On October 17, 1995, the US Bankruptcy Law was amended and some changes took effect. In the past, anyone who wished to file for bankruptcy because he/she couldn’t pay off creditors could simply do so without questions. Today however, there are certain procedures that you must go through before he/she can be completely discharged from their debt .
First, a person needs to complete a credit counseling course with an accrediting agency before he/she can proceed with the filing. During credit counseling, he/she may be advised to pursue other solutions such as debt consolidation or debt settlement. If the counseling agency recommends bankruptcy as the best solution, then that’s the time he/she can start the preparations for bankruptcy.
There are basically two types of bankruptcy for consumers and these are Chapter 7 and Chapter 13. Let’s remember that only a Chapter 7 completely discharges the borrower from debt repayment. Meanwhile, a Chapter 13 subjects the borrower under a mandatory repayment program for 5 years.
How does the bankruptcy court decide which Chapter of bankruptcy is appropriate? The applicant will be required to take the Income Means Test Calculation to determine whether he/she is still capable of repayment.
If the result of the Income Means Test falls below $6,000, the borrower qualifies for Chapter 7 Bankruptcy. On the other hand, if the result of the Income Means Test is at least $6,000 or more, the borrower qualifies for Chapter 13 Bankruptcy. Under the 5-year repayment plan 10% of his/her monthly salary will be automatically deducted as payment for his debts.
Other Kinds of Bankruptcy
Other Chapters of Bankruptcy are Chapter, 9, 11 and 12. Chapter 9 is a bankruptcy provision for municipalities, public agencies or a group of people. Chapter 11 is a bankruptcy is a provision for business corporations.
Lastly, Chapter 12 bankruptcy is for family farmers and fishermen. If you are a farmer or a fisherman, you can file for a Chapter 12 and you will be protected from asset liquidation. This means a farmer or a fisherman can retain his assets or livelihood after being discharged from his debts.