With the current economic situation and especially the fallout from the housing market, many people are turning to bankruptcy as a way of getting out of debt. Bankruptcy has become a more common occurrence over the years and has lost some of the negative stigmas associated with it. Today, bankruptcy filings are up and it is foreseen that these numbers will continue to rise. As previously mentioned, this increase is in large part to the housing and unsecured credit extension explosion we recently saw over the past few years.
The bankruptcy laws recently changed due to the Bankruptcy Abuse Prevention and Consumer Protection Act and went into effect in 2005. These changes now require one to qualify for Chapter 7 bankruptcy under a “means test”. In a Chapter 7 bankruptcy, the qualifying debts are completely eliminated. The bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7.
The act also imposed stricter rules and budgets on Chapter 13 debtors. If a Chapter 7 bankruptcy is out of the question, then a Chapter 13 bankruptcy may be an alternative. Chapter 13 bankruptcy allows a debtor to keep some of their assets, depending on their income. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. years Under Chapter 13, a debtor pays a percentage of the debt owed.
Under either of these plans, a debtor may be able to solve their financial difficulties and start anew. It is important to discuss these matters with a bankruptcy attorney who can help make the right decision.
Carmenates Law Firm P.A.
1414 NW 107TH AVE, STE 410b
Doral, FL 33172
Phone 305 924 5184
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