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Bankruptcy & Bankruptcy Alternatives
Although bankruptcy may seem like the right answer for you, and often times the only way out, it can be the most damaging financial choice of your life. Bankruptcy may stay on your credit report for 10 years, could cause you to lose your precious assets such as cars or homes, and also, declaring bankruptcy in court could result in severe court fees and time wasted.
The recent change in bankruptcy laws has made it increasingly difficult for individuals to file Chapter 13 and Chapter 7 Bankruptcy. Filing for Chapter 13, a repayment program, has become increasingly difficult as calculated household expenses are determined by allowed income amounts determined by the IRS, not necessarily their actual expenses. Furthermore, these allowed amounts, or disposable incomes, must be subtracted from the filer’s average income during the six months before the filing, not from the filer’s actual monthly earnings. Consequently, debtors could be forced to pay a larger amount of disposable income into their plan than they can actually spare each month.
If you feel like filing for bankruptcy is your only option, we suggest you consider Debt Settlement. You can avoid filing bankruptcy and cut your debt down to a fraction of what you presently owe. We construct a debt management plan (DMP) for paying off your debts and present it to each of your creditors. Click here to speak with a representative and begin eliminating your debt in the most efficient way possible.
To file for Chapter 13, you may be forced to:
- Undergo a background check where your income, assets, expenses, debts, personal background and financial records are evaluated.
- Receive credit counseling within the first six months of your filing
- Submit and be approved for a repayment plan
- Meet with creditors to ensure satisfactory participation
- Submit and be approved for a repayment plan
- Meet with creditors to ensure satisfactory participation
Chapter 7 Bankruptcy, a liquidation program, has also changed. Originally, personal property including used furniture, cars, heirlooms, or hobby items was exempt property, meaning that it cannot be repossessed by creditors or the trustee. Now, all property and assets must be valued at what it would cost to replace it from a retailer taking into account its condition. Thus, the value of personal property has increased, meaning debtors can now have it repossessed and resold by trustees at a higher rate than before. Chapter 7 also has restricted eligibility. This means that your current monthly income, that of six month period before filing, is measured against the average income for a family of your size in your state. These comparison rates can be found at www.usdoj.gov/ust click “Means Testing Information.” If your income is less than or equal to the average, you are eligible for Chapter 7 Bankruptcy. If it is more, you must pass the Means Test.
Means Test:
The goal of this test is to determine whether or not you will have enough disposable income to make payments on a Chapter 13 plan. To pass, begin with your current monthly income then subtract:
I. Certain allowed expenses, set by the IRS.
II. Monthly payments for secured and priority debts.
Finally, if your total monthly disposable income after subtracting these amounts is less than $100.00, you pass the means test and will be allowed to file Chapter 7. If the income, however, is more than $166.66, you are not eligible for Chapter 7.
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