The bankruptcy process is not intended to be stressful for anyone, but people are often overwhelmed by the process.
The main reason is that very few people have an accurate understanding of how the process works and what to expect along the way.
Getting informed about the ins and outs of bankruptcy can help prepare you for process and ensure you are able to make a smooth transition.
Qualification Standards In 2005, some important changes were made to the bankruptcy laws.
Some of these changes included specific rules as to the qualification standards associated with bankruptcy.
The biggest change occurred in Chapter 7 cases, which now require that debtors pass a means test in order to qualify.
In order to qualify for Chapter 7 you must (1) have an income less than the median income of your state or (b) lack sufficient disposable income to repay your debts.
Not much was changed about Chapter 13 qualification standards and these cases are generally open to most people who file.
However, there are still some rules as to when filers are eligible and which debts may be included.
Debts and Assets They way debts and assets are handled in each type of personal bankruptcy can vary.
The most important aspect for you to remember is that debts are not guaranteed a discharge and assets are not guaranteed protection from creditors.
For example, there are certain debts that do not qualify for bankruptcy at all.
Student loan debts, some tax debts and domestic support payment debts are generally not eligible for discharge in bankruptcy.
Chapter 7 cases are good for unsecured debts such as credit cards and medical bills, but offers less protection over assets.
In a Chapter 7 case, the court will determine if your assets are sufficient or eligible for liquidation in order to satisfy debts to creditors.
However, not all assets are at risk in a Chapter 7 case.
There are bankruptcy exemption laws that offer protection over several assets, including your house, car and personal property.
Chapter 13 cases are open to both secured and unsecured debts, as well as offer a higher level of asset protection.
Since you will be repaying your debts in Chapter 13 there is less risk of having them liquidated in this type of bankruptcy.
Credit Challenges Although most people assume a bankruptcy damages your credit, the truth is that the damage is done prior to bankruptcy when you default on your payments.
Nothing about the bankruptcy process causes damage to your credit.
In fact, bankruptcy allows you to have a clean slate and fresh start at your credit after a discharge.
However, obtaining credit in the future may be more challenging, but his generally has little to do with bankruptcy itself and more to do with the prior default history.