Bankruptcy

Bankruptcy is the legal determination that an individual or an institution is insolvent and unable to pay their creditors.  Filings for bankruptcy are grouped in to different Chapters.  The most common forms of bankruptcy are Chapter 7 and Chapter 13.

In a Chapter 7 personal bankruptcy, the debtor will surrender their assets over to a bankruptcy trustee that will initiate the process of liquidating the debtors' non-exempt property in order to pay back any amounts owed to creditors.  Several forms of liens and debts cannot be discharged when filing a Chapter 7 bankruptcy.  Some of these items include child support debts, student loans, income taxes from the past three years, property taxes, and court fees, fines, and restitution payments.  Due to concerns over abuse of bankruptcy filing procedures, the Bankruptcy Abuse Prevention and Consumer Protection Act became law in the year 2005.  The regulation states that an individual may only file for Chapter 7 bankruptcy once every eight years.

Under normal circumstances, Chapter 13 filings assist in restructuring unsecured credit such as credit card debts and medical debts.  Chapter 13 does not provide a benefit that allows a debtor release from a secured debt.  For example, if you owe a mortgage on a home and are not able to meet the required payment amount on the mortgage, you are still obligated to pay the loan regardless of a Chapter 13 filing.  These constraints are somewhat similar to the Chapter 7 filing restrictions.

In the years prior to 2005, the laws were clear regarding personal bankruptcy, and it was rather simple to file a bankruptcy if you were unable to meet your financial obligations to your creditors.  However, in October of 2005 there were changes that made it much more difficult to file a personal bankruptcy.  For this reason, individuals seeking bankruptcy face difficult challenges without the support of a capital investment advisor.

Under the new laws, if you are attempting to file for personal bankruptcy you should earn less than the median salary in the state for which you reside and attend mandatory credit counseling classes ninety days prior to filing.  This prevents repeat bankruptcy filings and allows bankrupt individuals to tackle their personal and business habits that eventually could re-lead them to enter bankruptcy once again.