Millions of Americans are currently overwhelmed by debt. If you are one of them and are considering filing bankruptcy, then your first step is to do some research and learn the rules that will impact your ability to file.
In 2005, the United States government made some sweeping changes to the current bankruptcy laws. Known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), this law changed some of the limitations and requirements for bankruptcy filers. Knowing these changes is important as you decide whether this step is right for you.
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Let's look at the guidelines for both Chapter 7 and Chapter 13 bankruptcy because these are the two options available for most consumers.
Chapter 7 Bankruptcy Laws
If you file Chapter 7, your outstanding debts (the ones included in the bankruptcy) will be expunged from your record. While the bankruptcy does give you a clean slate in terms of your credit, it will be a negative mark on your credit report for 10 years from the date of its discharge.
Prior to 2005, almost anyone could file Chapter 7 bankruptcy. Today, you must pass a means test to determine if you earn enough to pay off all or some of your debt. Each state has its own income limits based on family size. If you live in New York and have three other people in your family, then you must make less than $77,000 a year to qualify for Chapter 7.
If you pass the means test and are able to file Chapter 7, you will have to provide documentation on all of your property. The courts have set a limit on how much property you can keep. Anything over that limit is taken by the court, sold, and used to pay your creditors. However, you may still be able to keep your car or home by negotiating with the lenders and agreeing not to include them in the bankruptcy proceedings.
Another change is that you must complete a credit counseling course within the six months before you file. Before your bankruptcy is discharged, you must also finish a financial counseling course. These are available online and do require a fee.
The cost of filing Chapter 7 bankruptcy is $175. However, you will also owe several hundred dollars in attorney fees.
Chapter 13 Bankruptcy Laws
Chapter 13 is very different from Chapter 7, although the primary goal of both is to help you remove debt from your credit report. With Chapter 13, your debts are not erased right away. Instead, you work with the courts to establish a repayment plan. You will be ordered to pay a set amount of money each month based on your earnings and expenses. The money you pay will be distributed among your creditors.
The repayment process usually lasts three to five years -- the court will set the final time limit.
As with Chapter 7, you are required to complete credit and financial counseling before filing and before the discharge date. Again, you'll be required to pay the fees associated with the counseling. You will also have to pay $160 in filing fees, plus attorneys' fees.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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