For individuals facing an intolerable debt load and thinking about filing for bankruptcy, they have two options to consider. The first is chapter 7 bankruptcy protection and the second is chapter 13. Chapters 7 and 13 refer to actual chapters in a particular title of the US Code appropriately entitled "Bankruptcy". Chapter 7 bankruptcy protection is the rapid and unsanitary bankruptcy method. The debtor files a petition with the bankruptcy court, and the court trustee oversees the liquidation of non-exempt assets and the discharge of all the debtor's remaining obligations.
Chapter 13 is sometimes more favorable when compared to chapter 7 because chapter 7 does not have the power to halt motions such as foreclosure, while chapter 13 does. Under chapter 13, the debtor comes up with a debt repayment plan and presents it before the bankruptcy court, which then orders the creditors to accept the plan. Thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, it is now much more difficult for debtors to file for chapter 7. Years of complaints from lenders about lost profits due to bankruptcy prompted Congress to reform the bankruptcy law in 2005.
BAPCPA, as the new law become known, stipulated that all chapter 7 cases that didn't meet certain requirements would be converted into chapter 13 cases. Therefore, many debtors were barred from filing for chapter 7 and they didn't meet the salary requirements of chapter 13. The end result was a wave of defaults and foreclosures as homeowners could not meet the demands of both their mortgage debt and other debt, like credit card debt. BAPCPA fundamentally altered the guidelines of the game when it came to bankruptcy. The good news is that it didn't alter the simple procedure for chapter 13.
Under chapter 13, the debtor files a repayment plan with the court that lasts from three to five years. In this document, all of their expected transaction amounts to their lenders are clearly outlined and itemized. In addition, the debtor must file documents or schedules of their personal salary and expenditures, a list of all of their assets both real and personal, and a detailed list of their monthly costs that itemize everything that they spend their money to use, buy or get every month. These documents permit the court to certify that the debtor is in fact facing a dire position. Bankruptcy fraud is a federal offense, punishable by a fine and up to five years in prison.
In fact, if the debtor later attempts to reassert ownership of an unscheduled asset after the bankruptcy situation has been closed, the trustee may reopen the case and then sell off that asset for the benefit of the previous lenders. It is then up to the trustee and the judge overseeing the situation to possibly prosecute for bankruptcy fraud. Chapter 13 allows debtors to retain ownership of their assets as well as pay off their creditors on their own terms. Thus, chapter 13 is a superb alternative to chapter 7 for those that have the means of repayment.
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Bankruptcy Protection from Creditors
