Five Rules of Bankruptcy
Five Rules of Bankruptcy
Five Rules of Bankruptcy
"Bankruptcy is a legal proceeding in which you put your money in your pants pocket and give your coat to your creditors." - Joey Adams (1911-1999), American comedian, actor and author.
Bankruptcy is one of the most difficult events one can ever face in one's life. The inability to repay one's debts is a heavy cross to bear, and many suffer from the moral implications of filing for bankruptcy. However, in many ways, it gives one a second chance to stand on his or her feet again.
If you have been assailed by the ongoing recession and have decided to file for bankruptcy, you need to be aware of the following five important rules of bankruptcy:
1. Know the difference between Chapter 7 and Chapter 13 bankruptcy
Chapters 7 and 13 of the US Bankruptcy Code are the most common forms of individual bankruptcy filings. However, there is a lot of difference between them.
While the former is a liquidation process where all debts are discharged, the latter is a reorganization of debt with a specified repayment plan. Also, under Chapter 7, only some property can be kept while the rest is liquidated, but under Chapter 13, most of the property can be retained as long as regular repayments are made. Additionally, a Chapter 7 bankruptcy remains longer in the credit report (10 years) as compared to one filed under Chapter 13 (7 years).
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was passed to make Chapter 7 filings more difficult to reduce abuse of the provision. Now, the debtor's income is calculated and then the resultant figure is compared to the median income of the state where he or she resides. Only if the debtor's household income falls below the median income for the state does the debtor qualify to file for Chapter 7 bankruptcy.
2. Know which bankruptcy to file for Now that you know the difference between Chapter 7 and Chapter 13 bankruptcy, you can decide which chapter to file under. If you are heavily in debt with practically no assets to speak of, Chapter 7 seems to be the better option, provided you qualify under the new restrictions. On the other hand, if you have temporarily fallen behind on repayments due to an unexpected event like loss of job or medical expenses, you should opt for Chapter 13.
3. Know how to file for bankruptcy
Once you've finalized your decision to file for bankruptcy, it is recommended you approach a lawyer who deals with such cases. Although technically you can file without a lawyer, the former is a better option so that all the formalities are adhered to. You can choose between a lawyer who charges a flat fee and one who charges a percentage of the debt.
4. Know the implications of filing for bankruptcy
Realize that the record of bankruptcy will remain on your credit history for 7 to 10 years, making it extremely difficult for you to get any kind of loans. Even if you get one, the interest rate will be very high.
5. Know what to do after filing for bankruptcy
After filing for bankruptcy, live within your means, do not incur additional debt, and make any scheduled payments the Bankruptcy Court orders.
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