A person’s debt is reorganized for repayment. To be eligible for this type of bankruptcy, you must have a steady source of income from which you can make monthly payments to your creditors for the next 3-5 years. How much you have to pay back and what your monthly payments will be are determined by the bankruptcy court and based on things like how much money you owe, how much money your creditors would have received had you filed Chapter 7 bankruptcy, and how much you can afford to pay per month.

How much you have to pay back and what your monthly payments will be are determined by the bankruptcy court and based on things like how much money you owe, how much money your creditors would have received had you filed Chapter 7 bankruptcy, and how much you can afford to pay per month. Chapter 13 is designed for individuals with regular income who want to pay their debts, but need some time to do so. To be eligible for this type of bankruptcy, you must have a steady source of income from which you can make monthly payments to your creditors for the next 3-5 years.

Unlike a Chapter 7 filing the debtor is required to follow a rigid repayment schedule making payments on both unsecured and secured debt for years to come are the draw back of a Chapter 13 filing. During this period of repayment, the bankruptcy proceeding remains open and it is often difficult for the debtor to get a credit card or even open a checking account.

When a person selects this type of bankruptcy filing he or she files a Chapter 13 petition with the Bankruptcy Court. When a corporation of business entity selects this type of bankruptcy filing it files a Chapter 11 petition with the Bankruptcy Court. A business’ Chapter 11 filing differs from a Chapter 13 filed by an actual person in that the business’ reorganization proposal may call for both payments from sales of some business assets and payments using future business income. Stockholder interests must also be addressed by a business filing a Chapter 11. The plan may ask the court to restructure the stockholders’ interests and modifying the company’s obligation of payment on a stockholders secured and unsecured debts. An individual person can file a chapter 11, but this should be done only in rare cases where there are many assets. The legal fees associated with the more complex Chapter 11 filings can be astounding!

Stockholder interests must also be addressed by a business filing a Chapter 11. The plan may ask the court to restructure the stockholders’ interests and modifying the company’s obligation of payment on a stockholders secured and unsecured debts. When an individual selects this type of bankruptcy filing he or she files a Chapter 13 petition with the Bankruptcy Court. When a corporation of business entity selects this type of bankruptcy filing it files a Chapter 11 petition with the Bankruptcy Court. A business’ Chapter 11 filing differs from a Chapter 13 filed by an actual person in that the business’ reorganization proposal may call for both payments from sales of some business assets and payments using future business income.

It is not always easy to file for bankruptcy, which in many instances, is something that does not go down too well with a person though realizing that the law does offer you protection in case you do file for bankruptcy will certainly make things a little more palatable for you. So, before you go out and decide to file bankruptcy, there are certain things to take into consideration about how to file bankruptcy.

Remember that bankruptcy should only be turned to as an absolute last option. This is because bankruptcy will affect your credit in a seriously bad way for up to ten years.

Different Types of Bankruptcy

If you have come to the conclusion that you will have to file for bankruptcy, you will need to determine which of two types of bankruptcy to file under. Which you choose will affect how you file as well as what happens as a result of your filing.

As an individual, you may learn that filing for chapter seven bankruptcies is the most popular option, while another option available is to file for chapter thirteen bankruptcies, and that because BAPCPA has more or less discouraged individuals from filing for chapter seven bankruptcies, you may be forced into filing for chapter thirteen bankruptcies instead.

It is also important to do thorough investigation on the various aspects of bankruptcy if you are seriously contemplating filing. Even though it might not be the most appealing choice, hiring a legal professional to assist you in the bankruptcy process may help you handle things in the best possible way. You should also investigate which lawyer or law firm you want to work with before making a choice.

After deciding which lawyer you are going to be working in conjunction with, speak with them about which chapter bankruptcy is right for you to file under. You need to know exactly what costs will be involved in your claiming bankruptcy. Besides the fees your lawyer will charge you, you will incur fees and charges related to the filing process.

