Personal Bankruptcy Tips

Help for debtors filing personal bankruptcy under Chapter 7 and Chapter 13

Personal bankruptcy filings continue rising. The total number of cases filed increases each year, and more telling, the percentage of working men and women who file, are both accelerating rapidly. Only Chapter 11 business filings have decreased in recent years. On average, American families carry more debt today than at any time in United States history.

With good jobs in short supply, this unprecedented financial strain upon middle America is causing widespread concern among economists and creditors according to Alan Greenspan, Chairman of the Federal Reserve Board. The profile of the average debtor who files personal bankruptcy has changed. Wealthy individuals seldom file. The poorest segment of our population seldom files with the US Bankruptcy Courts. The typical debtor in personal bankruptcy is an average income earner who either: 1) lost employment, 2) recently contested divorce, or 3) suffered debilitating injuries or illnesses. Of all people filing personal bankruptcy, 80% fit into at least one of these categories. Not surprsingly, with escalating medical costs, medical banruptcy is becoming more common daily.

New Bankruptcy Laws for U.S. Courts

The Congressional solution to rising middle-class personal bankruptcy rates is perplexing. Special interest groups proposed new bankruptcy laws that are specifically designed to limit individual access to US Courts, including: 1) new bans on Chapter 7, 2) increased Chapter 13 payments, 3) new presumptions against debtors with increased penalties, and 4) the reduction of judicial discretion to balance competing interests. These new bankruptcy laws became effective October 17, 2005. Nevertheless, over one-half of all people who desire to discharge debts through Chapter 7 are unaffected, and will be successful when carefully traversing new requirements, means testing, and qualification standards. For those who do not qualify for full discharge immediately, a wide range of options remain under Chapter 13, including up to 90% discharge of debts owed at the end of the plan term. Plans range from three to five years.

Types of Bankruptcy For Individuals

Today, personal bankruptcy under Chapter 7 eliminates debt through discharge. Chapter 13 bankruptcy (sometimes called "wage earner plans") reorganizes debts for either full or partial repayment between 3 to 5 years. Chapter 11 offers more complex reorganization of debts, while Chapter 12 applies only to family farmers. Of all types of bankruptcy, Chapter 7 & 13 are chosen by most individual filers because these chapters are cost effective. Both chapter are available under new bankruptcy laws, but according to different qualification standards. In particular, new changes affect:

  • Bankruptcy requirements - completion of conditions before filing.
  • Bankruptcy means test - a measure of disposable income.
  • Personal bankruptcy laws - alternatives available based on disposable income.
  • Chapter 13 laws - minimum duration of plans and confirmation requirements.
  • Bankruptcy new laws - new limitations on discharge and presumptions against debtors.
  • Chapter 7 laws - 3 new tests to qualify based on net disposable income and the amount of debts owed.
  • Medical bankruptcy - provisions that apply to catastrophic circumstances.
  • Bankruptcy dismissals - new mandatory circumstances that require dismissal, plus changes in motion, objection and court order practice. These changes primarily affect lawyers, law firms and attorney fees.
Personal Bankruptcy Requirements

For most people who file, or who own any significant assets, the cost of quality legal representation throughout the entire process is inconsequential compared to the risk of filing alone. A qualified attorney can easily negate the presumptions of law favoring creditors when rebutted by admissible evidence. For the neophyte attorney, or any individual who represents themselves, the stringent new Code requirements often present obstacles too great to overcome. Anyone who seriously considers filing should consult with an experienced lawyer or law firm before taking action.