How does one determine whether bankruptcy is a good option?
The best starting point is to review several factors including your income and assets (personal property, real estate, obligations that others owe you) and compare these to your liabilities (financial obligations you owe others). With the assistance of anexperienced attorney, it can quickly be determined how difficult it would be to achieve fiscal health independently, without the use of a bankruptcy. If you have a large number of credit card balances, loans, mortgages, as well as secured loans (such as for your car) relative to your income, this can be demonstrative that bankruptcy may assist you in resetting your finances. However, it is also possible that though you have many loans, your financial situation is such that with some assistance in fiscal planning, your pecuniarylife can be drastically improved without a bankruptcy. Further, an individual is oftentimes worried that a bankruptcy will significantly injure their credit score, while the truth of the matter is, if you have many obligations that go unpaid or are not timely paid, your credit rating will not be as negatively affected. On the other hand, if you would like to buy a new home or car shortly after declaring bankruptcy, this could be a source of concern, as it typically takes a period of time to rebuild your creditworthiness after declaring bankruptcy.
How does bankruptcy work?
To declare bankruptcy and receive a discharge from your debts there are a number of steps that need to be taken and several thresholds that need to be met. Initially, you are required to take a credit counseling class, from a government-approved organization. After the course, financial documents (your bankruptcy petition) prepared by you or on your behalf will need to be filed with the United States Bankruptcy Court. The petition lists many items including all of your assets, sources of income, financial obligations,dependents, and any recent wealth transfers. On the date of filing your petition, you are afforded protection by an automatic stay, which is an automatic injunction that halts actions by creditors to collect debts against you, with certain exceptions. After your petition is filed, but before you are able to have your debts discharged, you must attend a second debtor education course. Both bankruptcy courses are short, can often be taken over the telephone and will consume a few hours of your time. Aside from taking the two courses, you are also required to meet with the United States Trustee at a Creditor Meeting, who will review the documents that you filed with the United States Bankruptcy Court and ensure that all the documents are accurate.
At the end of the bankruptcy process is when you are discharged from being personally liable for your debts. Some debts, however, are non-dischargeable, and bankruptcy is not an effective means to alleviate financial difficulty as a result of these obligations. Most student loans, alimony, child support, and judicial liens are examples of debts that are typically non-dischargeable.
How do you determine whether you are eligible for a Chapter 7 Bankruptcy?
To be eligible for a Chapter 7 Bankruptcy you need to fit within a specific income threshold (Median Income Test), or pass the Bankruptcy Means Test. The Median Income Test looks at your income and the median income in Oregon and compares the two. If you make more than the median income of a similarly sized household, you need to pass the Means Test to be eligible for a Chapter 7 Bankruptcy. If you make less than the median income figures, then you automatically qualify for a Chapter 7. If you make morethan the median income in Oregon, you may still be eligible for a Chapter 7 Bankruptcy by passing the Means Test. The Means Test looks at your incomeand allows certain expenses to be deducted from your income to determine how much money you have left over. If you are able to pay your allowed monthly expenses and still have money leftover to pay unsecured creditors (credit card companies, payday loans, etc.) you may be ineligible for a Chapter 7 Bankruptcy and are required instead to file a Chapter 13.
What happens if you are ineligible for a Chapter 7 Bankruptcy?
If your income is above the median income threshold amount and you do not pass the Means Test, you are not eligible for a Chapter 7 Bankruptcy but you can still file for a Chapter 13 Bankruptcy.
What is a Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy can be thought of as a debt repayment plan, where over a period of time you make scheduled payments to the United States Trustee, who then pays your creditors. At the end of your Chapter 13 Bankruptcy repayment plan, you receive a discharge from all the remaining debts that were not paid through the plan. Typically a repayment plan lasts between three and five years and the individual seeking bankruptcy repays a percentage of his debts, without penalties and additional fees, and interest free (with some exceptions) over the life of the plan. Though many people find a Chapter 13 more difficult than a Chapter 7 Bankruptcy, it is an extremely effective way to recover your financial health and save thousands of dollars over the life of the obligations you had obtained prior to filing for bankruptcy.
How is a Chapter 13 different than a Chapter 7 Bankruptcy?
Chapter 7 and Chapter 13 Bankruptcy have many similarities. Both provide a discharge to a petitioner at the end of their respective processes, both provide the protections of an automatic stay on the day of filing the bankruptcy petition, and both help debtors save thousands of dollars.