For individuals facing an intolerable debt load and thinking about filing for bankruptcy, they have two choices to consider. The first is chapter 7 bankruptcy protection and the second is chapter 13. Chapters 7 and 13 refer to actual chapters in a particular title of the United States Code appropriately entitled "Bankruptcy". Chapter 7 bankruptcy protection is the rapid and dirty bankruptcy method. The debtor files a petition with the bankruptcy court, and the court trustee oversees the liquidation of non-exempt possessions and the remove of all the debtor's remaining requirements.
Chapter 13 is sometimes more favorable when compared to chapter 7 because chapter 7 does not have the power to halt motions such as foreclosure, while chapter 13 does. Under chapter 13, the debtor comes up with a debt repayment plan and presents it before the bankruptcy court, which then orders the lenders to accept the plan. Thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, it is now much more difficult for debtors to file for chapter 7. Years of complaints from moneylenders about lost profits due to bankruptcy prompted Congress to reform the bankruptcy law in 2005.
BAPCPA, as the new law become known, stipulated that all chapter 7 cases that did not meet certain criteria would be converted into chapter 13 cases. Therefore, many debtors were barred from filing for chapter 7 and they did not meet the income requirements of chapter 13. The end result was a wave of defaults and foreclosures as homeowners may not meet the demands of both their mortgage debt and other debt, like credit card debt. BAPCPA fundamentally altered the rules of the game when it came to bankruptcy. The good news is that it did not alter the basic procedure for chapter 13.
Under chapter 13, the debtor files a repayment plan with the court that lasts from three to five years. In this document, all of their expected transaction amounts to their lenders are clearly outlined and itemized. In addition, the debtor should file documents or schedules of their personal income and expenditures, a list of all of their assets both real and private, and a detailed list of their monthly expenses that itemize everything that they spend their money to use, buy or get every month. These documents permit the court to certify that the debtor is in fact facing a dire situation. Bankruptcy fraud is a federal offense, punishable by a fine and up to five years in prison. In fact, if the debtor later tries to reassert ownership of an unscheduled asset after the bankruptcy situation has been closed, the trustee could reopen the case and then liquidate that asset for the benefit of the previous lenders. Tis then up to the trustee and the judge overseeing the situation to potentially prosecute for bankruptcy fraud. Chapter 13 allows debtors to retain ownership of their assets as well as pay off their creditors on their own terms. Thus, chapter 13 is a terrific alternative to chapter 7 for those that have the means of repayment.
