Since bankruptcy laws changed in 2005 it has been quite a bit harder to file Chapter 7 for the debtor. Critics of the bankruptcy code, prior to the changes, complained that filing bankruptcy was just too easy. Many of these critics, obviously also creditors, lobbied with Congress for changes to the law. Those filing for bankruptcy increased over 300% from the early 80s until the law changed in 2005. With a huge number of filings, millions of dollars were lost each year in bankruptcy proceedings. It's always been a fact that the reason most Americans end up in Chapter 7 is because of a job loss, a medical problem, divorce or some kind of natural disaster. The reason that Congress had to change the law was because of those who found themselves in a financial mess by overspending. The bankruptcy code that was released in October of 2005 was intended to protect the good hard-working Americans that were dealt a bad hand and not allow those who overspent and wanted a do over.
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The bankruptcy code was created to protect the consumers and the creditors alike. Bankruptcy provides a way for people that are suffering from mountains of debt to wipe out these debts and start over. The intention of the law was also to try and return some of the money owed to the creditors that took a chance. In the case of a Chapter 7 bankruptcy most creditors take a total loss as many filings end up being no asset cases. The bankruptcy law is found in the US Bankruptcy Code under Title 11. Whether a debtor files under Chapter 13 or Chapter 7, they are still both handled in the federal district courts. Most individuals try and qualify to file Chapter 7 because there is no repayment plan and a discharge can be received usually in 4 to 6 months. There are generally two reasons why an individual would file Chapter 13. The first being, their income is too high and they don't qualify under the means test for Chapter 7 bankruptcy. The second reason is, the individual owns a lot of property that they would like to protect and keep. In a Chapter 13 bankruptcy a debtor and their bankruptcy attorney will negotiate with the creditors to pay back a reduced amount over a 3 to 5 year repayment plan. But with a Chapter 13 the individual generally gets to keep all of their property while paying a Court approved reduced amount.
Those filing for bankruptcy can qualify for Chapter 13 much easier than a Chapter 7. There are still many benefits for the Chapter 13 petitioner. As long as the debtor can continue making the court approved payment plan, they will walk away keeping their property and be debt free. The court trustee oversees the entire process and makes sure that when the payment plan is set up, it will be something that's doable for the debtor. The last thing the court wants to see is a debtor going into bankruptcy and not being able to afford the court-ordered payments. The individual pays the trustee for payment and the trustee will disperse it to the creditors. In the case of a piece of real estate the court will sometimes eliminate the second and third trust deed lowering the balance due on the property because of the current real estate collapse. This can be very beneficial to a person that is upside down in their house and still has a consistent decent income. Whichever chapter of bankruptcy you decide to file, always consult with a local bankruptcy attorney to get their views on your individual situation.
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