Given the fact that economic depressions often due strike, our founding fathers decided in their infinite wisdom to provide help to the average citizen. So, they made provision for bankruptcy in the U.S. Constitution.
There are two chapters in the U.S.Bankruptcy code that deal with this issue:
Chapter 7 liquidation: Chapter 7, commonly referred to as straight bankruptcy, is what most of us think of when we are talking about bankruptcy.
In its simplest form, Chapter 7 clears all your bills and, in return, you will have to give up some or all of your assets. Chapter 7 does not have a repayment schedule. Your debts are totally wiped out.
Another things to bear in mind is once the claim has been filed your creditors cannot lay claim to any money or assets you receive after the claim is lodged, therefore you are protected. So most of the assets you may get after your claim has been submitted will be safe, however, there are some instances. Income tax refunds for prebankruptcy tax years can be claimed by your creditorsas well as divorce property awards, inheritances, and life insurance sets may be taken and sold for your creditors as these items were generated during the years that preceded bankruptcy. All nonexempt assets owned on the petition date are fair game. however, Just about all of consumer bankruptcies are no-asset cases, basically meaning that most debtors do not even have assets that are valuable so they are simply not worth taking away in any case.
To make use of for Chapter 7, if your wages or salary is above average, you’ll have to pass a new Means Test. You will find this to be a incredibly complicated and drawn out test, . The toughest part is just assembling the information you have to provide.
Chapter 13 reorganization:
Chapter 13 focuses on a repayment plan where you repay all or most of your debts during a three- to five-year period.
In a Chapter 13, you suggest a debt repayment plan that needs court approval and as long as you are paying money towards your creditors, they have got to leave you alone.
A budget plan that is too strict will fail and then everbody will lose. If a budget plan understands that the person paying the money back has to live then it will succeed.
Every Chapter 13 plan must pass two tests:
1. The best-interest test, which basically says that unsecured creditors be paid at least as much as they would receive if you filed a Chapter 7 instead of a Chapter 13.
2. The best-efforts test, which requires that you pay all your disposable income (the amount left over after paying reasonable living expenses) to the trustee for at least the first 36 months of your plan.
If your monthly income exceeds the median for your state, allowable expenses will be based on Internal Revenue Collection Financial Standards, and the plan must run for five years. Otherwise, the amount of your payment will be based on your actual expenses, so long as they are reasonable.
When you’re done, you’re done. Most creditors have gotten all they’re going to get. Life goes on.
Author Resource:-
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