Given the fact that economic depressions often due strike, our founding fathers decided in their infinite wisdom to provide help to the average citizen. So, they created a solution for bankruptcy in the U.S. Constitution.
There are two chapters in the U.S.Bankruptcy code that deal with this issue:
Chapter 7 liquidation: Chapter 7, commonly referred to as straight bankruptcy, is often what people mean or think of when they use or hear the term generically.
When explained in lay terms, Chapter 7 removes all your debt and, in exchange, you will be giving up your properties or assets. Chapter 7 bakruptcy also means you will not have to repay your debts through a payment plan. Your debts are cleared completely.
Another things to bear in mind is once the claim has been filed your creditors cannot lay claim to any money or assets you receive after the claim is lodged, therefore you are protected. So most of the assets you may get after your claim has been submitted will be safe, however, there are some instances. Income tax refunds for prebankruptcy tax years go to pay your debts as well as divorce property awards, inheritances, and life insurance sets can be seized and sold for the benefit of creditors. All nonexempt assets that you owned on the date of filing can be included. But in practice, Nearly all of consumer bankruptcies are no-asset cases, meaning that because the debtors assets are of so little value in any case that it just is not worth the time or effort.
In order to qualify for Chapter 7, if your wages or salary is above average, you’ll have to take Means Test. You will find this to be a incredibly complicated and drawn out test, it is not that hard to pass though. The real headache is to compile the mountain high information required.
Chapter 13 reorganization:
Chapter 13 focuses on a repayment plan in which you repay all or most of your debts during a three- to five-year period.
In a Chapter 13, you propose a debt repayment plan that needs court approval and thereafter keeps creditors at bay as long as you keep making payments.
A budget plan that demands frugality to the point of misery is doomed to fail. If a budget plan understands that the person paying the money back has to live then it will succeed.
Every Chapter 13 plan must pass two tests:
1. The best-interest test, which basically says that unsecured creditors be paid at least as much as they would receive if you filed a Chapter 7 instead of a Chapter 13.
2. The best-efforts test, which requires that you pay all your disposable income (the amount left over after paying reasonable living expenses) to the trustee for at least the first 36 months of your plan.
If your monthly income is more than the median for your state, allowable expenses will be based on Internal Revenue Collection Financial Standards, and the plan must run for five years. Otherwise, the amount of your payment will be based on your actual expenses, so long as they are reasonable.
When you’re done, you’re done. Most creditors have gotten all they’re going to get. Life goes on.
Author Resource:
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