It's been over five years now since the bankruptcy law has changed. The bankruptcy code was amended by Congress in 2005 and had many changes mainly making it harder to file Chapter 7. Since this time, there have been many myths created with many of them being untrue. One of the main culprits of the sharing of bad information is the Internet. There are many bankruptcy blogs that offer advice and opinions which are not all true. The new code, which went into effect October 17, 2005, did not necessarily make it harder to file bankruptcy for most people. What it was intended to do was to eliminate serial bankruptcy filers that run their debt up and file to wipe it out in a Chapter 7. There are many new requirements, but mostly it's just a few more hoops for the debtor to jump through to get their discharge. The results of a study that was done a few years ago showed that 95% of the individuals who filed bankruptcy prior to 2005, still would qualify under the new bankruptcy code.
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One myth floating around is many people think that when filing bankruptcy, the court can liquidate your assets and you lose everything. In fact, usually it's just the opposite. Most people don't lose anything as long as they use the bankruptcy exemptions to their advantage. There are exemptions to allow you to protect your household items, pension plans, 401(k), and there are even decent amounts of protection available for your car and home. The court and the creditors don't want to pull up at your house with a U-Haul and haul all of your old furniture away and try to sell it at a swap meet. The time spent trying to liquidate personal property usually outweighs the value that's received.
Chapter 7 Bankruptcy was mainly created to give relief to those burdened by credit obligations that are not secured by property. This is why Chapter 7 is the most popular choice by most filers today. The bankruptcy discharge will eliminate all unsecured debt like credit cards, judgments, personal loans and medical bills. In a Chapter 7 bankruptcy it doesn't mean that you will lose your home and car either. If you can afford to pay for them and you don't have too much equity in them, you should be able to keep them. Most of the time the creditor and many court districts require the debtor to sign a reaffirmation agreement re-obligating them to the debt. If the debtor has too much equity in their home the trustee may want to sell it to cash out on the non- exempt portion and divide it amongst creditors. In this case, it would be best for the debtor to file Chapter 13 bankruptcy. A Chapter 13 bankruptcy allows the debtor to negotiate a payment plan to catch up on any payments in the arrears with a 3 to 5 year payment plan and keep the property. The debts on a Chapter 13 bankruptcy are paid by priority with secured debts being the highest and unsecured being on the bottom of the list. At the end of the payment plan if there are any unpaid unsecured debts left, they will be discharged in the bankruptcy.
When deciding that filing bankruptcy is in your future, individuals need to educate themselves. Before hiring a bankruptcy attorney, gain as much knowledge as possible so you will be able to ask questions that could pertain to your situation. When your financial future is at stake, don't take anything for granted. It's a good idea to learn about the eligibility of the different chapters of bankruptcy and which would benefit you the most. Remember, the primary purpose of bankruptcy is to eliminate debt and give you a fresh start.
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