The Fundamentals of Filing for Bankruptcy

Introduction

Just turn on your television and most news stations will definitely discuss the current financial turmoil within the United States. The Administrative Office of the Courts reports that 1,085,471 people filed bankruptcy overall in 2007. Those numbers are only expected to increase in 2009.

If you are in need of state specific bankruptcy forms, these can be obtained from mylegaledge.com. If you have additional comments, you can e-mail us at staff@mylegaledge.com. Also, feel free to leave us comments or inquiries here at MyLegalReview.com.

We know that bankruptcy is not an easy decision to make, but it is our hope that the information and resources we provide will make the process a little smoother for you.

What is Bankruptcy?

Bankruptcy is a process by which the court gives an individual a fresh start from certain debt obligations.  You can categorize bankruptcies in two distinct groups - liquidations or reorganizations.

Liquidation - Chapter 7 Bankruptcy

In order to receive a total “fresh start” using the liquidation process, filing a Chapter 7 would be the appropriate thing to do. However, due to changes in the bankruptcy law in 2005, filing for Chapter 7 dictates that you meet certain requirements.

Requirement #1- Means Test

The Chapter 7 Means Test is a two-step process which begins with a median income comparison. Basically your monthly income is compared to the median income in your specific state based on a family of your size. You can view the new Census Bureau Median Family Income Guidelines on the U.S. Trustee Program website. The new median family income guidelines were operative as of October 1, 2008.

If your income is higher than the median, it is not a time to panic, that just requires that the second part of the means test will be implemented.

Part two of the means test requires that if your disposable income over the next 5 years is less than $6,000.00, then you can file under Chapter 7. However, if your income will exceed $6,000 in the next 5 years, but is less than $10,000, you might still have a shot at filing for Chapter 7 bankruptcy after your allowed expenses are factored in.

Requirement #2 - The Credit Counseling Briefing

Before you will be allowed to file for bankruptcy, you must have a credit counseling briefing with an agency approved by the U.S. Trustee’s Office. You may complete this requirement by phone, in person, or over the internet.

Requirement # 3 -Debtor Education Course

Your debtor education course must be completed after your bankruptcy petition has been filed and before you receive your discharge.  The main purpose of this course is to help you make wise financial choices after you receive your fresh start bankrutpcy discharge.

Now that we have briefly discussed Chapter 7 bankruptcy, let’s turn our attention to Chapter 13.

Reorganization - Chapter 13

When you decide to file for Chapter 13, you are not dissolving your debts, but you are reorganizing them so that you can it will be a little easier to pay your bills. Chapter 13 works best for those who 1) don’t qualify to file under Chapter 7 and/or 2) you want to pay your bills and have adequate income to meet your basic living expenses, but need a little breathing room to manage your other debt payments.

When you file for Chapter 13, you are entitled to keep your property and avoid foreclosure while you readjust your debt payment schedule. This process is accomplished through reaffirmation of the debt.  Usually, your bankruptcy plan will last for 3-5 years and after that time, you will be given your bankruptcy discharge.

As with Chapter 7, you will be required to complete the credit counseling briefing and the debtor education course.

Enjoying Your Fresh Start

Once you receive your fresh start, by Chapter 7 or 13, it is imporant that you continue to make sound financial choices. Be vigilant about your financial freedom and continue to educate yourself on the best financial choices you can make for yourself and your family.

For form products that can assist you in this area, visit mylegaledge.com. You if need a form product that you don’t find on the site, just send us an e-mail at staff@mylegaledge.com. You can also leave your inquiry or comment here at MyLegalReview.com.

Thanks for visiting and we hope the information we have provided is helpful.