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Alternatives
to Bankruptcy
Note: This information is intended for educational purposes only. If is
not designed as, nor should be substituted for appropriate legal advice
from a qualified attorney. You should consult with legal counsel before
making any decision respecting bankruptcy.
This information is based on the bankruptcy law as of January 21, 2001.
A Credit Counseling Program should be considered before declaring bankruptcy,
depending on size, number of debts, and degree to which payments are past
due. You may also try to negotiate with your creditors for lower payments
before considering declaring bankruptcy.
Types of Personal Bankruptcy
Chapter 7
Chapter 7 Bankruptcy is most suitable when most of your debt is unsecured,
such as credit card debt, medical bills, or personal loans. Chapter 7 is
considered a liquidation process.
A trustee, an officer of the court, tries to see to it that your unsecured
creditors are paid as much as possible. Upon filing for Chapter 7 Bankruptcy
you must determine what your assets are and which are exempt. Exempt property
is items of property you may keep during Bankruptcy. Nonexempt property
is items of property that you must surrender. An attorney will help you
determine which property is exempt. There are federal and state laws that
determine which items of property are exempt and which are not. Once defined
as such, the trustee will sell the nonexempt items and divide the proceeds
among the creditors. Often the sale of non-exempt assets can be avoided
through a repayment plan under Chapter 13.If the amount of the proceeds
does not cover the amount of debt owed, the debt will be considered void,
or discharged. Through Chapter 7, you may be able to prevent a secured creditor
from repossessing your assets. You may do this by paying the creditor the
current value of the asset, or by promising to complete the payment amount
and schedule under an agreement made by you and the creditor. You may not
file for Chapter 7 Bankruptcy if you have filed for Chapter 7 or Chapter
13 in the last six years.
Chapter 13
Chapter 13 Bankruptcy is appropriate if most of the debt is secured. Chapter
13 is considered a repayment plan process. You cannot file for Chapter 13
if your unsecured debt exceeds $269,500 or your secured debt exceeds $867,500.
You must have a regular income. When filing for Chapter 13, you must submit
a three to five year plan under which a portion of your income will be given
toward debt repayment. This plan is designed so that you may still use part
of your income for basic living expenses and the rest is paid to the trustee.
Once all payments have been made the remaining unpaid balance is considered
void. Some of the creditors are entitled to be paid in full and are paid
in the plan first. If for some reason, you are not able to meet the payment
schedule, the trustee may modify your plan or give you a grace period.
Another possibility would be converting the Chapter 13 to Chapter 7. You
may file for Chapter 13 Bankruptcy at any time, assuming you are able to
afford the repayment plan.
Dischargeable Debt
Dischargeable Debt is debt that is normally considered void after bankruptcy.
• Utility bills - if there is no current account
• Back rent
• Credit card debt
• Department store bills
• Medical bills
• Newspaper and magazine subscriptions
• Unsecured loans
Non-dischargeable Debt
Non-dischargeable debt must be paid.
• Child support and alimony
• Student loans
• Debts not included in the bankruptcy
• Debts for personal injury or death caused by drinking and driving
• Fines and penalties such as tickets or criminal fines
• Recent taxes |
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