Bankruptcy is a process that offers individuals, such as consumers and businesses who are facing financial hardship a way out. The federal courts have implemented different Bankruptcy laws in each state so that individuals and businesses can get help and manage repayments under the Court.
There are different chapters of Bankruptcy. The most common form of Bankruptcy is a Chapter 7 Bankruptcy. In a Chapter 7 Bankruptcy any non exempt assets are liquidated and any outstanding debt is discharged. Chapter 7 Bankruptcy is usually for consumers. However, businesses can file under a Chapter 7 as well. In a Chapter 7 Bankruptcy, any property that is not exempt is liquidated, meaning sold by the trustee. The proceeds from the sale of any assets is then used to payback any outstanding creditors.
Unfortunately, not everyone can file a Chapter 7 bankruptcy, and get their debts wiped out completely.
If you generate too much income, have too many assets, or have filed previously then you will not qualify for a Chapter 7 Bankruptcy.
In order to file a Chapter 7 Bankruptcy, the court first looks to see if you are below the median household income level. The court uses a test called “The Means Test.” Different states such as New York and New Jersey have different median incomes which means the Means Test is different per state. The court uses this test to determine whether you qualify for a Chapter 7 Bankruptcy. In order to qualify for Bankruptcy under the means test, the court takes your average household income for the last 6 months and compares it to the standard median income for a household of the same comparable size in that state. It is important to note that social security payments are not included in calculating The Means Test.
An individual can only file for a Chapter 7 Bankruptcy every 8 years. A person who has filed a Chapter 7 Bankruptcy in the past must wait eight years before filing again.
Many people prefer to file a Chapter 7 Bankruptcy because your debt gets completely wiped out. Further, many people are under the misguided impression that filing for Chapter 7 Bankruptcy means that you won’t be able to keep any of your assets. This is completely false. There are Federal and State exemptions which allow debtors who file a Chapter 7 Bankruptcy to sometimes keep their property if they fall within the exemptions.
Unlike a Chapter 7 Bankruptcy where assets are liquidated and the debt is discharged, a second method of bankruptcy involves Reorganization. Reorganization is a method in which you can communicate to the court how much you intend to pay your creditors to clear your debts.
This is also known as filing for a Chapter 13 Bankruptcy. Unlike Chapter 7 Bankruptcy, with a
Chapter 13 you pay back your creditors over a 3-5 year plan. One of the reasons people enter into a Chapter 13 Bankruptcy is because they generate too much income or have too many assets.
The monthly payment plan in a Chapter 13 Bankruptcy is determined by adding up your outstanding debt to secured creditors. One advantage of choosing a Chapter 13 Bankruptcy is that all of your debts will be paid back interest free.
Another advantage of a Chapter 13 Bankruptcy offers individuals an opportunity for individuals with too much equity to save their homes from foreclosure. By filing a Chapter 13 Bankruptcy individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time.
Under the Bankruptcy Laws, any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief. The Bankruptcy law permits the filing of a Chapter 13 Bankruptcy as long as the individual’s unsecured debts are less than $394,725 and secured debts are less than $1,184,200. 11 U.S.C. § 109(e). These amounts are adjusted periodically . It is important to note that a corporation or partnership may not file a Chapter 13 Bankruptcy.
Under the Courts rules if you intend to file either a Chapter 7 or Chapter 13 Bankruptcy, it is required that a credit counseling course is completed prior to the filing and a debtor education course is filed after the case has been filed. These courses are done in the convenience of your own home and take about an hour each to complete. The first Course is imposed to allow you to make an informed decision whether Bankruptcy is the right option for you. While the second course will help to ensure that your finances don’t become unmanageable in the future.
In order to determine which Bankruptcy Chapter you qualify for, it is important to speak to an experienced Bankruptcy attorney who can assess your individual circumstances.
If you are considering filing bankruptcy and have more questions regarding the advantages of filing bankruptcy, then talking to an experienced New York or New Jersey bankruptcy lawyer is important. Call Karra Kingston and William Bonomo today to get a Free Consultation.