Understanding Bankruptcy and How to Avoid It

When confronted with a serious debt problem and financial crisis, a person or a business owner may consider filing for bankruptcy. This option gives a debtor the chance to be discharged from all debts through Chapter 7 Bankruptcy.

However, not everyone who files for bankruptcy can qualify for a Chapter 7 Bankruptcy. If the bankruptcy court finds that the debtor is capable of repayment, he/she will be subjected to a five-year repayment plan where a percentage of the monthly salary will be automatically paid to creditors. This is known as Chapter 13 Bankruptcy.

Chapter 7 and Chapter 13 are just the two basic types of bankruptcies but there are other forms as well. It’s important to understand that not all debts can be discharged through bankruptcy. Examples of these debts include alimony, most student loans, and tax liens. It is the bankruptcy court that decides which type of bankruptcy is best appropriate for the applicant’s financial situation.

Under the new bankruptcy law, an applicant must go through the “median income means” test in order to determine if he/she is eligible for a Chapter 7 bankruptcy. If your monthly income shows that you are capable for debt repayment, after all necessary expenses have been deducted; you will be subjected to a Chapter 13 Bankruptcy.

Read More: Understanding Bankruptcy and How to Avoid It