Before being discharged from his unsecured debts, the delinquent will be required to repay a portion of his unpaid balances. This portion depends on the court's determination, taking into account the debtor's financial capabilities in the foreseeable future, regardless of how dire they may appear at the time the petition is granted.
One would immediately believe that Chapter 7 bankruptcy is the superior option.
Well, it is.
Unfortunately, it is not up to the insolvent to choose which chapter of the statute his petition for judicial declaration of bankruptcy should be filed under.
The law is quite explicit regarding this matter. First, the income of the petitioner will be considered. If his income is below the median, he will be eligible to file for Chapter 7 bankruptcy. But if his income is marginally above the median, he will be subjected to a """"means test.""
This """"means test"""" will determine his ability to pay his obligations and the amount he will be able to pay. This will serve as the premise for Chapter 13 of the Bankruptcy Law's terms and conditions.
The aforementioned legislation was approved by Congress in 2005.
It is recommended that a debtor retain the services of a bankruptcy attorney so that his interests are protected as effectively as feasible. A lawyer will defend the petitioner against any and all assaults against his petition so that he can be declared bankrupt and relieved of his financial woes.
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