Chapter 7 Bankruptcy and You
Chapter 7 bankruptcy is the type of discharge that most people
associate with the idea of bankruptcy. Chapter 7 is also the option
that most people commonly choose because it offers a fresh financial
start without the obligation to repay the debts that the debtor has
incurred. Although there are several other options that debtors can
choose to deal with their financial troubles, Chapter 7 bankruptcy
is ideal for people who have no way to repay the huge amount even
with a repayment plan. However, according to the law, bankruptcy
involves a variety of options and guidelines to help people make an
informed financial decision.
Although Chapter 7 bankruptcy provides many people with bankruptcy
alternatives and a new beginning concerning their finances, it is
not a panacea for their problems. The courts do not just grant a
complete discharge for debts without fully investigating the
circumstances surrounding the debt. People who file for a discharge
are obligated to undergo a "means test," which is a comparison of
the person's monthly income to that of the state's median income.
Due to the new law, bankruptcy petitions are subject to greater
scrutiny than in previous years and they require the signature of a
lawyer. Bankruptcy filings in the past year also affect the status
of one's petition according to the new guidelines. This helps the
courts to decide if the person is even eligible for a complete
discharge.
The new bankruptcy code guidelines are designed to discourage abuse
of the system. If an investigation finds abuse, the court can cancel
the bankruptcy or require the debtor to repay their creditors
through other means. Suspected abuse includes multiple bankruptcy
filings or trying to get debts discharged immediately after an
expensive shopping spree. In the end, the court and its officials
make the final decision regarding a Chapter 7 bankruptcy before
debtors are granted relief.
Chapter 7 bankruptcy is not the only bankruptcy alternative for a
debtor. Other bankruptcy options, such as Chapter 13 bankruptcy,
allow the debtor to repay the debts in a 3-5 year repayment plan set
up by the bankruptcy courts. The court's trustee assesses the
debtor's income and debts and decides on a plan in which the money
is taken directly out of the debtor's income for the purposes of
paying the creditors. This option is often settled out of court with
the creditors and is often used as a means for debtors to save their
home from foreclosure.
Before filing for Chapter 7 bankruptcy, the best thing you can do is
to talk to an attorney. Maybe you can avoid bankruptcy. Bankruptcy
attorneys are familiar with the entire process and can advise you as
to your best options before rushing into such a drastic measure. If
the attorney feels that you should file, they will also tell you
which chapter of bankruptcy is the most advantageous to your
particular case. Whether you decide to file or not though, focusing
your efforts on changing your behavior is best so you do not end up
in this situation again.
