Numerous individuals declare bankruptcy to avoid foreclosure. Others are weighed down by credit card debt and medical bills. Due to long-term unemployment and depleted investment portfolios, the economic recession has placed millions of Americans on the brink of financial disaster. People frequently believe that bankruptcy is their only option for overcoming mounting debts.
Chapter 7 and Chapter 13 are the only chapters allocated for personal bankruptcy. Chapter 7 enables debtors to liquidate their assets in order to repay their creditors. This may involve returning mortgage-secured real estate or personal property. Any outstanding loan balances are canceled, enabling debtors to start over financially.
Chapter 13 enables debtors to retain valuable assets by establishing a payment plan for creditors. Chapter 13 payments typically span two to three years. The U.S. Trustee receives payments from debtors and distributes them to creditors.
The'means test' determines the quantity of debt that must be repaid through Chapter 13. In 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect, this financial instrument was introduced. The Bankruptcy Abuse Prevention and Consumer Protection Act requires debtors who earn more than their state's median income to establish a Chapter 13 payment plan, while those who earn less may qualify for Chapter 7.
Additionally, BAPCPA mandates that debtors obtain credit counseling from a designated agency. Once concluded, debtors submit a certificate of credit counseling to the court. The certificate is required for the approval of personal bankruptcy petitions.
Due to the complexity of the new bankruptcy laws, debtors should hire a competent attorney. Consult at least three attorneys to determine which one is best suited to their requirements. Personal insolvency can be emotionally taxing and humiliating. Hiring a lawyer with a compatible personality can make the process more tolerable.
Prior to meeting with an attorney, debtors should compile financial documentation. Bankruptcy attorneys will need to examine wage earnings, bank statements, tax returns, and expenses such as mortgage or rent payments, property taxes, insurance premiums, loan payments, and credit card obligations.
When debtors qualify for Chapter 7, they are required to surrender their assets to the bankruptcy trustee, who will either return assets to creditors or sell them to pay off outstanding debts.
When required to file Chapter 13, debtors must present the bankruptcy judge with their proposed payment plan. After the Trustee approves the payment plan, the debtors are required to submit installment payments. In most cases, debtors are permitted to submit payments on their own, but courts will garnish wages until all debts are paid in full.
Creditors can request the dismissal of a bankruptcy petition if the debtor is unable to make required payments. When this occurs, the debtors are responsible for repaying the full amount of their debts. Once bankruptcy petitions have been dismissed, creditors are free to pursue legal action against debtors and continue collection efforts.
It may take several years to recover financially from the effects of personal bankruptcy. Any credit will be difficult to obtain for debtors. If they are able to obtain credit, they will likely pay significantly higher interest rates.
A bankruptcy can remain on a credit report for as long as seven years and can impact employment opportunities. Consider alternatives to bankruptcy, such as debt consolidation, debt settlement, and credit counseling. These alternatives may yield the same results without the repercussions of personal bankruptcy.""
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