Bankruptcy Qualification and the Chapter 13 Plan

June 11, 2010 - PRLog -- Many people I meet with are concerned about the new law changes with regards to bankruptcy and specifically if they qualify to file a bankruptcy case.

When Congress passed the new Bankruptcy Reform Act that took effect in October 2005, it changed the way many attorneys had to look at filing certain cases for clients. Prior to the Act, many people could file a Chapter 7 Bankruptcy (Liquidation of Assets) without worrying if their income was more than the allowable amount or if their expenses were considered reasonably necessary.

Currently, if you want to file a Chapter 7 Bankruptcy you must show that your income minus your expenses over the last 6 months affords you the ability to file. As one client put it, “I would have to be absolutely destitute and on the street before I could consider filing my bankruptcy.” Although an extreme example, that is the thoughts by many who are unable to qualify for a Chapter 7 Bankruptcy case.

However, Congress has made it possible for almost everyone to file a Chapter 13 Bankruptcy so long as your debt for secured items (house and cars) does not exceed $900,000.00 or your unsecured debt (credit card debt, medical bills, cash advances…) does not exceed $300,000.00. A Chapter 13 Bankruptcy (Reorganization) is a 3-5 year monthly payback plan that allows your creditors to receive some money or a specific period of time.

Therefore, when the credit card companies spent their hard earned money lobbying Congress to change the bankruptcy laws, they made sure that if you absolutely had to file a bankruptcy, they had a good chance of getting paid back the debt they are owed.

In short, almost everyone qualifies for a Bankruptcy, but you must ask yourself if it is the best financial decision available.

A chapter 13 is a plan that is most often used when a person’s home is going into a foreclosure or their car is about to be repossessed. The chapter 13 is a plan the can force the car creditor or mortgage company to accept a new plan to help you keep what you are behind on, and in that plan, help with all unsecured debts to pay back what you can afford. For example, you owe $12,000 on your car. In a Chapter 13 plan the payments for the car and credit card could be $335 a month for 60 months. You would get the car title at the end of the plan, and the creditors would have received all of the money they are going to get. After the five years in a Chapter 13, there are only two years left of it showing up on your credit; three years sooner than a Chapter 7.

For more information visit http://www.bankrupcy-alternative.com/laws.html or call us directly.

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