The following information is not intended to be legal advice; rather it is just an overview on the basics of the 2 most common bankruptcy types.

There are 2 different types of bankruptcy that a client may consider:  Chapter 7 or Chapter 13.  On October 17, 2005, the bankruptcy code was revised by the “Bankruptcy Abuse Prevention and Consumer Protection Act.”   [BAPCPA]  This revision was intended to eliminate the option of Chapter 7 Bankruptcy for people who could afford to repay some of their debts.  Now, in order to qualify for Chapter 7, a client’s expenses will be examined using the government’s “means test” which was introduced as part of the 2005 revision to the law. This test analyzes a client’s income and expenses using national and local living standards, and the median income for the client’s state.

Chapter 7:  “No asset” bankruptcy – You do not have to pay any portion of your debts.

-       To qualify for a Chapter 7, first a client must obtain Consumer Credit Counseling from an organization approved by the United States Trustee’s office within 180 days of filing.  The counseling is intended to provide the client with alternatives to filing for bankruptcy.

-       A client must pass the “means test.”  If a client has a certain amount of disposable income left monthly, then they will not qualify for Chapter 7 and will only qualify for Chapter 13.

-       Many bankruptcy attorneys require you to pay their fees up front in full before they will process your bankruptcy.  Fees vary by state.

-       A bankruptcy will remain on your credit report for up to ten (10) years.

Chapter 13:  “Repayment Plan” bankruptcy – You must repay a portion of your debts.

-       The court will analyze your income and expenses, and set the client up on a repayment plan with their creditors typically for 3 to 5 years.

-       The bankruptcy Trustee monitors and administrates your payment plan

In summary, if a client may not qualify for Chapter 7 based on the “means test”, a debt settlement plan could be beneficial because it will not be listed on their credit report as a bankruptcy.  A  Chapter 13 may be the only type a client would qualify for, and as seen above, the client will be entering into a quasi- Debt Settlement Plan anyway, but that plan is monitored by a judge and a court of law!

Is It Harder To File For Bankruptcy Now?

I love this quote and it is great advice.  It scares me what Washington and George Bush did in 2005 by passing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or the BAPCPA.  It gave the power back to the credit card companies.  It has been a few years since the new bankruptcy law was put into effect.  Personal Bankruptcies are at record lows.  This could be due to the fact that many consumers with financial issues rushed to do their BK before the new law came into effect.  I think that it has more to do with the myths and misconceptions about filing for bankruptcy now that discourage people from doing so.

Scary Facts About The New Bankruptcy Law

Shortly after the new legislation, many credit card companies doubled their minimum mnthly payments from 2% of the balance to 4% of the balance.  Congress also voted themselves a raise while refusing to raise the minimum wage standard.  Over 70% of Americans live paycheck to paycheck and are less than one month from bankruptcy.

The BAPCPA Seems To Be About Money And Big Business And Not People

Payday loan companies are charging people as much as 300% interest or more.  If Thomas Jefferson knew about this he would roll over in his grave.

This information is of general interest and not considered legal advice.  Should you require legal advice seek the services of a qualified professional or attorney.