"Bankruptcy Laws"

New bankruptcy laws have changed the way most people think about filing bankruptcy. Until just recently, in late 1990’s up to 1.5 million people filed for bankruptcy in the US each year.

However 2005 bankruptcy law has changed all that, it is not as easy as it was to have all your debts removed. It was never something that should have been taken lightly but very, very often people forget that there are many ways with which you can avoid bankruptcy.

It will stay on your credit report for many, many years (as many as 7 after it has been discharged) and it is going to make it harder for you to get any kind of a credit. If you however think that this is the best course of action for you, the first thing you should do before filing bankruptcy is to go and find a good lawyer to consult with.

There are just too many vitally important things about it such as disclosure and right timing that you need to take in to account before you go through with it.

You should also know that there are several different types of bankruptcy and they fall under the Chapter of the Federal Bankruptcy Act. Naturally every one of the bankruptcy chapters has special set of rules and laws of its own.

Most common bankruptcy laws:

1. Chapter 7 bankruptcy – most often used for personal bankruptcy filing. It is used for total elimination of a property own by a debtor in order to pay back the creditors and removes completely all residual debts. Basically it gives you a chance to start over from scratch.

Chapter 7 bankruptcy law allows you to keep certain possessions that are exempt by Federal or State law. Such possessions can include a house, car, business tools or certain personal belongings.

You should be aware that if you file under Chapter 7 of the bankruptcy laws act you could loose your home (consult with your lawyer about this, it differs from state to state). It is horrible thing to happen to anyone but in some cases it allows you to clear your debts faster.

New 2005 bankruptcy laws have brought with them a couple of major changes and it is now much more difficult, expensive and time consuming to clear your debts then it was before. One of the major changes is so called “means test” which decides if you can file under Chapter 7 of bankruptcy law or not. If you fail this you will probably have to file for Chapter 13.

2. Chapter 13 bankruptcy – commonly referred to as “wage earner’s plan”. Basically it is a way to payback some of your unsecured debts with no interest. Usually it is a payback plan under which you will have to regularly payback monthly installments in the next five years. 

With new bankruptcy laws in effect more people will now have to file for Chapter 13 instead of Chapter 7 because of the above mentioned means test.

New Chapter 13 allows creditors to get more of their money back then they would have gotten under the old bankruptcy law. But it also allows you to remain in your own home as long as you keep regular monthly payments.  If you fail to do this the court will treat this as Chapter 7 and take your home away.

3. Chapter 11 of the bankruptcy law – commonly used for business bankruptcy. It is not used often used by individuals because it is very expensive and complex. Good thing about it is that it allows businesses time and means needed for reorganization.

In most cases a court will allow business to operate but it will remain under the close control of bankruptcy court...

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