Many people have no choice but to file for bankruptcy when they can't pay their bills. If working with a debt consolidation expert doesn't lead to payments that are low enough to keep a decent standard of living. When debts are too much to handle, Chapter 7 bankruptcy may be the only way out.
Many people may prefer to file for Chapter 13 bankruptcy, but in order for the plan to be approved by the court, it must be shown that the person can meet the financial requirements of the plan. If a person doesn't have a job and doesn't own anything of value, they won't be able to get a court-ordered repayment plan. Also, it will be turned down if the person's income is not enough to cover their living costs while paying off their debts.
For example, a person with $30,000 in debt who wants to sign up for a Chapter 13 payment plan for five years would have to pay $500 per month for five years. If their monthly income doesn't cover that amount plus the approved cost of living, the plan will be turned down.
Also, some creditors might not want to work with a private specialist on a loan consolidation plan, but they have no choice in bankruptcy court. But they don't always agree to get rid of all charges unless the court tells them to do so. If a person in Chapter 13 bankruptcy can't make their payments, they can also ask the court for help through Chapter 7 and sell some of their assets to pay off some of their debts.
New bankruptcy laws have been passed that make the process more difficult and require the debtor to give a more detailed report of their income and expenses. Even though the basic steps are the same, getting to court now takes longer and is more complicated. In the past, people who owed money could talk to a lawyer and decide on their own what kind of bankruptcy to file.
Under the new laws, a debtor must go through a qualified debt counselling service that offers alternatives to bankruptcy within six months of filing for bankruptcy. This is to make sure that the debtor is making an informed decision about filing for bankruptcy. Also, people now use mathematical formulas to decide whether to file for Chapter 7 or Chapter 13 bankruptcy. This is to see if they can meet the requirements for Chapter 7.
This test looks at the person's income, the number of people in their family, and the amount they can spend on certain things. It then uses a complicated formula to figure out if they have enough money to pay off their debts through Chapter 13 bankruptcy. On the surface, the means test may seem fair, but each client may have to go through special circumstances and exceptions to the rules before filing for bankruptcy.
The new laws were made to get more people to switch from Chapter 7 bankruptcy to Chapter 13, where they can pay off their debts through a court plan. Unfortunately, the new law doesn't take into account many of the things that can affect a person's finances, and it doesn't protect people from mistakes that counselling services might make. Before filing for bankruptcy, a person might want to talk to an attorney to help them make the best choice.
