Qualifications for Bankruptcy
Two Types of Bankruptcy • When people hear the word “bankruptcy”, they don’t often understand its full meaning, thinking it either means not having to pay back debt or having your credit ruined for life. • A bankruptcy lawyer will explain to you that options are nuanced and you can choose between a Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy â€˘ A Chapter 7 bankruptcy is designed to release individuals from overwhelming debt. Anyone can file for Chapter 7 bankruptcy, and there is no limit on the amount to be released from. â€˘ The Chapter 7 does, however, affect your credit rating severely. It is a trade-off between complete absolution and credit risk.
The Debt Relief Barrier â€˘
Crippling debt can be something that keeps an individual or family from ever being able to succeed again. This is why the government recognizes the need for such powerful tools as the Chapter 7 bankruptcy provision.
To cut down on the abuse of the provision, Congress put into place a handful of criteria that anyone considering bankruptcy need to consider.
The Means Test â€˘ The means test is a way for the courts to determine whether you are eligible for a Chapter 7 or not. The process looks at the amount of income you have, what assets are owned, and the amount of monthly expenses you are accruing. â€˘ The leftover is then compared with the State median. If it is below the median, than you are eligible.
Credit Counseling â€˘ Because people often panic when faced with economic disaster, credit counseling is a requirement to be eligible for a Chapter 7. â€˘ This is a good thing as it can help a person see options they may not have been aware of. Many times a repayment plan with less long term repercussions is able to be found.
Debtor Education â€˘ The last requirement to file a Chapter 7 bankruptcy is debtor education class. â€˘
Classes are not overly long or strenuous, but are rather there to help you understand what you are getting into and how to avoid the same pitfalls in the future.
Disabled Veterans • It’s important to know that in some cases the government grants special leniency for disabled veterans. • If you are able to show that you debt was accrued while actively serving the country, than it is highly likely that you will be able to file a Chapter 7
Chapter 13 Bankruptcy â€˘ Unlike the previous option, a Chapter 13 bankruptcy is for highincome individuals who do not pass the means test. â€˘ Those applying must still prove financial trial, but the amount of the debt that can be forgiven is limited. As well, the credit penalties need not be as severe as a Chapter 7.
Climbing Out of Debt â€˘ The purpose of the Chapter 13 is to allow you to release some debts while still paying off others. This is a more preferable option as you can still leave some of your credit options intact. â€˘ A modification lawyer can work with you to help you work out reasonable and doable payment plans.