Once you have spoken with your lawyer, make sure that all of your creditors understand that you have hired legal counsel and that their calls and questions should be directed to your attorney. This will prevent any creditors from getting in touch with you regarding debt after you file for bankruptcy.

The New Bankruptcy Laws Make it More Difficult to File Chapter 7 Bankruptcy

The most recent changes to bankruptcy laws might cause it to be more challenging for you to file bankruptcy. If you’re in a higher income bracket you’ll no longer be allowed to utilize Chapter 7 bankruptcy. Instead, you’ll have to file under Chapter 13 bankruptcy and pay off at least a few of your creditors. If you would like to file bankkruptcy, you must take part in credit guidance prior to filing. You’re also required to go to additional counseling in the area of budgeting and debt management. The extra counseling is a prerequisite to acquire a release of your debts. And, since the law imposes new demands on attorneys, you might have a tougher time getting a attorney to accept your bankruptcy case.

Modified Eligibility for Chapter 7 Bankruptcy

Under the old bankruptcy laws, you were allowed to select the type of bankruptcy that appeared best for you. In most all cases that would be a Chapter 7 bankruptcy liquidation instead of a Chapter 13 bankruptcy repayment. But, if you’re in a high income bracket, the new bankruptcy laws won’t let you to file Chapter 7 bankruptcy.

To find out whether you’re able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first evaluate your “current monthly income” against the median income for a family unit of your size in your state. If your income is lower than or equivalent to the median, you’ll be able to file for Chapter 7 bankruptcy. If it’s more than the median, however, you must pass a new test to file for Chapter 7 bankruptcy. The other test is known as “the means test.”

The purpose of the means test is to ascertain whether you have sufficient free income, after deducting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you deduct certain allowed expenses and debt payments from your current monthly income. If the money that’s left over after these computations is under a specific amount, you’ll be able to file for Chapter 7.

Counseling Prerequisites

Prior to filing for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency accredited by the United States Trustee’s office. The reason for this counseling requirement is that it helps you in discovering whether you really need to file for bankruptcy or whether an informal repayment program will help you recover your financial stability.

Counseling is necessary even if it’s obvious that a repayment plan isn’t doable for you. You’re required merely to take part in the counseling. You don’t have to consent to any repayment plan the agency offers. Even so, before you’ll be able to file bankruptcy, you’ll have to show any repayment plan the agency proposes along with a certificate certifying that you completed the counseling.

Near the end of your bankruptcy suit, you’ll have to attend another counseling session. This counseling session is fashioned to teach you personal financial management skills. You can’t have the discharge that cancels out your debts until you show proof to the court that you finished this requirement.

Lawyers May Be Harder to Hire — and a Great Deal More Pricey

The new bankruptcy laws do add numerous complicated requirements to bankruptcy filings. Some of these brand-new requirements impose more duties on attorneys leading to bankruptcy cases being more time intensive. Among the major new demands on lawyers is that they must now personally ensure the accuracy of all the info their clients give them. That extra demand means that attorneys must spend significant amounts of time on every bankruptcy suit. Thus, they’ll charge more to handle each bankruptcy suit. The new bankruptcy law requirements have actually squeezed a few bankruptcy attorneys out of the field totally.

Some Chapter 13 Filers Will Learn to Survive on Less

When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to dedicate all of your available income to your repayment plan. The old bankruptcy laws defined usable income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have changed this computation. While you still must hand over all of your disposable income, if your income is greater than the median in your state, you don’t get to figure your available income based on your real expenses. Instead, you have to calculate your spendable income using allowed expense sums prepared by the IRS. And these allowed expense numbers must be deducted from your average income during the six months before filing bankruptcy, not from your pay every month.

Added Changes

There are additional changes that can impact you negatively if you’re filing or looking at filing bankruptcy. Do your research on the new bankruptcy laws and make sure you understand the impact they have on your bankruptcy filing.