Bankruptcy can be like a thunderbolt from a clear sky. And also it can be something expected. Anyway, this can turn into the most unpleasant experience for a person. Of course it is better to think over beforehand how you will manage your finances. But even when the bus is gone you need to keep on moving.
In 2005 President Bush signed a new set of laws concerning bankruptcy. Chapter 7 and Chapter 13 of this act of law can not only bring benefits to those who went bust, but also bring drawbacks. This means that some kinds of debt under certain circumstances can be wiped out, but some cannot.
Nowadays bankruptcy is not always as bad as it was before. Thanks to new legislation a huge credit card debt can sometimes even be quite a positive experience. How is that possible? Thanks to new bankruptcy statutes. Those who face bankruptcy tend to prefer Chapter 7 of this law because it gives a real chance to wipe out ones debt completely. It is also effective, fast and easy to file.
Let us take a closer look at advantages of Chapter 7. A typical Chapter 7 case is opened and closed within three-six months. As a result a person who filed for this type of debt comes out debt-free except for certain types of debt that survive bankruptcy. They are car loans, mortgage, student loans, taxes and alimony or any other kind of child support.
But surely you have to be eligible for Chapter 7. It is not available to everyone, so you need to consider several points. The first step is to measure your monthly income. If your monthly income is lower or equals to the median you are eligible for Chapter 7.
If your income is bigger than the median you will have to pass the so called "means test". The aim is to find out whether you have any disposable income. That is how much money is left after deducting several allowed payments to pay back at least some part of debt over a five year period.
Last but not least comes another point. A credit card holder will not be able to apply for Chapter 7 if you have already filed for it within the last eight years or filed for Chapter 13 within last six years.
In some situations it is more reasonable to apply for Chapter 13. First of all if you are behind in payment schedule in a mortgage or a car loan you can make the necessary payments under Chapter 13. Chapter 7 will not allow you do this.
If you have property that you want to keep, for example a house, or land, or a family farm you will be able to keep it if you file for Chapter 13. As long as you pay according to the debt repaying plan that a judge fixes for you, you have no problems. While Chapter 7 does not allow keeping any property except for your clothing, furniture, household equipment and a cheap car.
There is another benefit in Chapter 13. If you have a co-debtor, he or she will not be bothered as long as you pay off the debt. If you apply for Chapter 7 your co-debtor will be on the hook.
Anyway, no matter what chapter you will choose, your credit score will be damaged. Not good news. Everyone knows that bankruptcy can be avoided if you use your common sense in managing your personal finances.
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