Bankruptcy Information

     Bankruptcy information is readily available for those who need it.  Bankruptcy, by definition, is a legal solution for persons and businesses that can't pay their bills. The term doesn't mean that debtors are on their way to the proverbial poorhouse from which they will never recover.

Type of Bankruptcy Information Needed

     All bankruptcy filings begin with an income means test in which the debtor's six month average income figure is compared to the median income in the area in which he resides.  If his income is more than the median, then a Chapter 7 bankruptcy filing is not available to him.  If the debtor's income is less than the median, then disposable income and allowable expenses are calculated.  Allowable expenses are determined by using the IRS standards.  The expenses are deducted from the average income figure.  If disposable income is less than $100, then a Chapter 7 bankruptcy filing is allowable.

     There are different kinds of bankruptcy filings. A Chapter 7 bankruptcy is referred to as straight bankruptcy.  It involves asset liquidation.  Assets are valued at replacement value from a retail vendor.  Certain assets are subject to exemption as determined by state rules or federal rules.  A debtor must be a resident for at least two years to file under that state's rules.  A trustee liquidates all non-exempt assets and uses the proceeds to pay the creditors.  The filer then must prove to the court that he has completed the required debt and financial management classes.  After this, the balance of the unsecured debts is discharged.  The bankruptcy is on the filer's credit record for a period of ten years and it is in the individual's best interest to quickly re-establish good credit.  An individual can file under Chapter 7 bankruptcy once every six years.       

     In Chapter 13 bankruptcy filing the debts terms are renegotiated and a payment schedule over a five year period is worked out with creditors.  There is no liquidation of assets or discharge of debt.  Depending upon the negotiated plan with the creditors, a portion of the debt may be discharged when the debtor has fulfilled his part of the plan. Child support, divorce and student loan obligations are not exempt items.

The 2005 Law and Bankruptcy Information

     The New 2005 Bankruptcy Law requires credit counseling with an approved agency before a filing can be made.  The agency must be approved by the United States Trustee's Office.  The agency evaluates the candidates bankruptcy information and determines his eligibility for a bankruptcy filing.  It prepares a plan that his presented to the court.  The plan does not have to be accepted by either the filer or the bankruptcy court.  And as stated above, a discharge of debt cannot be obtained without proof of attendance at financial and debt management classes.

     The 2005 bankruptcy law means that some individuals in higher income brackets cannot do a straight bankruptcy filing but must file under Chapter 13 bankruptcy because of the income means test.  It also requires bankruptcy lawyers to vouch for the accuracy of the bankruptcy information.