Decide IF its time to file for debt bankruptcy RELIEF
Debt Bankruptcy Relief Options
Debt Relief Bankruptcy - Pre-Bankruptcy Counseling
Pre-Bankruptcy Credit Counseling is a requirement of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. It is intended to avoid abuse of the bankruptcy legal process by those consumers who should use other debt relief services to solve their financial situation.
Basically this counseling process gives you an idea of whether you really need to file for bankruptcy or whether an alternative debt relief payment plan is a better solution for you. This counseling process is required regardless if it is obvious that an alternative debt relief option is not viable for your financial situation. That is, your debts are too high and your income is too low or you are facing debts that you find unfair and don’t want to pay.
The credit counseling agency will prepare a budget based on your income and expenses, and then review your options for repaying the debt. In most cases, the agency confirms that you don’t have any feasible options for dealing with the debt other than filing for bankruptcy.
The BAPCPA law requires only that you participate in the credit counseling. You are not required to agree or accept the agency’s payment proposal. However you will be required to file the credit counseling proposal along with your other bankruptcy documents.
Debt Bankruptcy Relief - Chapter 7
Chapter 7 is the basic liquidation bankruptcy for individuals and is the most popular. It’s goal is to liquidate all of the individual’s assets to pay off the consumer’s creditors.
If you choose this option you must be prepared to lose property and/or be subject to liens and mortgages. The court appointed bankruptcy trustee manages the liquidation of all nonexempt assets under law-mandated procedures and use the proceeds to pay your creditors back. Most people who file bankruptcy can use asset exemption laws to their benefit and retain their property.
An individual must pass the means test if they have above-average income based on similar filings in their state. Also a consumer must also receive credit counseling months before filing for Chapter 7 (with few exceptions). The individual cannot have filed under Chapter 7 or any chapter if a prior bankruptcy petition recently was dismissed by the court.
Chapter 11 bankruptcy is a legal process for a corporations, small business and partnership to restructure its finances through a plan of reorganization approved by the bankruptcy court. By reducing obligations and modifying payment terms, a Chapter 11 bankruptcy can help a business balance its income and expenses, regain profitability, and continue in operation. Under Chapter 11, the debtor also can sell some or all of its assets so it can downsize its business if necessary or pay down claims that it owes.
Normally no court trustee is appointed to oversee the operations of a business debtor filing Chapter 11. Instead, the debtor continues to operate its business in the ordinary course as the “debtor in possession” (DIP). However the bankruptcy court can appoint a trustee to take over operations from the debtor if it finds sufficient cause, such as fraud, dishonest or gross mismanagement.
However the business debtor does loses control over major decisions to the bankruptcy court. The bankruptcy court must approve for example:
- Selling of major assets, such as equipment or real estate
- Entering into or breaking a lease
- Entering mortgage or other secured financing arrangements that allow the debtor to borrow money after the case is filed.
- Shutting down or expanding business operations.
- Entering into/modifying union, vendor, licensing, and other agreements.
Debt Bankruptcy Relief - Chapter 13
Anyone who is not permitted to file Chapter 7 bankruptcy will be directed to Chapter 13. Chapter 13 bankruptcy, unlike the former, is a court-approved plan for an individual to repay all or part of his/her debts over a period of three to five years. This form of consumer debt relief bankruptcy option adjusts an individual’s debt obligations in a way that the consumer’s debts are repaid, as much as possible.
It is a typical form of debt consolidation for individuals with steady source of income. If the income is within the middle or high income bracket (means test), unsecured debts will not be immediately discharged. However the individual will be allowed to keep some of the valuable assets that would have been liquidated under a Chapter 7 bankruptcy. Because it does not require liquidating all assets, an individual may be able to keep his/her home, as long as the court mandated payments are continued.