Bankruptcy seems to be in the news quite often due to the recession, making it a very common act. As a matter of fact, the bankruptcy rates have been climbing over the past decade. The largest jump, however, has been since the middle of 2008, which was when the financial crisis worsened and many found themselves buried in a flood of expenses they couldn't pay. They either couldn't pay because they lost their jobs or because they had to deal with reduced hours at work. They simply cannot repay their large loans and other financial obligations. So what do people do in this case? They turn to Chapter 7 Bankruptcy. When an individual's income falls below the state's median income, a Chapter 7 filing is allowed. If their income falls above the state's median income, then Chapter 13 is the alternative.
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Chapter 7 details
In Chapter 7 Bankruptcy, the individual filing may be able to retain some of their assets. This is the opposite of Chapter 13, which allows the court to liquidate an individual's assets to satisfy as much of their debts as possible. If an individual filing Chapter 7 has a home and a car, they may be able to keep both of those items. However, any assets beyond the allowable amount that can include a second car, jewelry, or other assets with value, may be sold off to satisfy some of the debt.
Chapter 7 basically allows the individual to have a fresh start without being obligated to pay back their debts. They are completely discharged from the responsibility and can try to start the right way.
However, there are certain laws that mandate who can file bankruptcy and how long the bankruptcy will affect them.
The laws about Chapter 7
It used to be that an individual simply went to a lawyer and told that lawyer that they wanted to file bankruptcy. The lawyer would then fill out the proper paperwork and then only require about 50% of the cost of the bankruptcy filing up front. Some would require the entire amount.
From there, the attorney would file the bankruptcy petition with the court and a court date would be set. In the meantime, creditors were forbidden to contact the individual who had filed against them.
Although some of this is still the same, there are parts that are different. For instance, an individual must elect for credit counseling from a federally approved credit counseling agency. The person must undergo 90 minutes of one-on-one counseling that must take place over the phone, on the Internet, in person, or in a group session. Education is offered and every aspect of a person's financial situation is evaluated to see if bankruptcy really is the right choice in their situation.
After filing
After filing Chapter 7 bankruptcy, a court date notice is then delivered. On that date, the individual filing bankruptcy sits before a judge and answers a few questions regarding asses. Creditors can appear to defend their side if they need to. Other times they attend to see what they can do in regards to obtaining assets to satisfy the debt. If the individual has no assets, there is nothing to work with. In the end, the case is discharged and the bankruptcy remains on the person's credit report for 10 years.
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