Personal Bankruptcy Law Primer

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What Are the Basic Personal Bankruptcy Laws?

Personal Bankruptcy Law Primer

Federal bankruptcy rules are in Title 11 of the U.S. Code. There are various types of bankruptcy filings and each have their own specific requirements. For individuals, there are two primary types of bankruptcy filings that apply for personal debt. New laws instituted by the federal government include the necessity to obtain credit counseling if you are filing bankruptcy. Before you file, you need to understand the requirements of each chapter to enable you to make a decision as to the best option for your individual needs.

Chapter 7 Bankruptcy - Before filing for protection under Chapter 7 of the bankruptcy laws, individuals must pass a means test. The changes in the law were implemented in 2005 to prevent those with high earnings to file Chapter 7 which erases all bad consumer debt. Consumers who have a sufficient income level are unable to file Chapter 7 and must instead use Chapter 13. A consumer who does not have sufficient disposable income may still be eligible for Chapter 7 filing. Those who are eligible can basically wipe their slate clean excluding certain debts such as personal injury settlements, student loans, back child support and back taxes.

Chapter 13 Bankruptcy - Chapter 13 filings allow a consumer to restructure their debt over a period of time. Depending on specific circumstances, the filers disposable income (calculated by the Internal Revenue Service) must be paid towards past due debts. Chapter 13 repayment plans may be structured to make payments on past-due debts over a period of three or five years.

Most people do not want to file bankruptcy to avoid paying lawful debts. However, job loss, the threat of foreclosure, illness and divorce may force a consumer to consider a bankruptcy filing. Consumers should always speak with an attorney who is familiar with bankruptcy law before filing.

   

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