Filing Bankruptcy

     Filing bankruptcy is not something that most people do every day.  For most people, it is a very stressful time, with the amount of time dependent on whether it is a Chapter 7 bankruptcy or a Chapter 13 bankruptcy filing. Prior to filing bankruptcy you should seek professional help to find out how to avoid bankruptcy if at all possible.

       Filing bankruptcy is a legal process to help people or businesses in financial difficulties.    A Chapter 7 bankruptcy filing, or straight bankruptcy filing, results in liquidation of assets.  The proceeds of the liquidation are used to payoff creditors.  Not all assets are subject to liquidation.  The assets not subject to liquidation are called exempt.  The assets that are subject to liquidation are called non-exempt.  The remainder of the unsecured debts is then written off once the proceeds of the bankruptcy liquidation have been exhausted.  Even though filing bankruptcy leaves a mark on the credit record, the debtor in effect starts over and has to re-establish credit by obtaining some type of post bankruptcy credit.

      A Chapter 13 bankruptcy filing is a little different.  The debtor's debts are renegotiated with a payment schedule over a three to five year period.  A payment plan is worked out with the creditors and once the debtor has fulfilled his part of the plan, the balance of the debt is discharged, depending on how the plan is set up.  There is no liquidation of assets.  This is the form of bankruptcy filing used by most people who have a regular, steady income.

Filing Bankruptcy with the New Law

     The new bankruptcy law enacted in 2005 requires a means test for income prior to filing bankruptcy.  Income is determined as a six month average compared with the mean income in the area where the debtor resides.  The debtor cannot file under Chapter 7 bankruptcy if his income exceeds this mean.  Allowable expenses are based on IRS categories.  An individual whose income is less than the mean cannot file under Chapter 7 bankruptcy if disposable income, the income remaining after the deduction of expenses, exceeds one hundred dollars.  These people excluded from a Chapter 7 bankruptcy filing may be able to file under Chapter 13 bankruptcy.

Help with Filing Bankruptcy

     Either way, the debtor must seek the services of a credit counseling agency prior to filing bankruptcy.  These agencies must be approved by the United States Trustees office.  They evaluate the candidate for filing bankruptcy and work out a plan that is submitted to the Court.  The plan does not have to be accepted by the debtor or the Court. It may be that a bankruptcy filing can be avoided by negotiating with creditors.  The agancy or a bankruptcy attorney can handle these details.

     Filing bankruptcy brings peace of mind to some filers because it brings an end to the harassment by creditors whether it is a Chapter 7 bankruptcy filing or a Chapter 13 bankruptcy filing. Always seek professional help when filing bankruptcy.