Bankruptcy Questions

Bankruptcy is a process under federal law which allows consumers to have some or all of their debts forgiven. It is a consumer protection law. It allows for consumers to address overwhelming debt through cancellation or restructuring. A qualified Bankruptcy Attorney can explain all of the advantages and disadvantages of filing bankruptcy. An attorney in your area affiliated with will provide you with a free consultation to discuss the particulars of your case. Here is some basic information about bankruptcy.

Bankruptcy Law is different than most laws in that it focuses on forgiveness rather than punishment. Sometimes bad things happen to good people; bankruptcy law helps those people deal with creditors they simply cannot afford to pay.

Bankruptcy can be a powerful tool for dealing with out-of-control debt. New rules implemented in 2005 have placed some limitations on the protections that bankruptcy can provide. Most consumers file bankruptcy under Chapter 7 or Chapter 13 of the bankruptcy code.

Types of Bankruptcy

Chapter 7 is the type of bankruptcy that is most often filed. It allows a person to discharge their qualifying debts completely in an abbreviated time frame. Some debts are not eligible for discharge under the new bankruptcy rules, such as child support, alimony and student loans. An attorney can explain which debts are and are not dischargeable.

Chapter 13 consolidates your outstanding debt into a payment plan that you can afford. It allows you to rearrange your finances and repay all or a portion of your debt in order for you to get back on firm financial footing.

Persons filing for Chapter 13 bankruptcy must have sufficient disposable income to fund a repayment plan, not have more than $1,010,650 in secured debt (e.g. mortgage, car loans or loans with some form of collateral) and not have more than $336,000 in unsecured debt (e.g. credit card debt, medical bills, utility bills and legal bills).

Bankruptcy Protection

Both forms of bankruptcy provide you with a discharge, or legal release, of your debt once the case has been successfully completed. Once you receive the discharge information from the bankruptcy court, creditors are left with no legal reason to contact you or pursue debts listed in your bankruptcy documents.

An "automatic stay" goes into effect when a person or business files for bankruptcy protection. The "automatic stay" stops creditors from trying to collect any debt from you. It puts an immediate stop to creditor phone calls, collection letters, wage garnishments, lawsuits, bank levies and other forms of harassment, intimidation and scare tactics used by creditors.

You cannot file for Chapter 7 Bankruptcy if you obtained a discharge of your debts in a Chapter 7 case within the previous eight years, or a Chapter 13 Bankruptcy case within the previous six years.

If you are a disabled veteran and incurred your debt while on active military duty, or if your debts primarily come from the operation of a business, you will automatically qualify for Chapter 7 bankruptcy.

Means Test

When you file bankruptcy you must undergo a Means Test. The test is used to determine if you have enough disposable income to pay some or all of your outstanding debt under a Chapter 13 repayment plan. The repayment plan lasts from three to five years.

The first step in the means test is to determine the median income level for your area. If your average income over the past 6 months is less than the median income for your area, you are automatically eligible for Chapter 7.

If your income is more than the median income for your area, then you must continue the means test. A qualified bankruptcy attorney can guide you through this process and help you decide which type of bankruptcy best fits your current financial situation.