Reorganization Bankruptcy: Its Not Just For Businesses
The current global financial crisis caught many people in the United States unprepared for a downturn of the scale that has happened. As a consequence, many Americans found themselves in a situation where their financial liabilities far outpaced their income. The tightening of the credit markets in response to the current crisis inevitably led to a radical increase in the number of bankruptcies filed in the United States.
A Chapter 7 bankruptcy is what most people imagine when they consider filing for bankruptcy. Although a few items are exempt, most of the petitioners assets will be sold. Debts that are unsecured, like medical bills and credit cards, will be discharged, and other debts will be rescheduled for payment. However, the United States Trustee over Chapter 7 bankruptcies requires that a means test be applied. This would deny Chapter 7 relief to anyone making enough money that their claim might be abusive.
The alternative to Chapter 7 bankruptcy is a Chapter 13, which is known as a reorganization bankruptcy. It is called reorganization because it restructures the petitioners finances to arrange for eventual payment. It is a good option for people who have assets that would be liquidated under a Chapter 7 and want to keep them; it is also for people who have sufficient income to repay their debts with restructuring. Special protection is given to third parties such as a spouse or co-signer under Chapter 13 bankruptcies. Reorganization under a Chapter 13 plan take three to five years to be complete, whereas Chapter 7 discharges debts within just a few months.
There are certain requirements to be met before filing for Chapter 13 reorganization. There are dollar restrictions on the amount of debt that can be restricted; more than $336,900 in unsecured debt or $1,010,650 in secured debt will disqualify a petitioner from filing a Chapter 13. The debtor must show that he or she will have a reliable income that will remain steady throughout the reorganization period. This income must be enough that once required living expenses are deducted there will be enough money to begin paying the debt down in a significant way.
One rather peculiar restriction strictly forbids stockbrokers and commodity brokers from receiving Chapter 13 relief even if it is solely for their personal finances. Other than these basic restrictions, Chapter 13 relief is available to most people.
Because the filing process for a Chapter 13 is so complicated, the filer needs the help of a professional to make sure paperwork is correct and complete. Because it is a bankruptcy a fee will generally be required up front before the professional accepts the job and it is important to begin the filing process before the situation is too dire. A Chapter 13 bankruptcy can be a good solution for professionals and others with a solid income; self-discipline is absolutely necessary to make the reorganization work the way it should.
Wendy Polisi is the founder of Credit Repair College and Finance the Dream. Credit Repair College empowers people to take control of their financial future by learning everything they need to know to repair credit on their own. For more information on credit repair secret please visit them on the web. Finance the Dream offers rent to own houses throughout the United States.
