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Bankruptcy Information and Bankruptcy Laws

It is often stressed that bankruptcy declaration should be the last option when you are in dire need of financial assistance. Whether you may have failed your credit card bills and monthly mortgages due to an emergency situation or negligence, bankruptcy protection should be an informed decision and one that should not be taken lightly.

It is important to read and know the basic bankruptcy information and some of the most important provisions included in the federal and state-specific bankruptcy laws. Knowing basic bankruptcy information is important should you decide to file for bankruptcy. Knowing what to do and what to expect can be easier on your part, too. There are so many intricacies in bankruptcy laws enough to keep your head spinning, but learning the basic information will suffice for now.

What are some of the bankruptcy questions you want answered? For one, you need to know what bankruptcy protection you can avail of. What are the processes involved in bankruptcy declaration and what could possibly be the ramifications of this action?

In 2005, lawmakers passed the Bankruptcy Abuse Prevention and Consumer Protection Act that made laws stricter for bankruptcy protection application. This was done because in the past, people find it too convenient to immediately declare bankruptcy protection even if there are other options available for them. Now with this program, only those who are really in need of real financial assistance are approved.

There are two types of bankruptcy protection that an individual, married couple, or head-of-the-family can avail. It should be put in mind that because of the Bankruptcy Act of 2005 every bankruptcy protection applicant should now undergo a mandatory credit counseling program. The organization administering the counseling should be court-approved and the counseling should be taken 6 months prior to the formal petition for bankruptcy. The new law specifies that the primary criterion for bankruptcy application approval is the monthly income and not on the amount of debt incurred by the person.

Of the two bankruptcy programs available, the more popular and more usually availed by individuals is Chapter 7 bankruptcy. This protection program is also called liquidation bankruptcy because it eliminates all dischargeable debts of an individual. Before making it to the final process of erasing all debts, an individual has to undergo a means test to prove that he is incapable of paying his debts. Once this is done, a court-appointed trustee will administer the liquidation of non-exempt assets to pay off the creditors. Any remaining debt after the asset liquidation will be discharged by this trustee as deemed necessary.

For individuals who failed to pass the former bankruptcy protection, Chapter 13 bankruptcy is another option to avail of. Based on the means test, a repayment plan will be presented by the debtor to the court and should merit an approval. This repayment plan should outline the details of how the debtor should pay all his debts in 3 to 5 years. It is the duty of the trustee to impose this repayment plan. He will serve as mediator between the debtor and his creditors.

These are just some of the crucial information every citizen should know. Furthermore, it is very important to understand that although the federal laws govern bankruptcy protection, there are several state-specific laws that need to be taken into consideration. In bankruptcy cases, it is necessary to hire an expert bankruptcy lawyer who knows the ins and outs of bankruptcy protection laws in the state you are filing for bankruptcy. Most importantly, bankruptcy protection is the right of every citizen, but it must be used only in the direst circumstances.

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