Bankruptcy is the procedure where people who cannot pay the debts relinquish control of their assets and finances. They can do this by a court order or agreement so as to be protected from legal action taken by their creditors. There are some rules that apply when filing for bankruptcy. The two main rules include chapter 7 bankruptcy rules and chapter 13 bankruptcy rules.
Chapter 7 bankruptcy rules
Chapter 7 bankruptcy rules can also be referred to as liquidation bankruptcy. These rules wipe out all the debt that has legal capability of being expunged. According to Liviakis Law Firm, “For a person to qualify for chapter 7 bankruptcy, his or her income has to fall below or be equal to the median income of his or her state. All states have different guidelines with regards to income. A filer may not be eligible for chapter 7 bankruptcy.” This could be as a result of the following conditions:
• Failure to go to credit counseling
• An attempt by the debtor to de-fraud the bankruptcy court or creditors
• If a debtors income and expenses allows him or her to file for chapter 13
• If an earlier debt was cleared in the past 6 years under chapter 13
• If an earlier debt was cleared in the past 8 years under chapter 7
To file for chapter 7 bankruptcy, a person has to attend credit counseling before filing. He or she has to offer information with regards to his or her income, expenditure, debt, credit holdings of his or her unsecured and secured debt, sale of earlier property, and his or her exempt property. Chapter 7 bankruptcy rules allows a filer to keep his or her exempt property which mainly includes cars, furniture, and clothes.
Chapter 13 bankruptcy rules
These rules enable people struggling with debt to seek some sense of relief via the court. Chapter 13 bankruptcy is also used to assist people who may be going through an anticipated financial problem by offering protection on some of their most valued assets. For a person to file for chapter 13 bankruptcy, he or she has to go to credit counseling before filing for bankruptcy. After counseling, he or she must pat a certain amount of money depending with the guidelines of his or her state. He or she should also provide information on his or her debt, expenses, income, and credit holdings of his or her unsecured and secured debt.
There are times when filing for chapter 13 bankruptcy is better than chapter 7 bankruptcy. Some of these instances could include situations where your car loan or mortgage is behind, a student loan, or any other debt that cannot be cleared under chapter 7, you have non-exempt property you prefer to keep, if you have the wish to pay your debts, and if you have a co-debtor.
To be eligible for chapter 13 bankruptcy the following conditions have to be met.
• You need to have sufficient income to meet your dept repayment commitments. Funds from the following sources can be used to finance chapter 13 bankruptcy
o Pension payments
o Rents
o Welfare payments
o Money acquired from sale of property
o Salary
o Social security benefits
• Your debts should not be very high
• Your income tax filings have to be up to date
It is important to note that businesses cannot file for this type of bankruptcy. If a person owns a business he or she can, however, file for this type of bankruptcy as an individual. A person can include his or her bankruptcy case with business associated debts that he or she is personally responsible for.
