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getting a handle on bankruptcy law


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Today you will find in the USA that there have been some major changes made in respect to the country's bankruptcy law. Therefore for all Americans today it is important that they know exactly what these changes are and what effect they may have on them should they need to file for bankruptcy at any point in the future.

However, before we look at the major changes that have occurred we need to explain a little bit about the different kinds of bankruptcy one can now file for.

Chapter 7 - Of all the types of bankruptcy one can file for this is the most commonly used. Once a person files for Chapter 7, a trustee is appointed who will oversee the property and assets of the person who has filed for bankruptcy. If they can, they will obtain some of the person's assets in order that they can be sold off and then the money raised is used to pay back the person's creditors. Often after filing a Chapter 7, a person will discover that most of their debts will have been cancelled in their entirety, although many do not realize that not all types of debts are wiped out.

Chapter 11 - Often Chapter 11 is used by businesses who wish to file for bankruptcy, but on occasions, some individuals may choose to use this as well. But it is very rare because Chapter 11 is extremely costly to file for and also is very complex to deal with. Plus the only people who are likely to use this form of bankruptcy filing are those as individuals whose debts are above the limits set for a Chapter 13 filing (which we look at next). But for a business who files for Chapter 11 it, means that they are still able to operate as a going concern yet are sheltered from some of its debts as well.

Chapter 13 - Through a Chapter 13 a person will come up with a proposed repayment plan to pay back all their creditors. The court will then appoint a trustee just as they do with a Chapter 7 and it is this person who will collect the payments from the person who has filed a Chapter 13 and then pay these to the creditors. The main role of the trustee appointed to a Chapter 13 bankruptcy filing is to ensure that the person complies with the repayment plan that has been put in place at all times. Note that in this case, your debts are not wiped out.

Now we have looked at some of the kinds of bankruptcy that one can file for we are now going to take a look at the changes that have occurred in the bankruptcy law. The most important change to take place is with regard to who can actually apply for bankruptcy using Chapter 7. The changes in the law now prohibit those who have a much higher income from actually using Chapter 7.

Before a person is actually able to file for Chapter 7, they will first have to undergo a means test to see what their income actually is in relation to the state's median. If it is found that their income is higher than this, then they will instead have to file a Chapter 13.

As well as the income limit restriction, anyone who wishes to file for Chapter 7 will actually have to undergo credit counseling before they can actually file their case with the court. Also as part of the new bankruptcy law, a person will need to also undergo additional counseling relating to learning how to control their budget and also the right way of managing the debts that they have. It is only after a person has participated in such counseling then the decision to whether the debts will be cancelled or not is made.
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