History of Personal Bankruptcy

Personal bankruptcy has undergone a lot of changes recently, so we have put together this guide on the basics of personal bankruptcy. Here we’ll talk about the two primary types of bankruptcy and what the latest requirements are to declare.

Types of Personal Bankruptcy

Chapter 7 bankruptcy and Chapter 13 bankruptcy are the two primary types of personal bankruptcy. More than likely, you will have to decide which is right for you and your situation. Here is a brief explanation of each:

• Chapter 7: this is also called a liquidation bankruptcy because, before your debts are discharged, the courts might sell or liquidate some of your property in order to pay your creditors. This process usually takes 4-6 months and will cost you about $300 in fees. If you have a high enough income to repay some or all of your debts, you will not be eligible for Chapter 7. Similarly, if you already received a Chapter 7 discharge within the last eight years, you will not be able to use this option. If you’re eligible, Chapter 7 has the advantages of being easier, faster, and more effective than Chapter 13, and it does not require you to make payments over time. Most people do not lose any property in Chapter 7 bankruptcy, as they start with very little to begin with.
   
• Chapter 13: this is also referred to as reorganization bankruptcy. With Chapter 13, you are required to pay some or all of your debts with your income over time. Chapter 13 bankruptcy is usually reserved for people with higher incomes who are capable of paying back at least some of their debts. If you have sufficient disposable income, you will be required to complete the payment plan before your debts are discharged. Though most debtors do not have a choice, some reasons to choose Chapter 13 over Chapter 7 include being behind on a mortgage or car loan and wanting to make up payments, having tax or student loan debt that is not dischargeable under Chapter 7, having a desire to repay your debts, owning nonexempt property that you wish to keep, or having higher income levels.

New Requirements to Declare Bankruptcy

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made obtaining a bankruptcy much more difficult and added several requirements before debts can be discharged. With few exceptions, people who want to file for bankruptcy now must complete credit counseling within six months of filing. In addition, you will also have to complete a debtor education course before your debts are discharged. Your pre-bankruptcy counseling must be obtained from a government-approved agency. Pre-bankruptcy counseling usually involves an evaluation of your personal finances, an exploration of bankruptcy alternatives, and the creation of a personal budget. Post-filing debtor education will include information on money management, budget development, responsible credit use, and other helpful resources.