Most people have unforeseeable events that occur such as losing their jobs; being hospitalized and having no insurance; refinancing their house with a teaser loan; being in foreclosure, or having massive amounts of credit card debts. These are the individual that most often seek the protection of the Bankruptcy courts. Once an individual files for Bankruptcy, an Automatic Stay is issued. The Automatic Stay stops collection companies from calling and harassing you, and also stop any law suits that may been filed against you.
Chapter 7 bankruptcy allow an individual debtor to have a “fresh start“. Bankruptcy allows an individual debtor to keep certain assets, which are necessities such as, common household goods, furniture, clothing, and other similar items. Items such as a home, and car have certain exemption limits. If there is any equity over the exemption limits, it is usually distributed to the unsecured creditors. In order to file Chapter 7, an individual must pass the “means test”. Meaning that a person with a high income, and who has the capability of paying their unsecured some funds may be forced into Chapter 13. This allows an individual to maintain a basic standard of living, while working to repay creditors.
Chapter 13 bankruptcy is frequently called rehabilitation. This is advantages for a debtors that want to retain assets that are not fully exempt and would have to be liquidated in Chapter 7. This required a debtor to pay their secured creditors a 100% on the dollar on their past arrearages, and unsecured creditors what they would have received in Chapter 7. This is repaid over a period of 36-60 months. The individual debtors must show that they have sufficient income to make the monthly payments, so that the plan is feasible.
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