Different Types Of Bankruptcy

When someone needs financial help, different types of bankruptcy will give a debtor relief from debt that is too deep to repay. This type of legal action stops creditors from harassing the debtor and allows him to take a new look at his financial picture and find a plan that will allow him to start over. Finding this plan may also help deplete the amount owed. But many people do not know much about this process and how to find their way through the legal morass of complex laws and contract obligations. Many would be wise to hire an attorney to draw up a financial plan. Others can help themselves by downloading free forms for filing bankruptcy and doing it themselves. A lot depends on how complicated the person's financial affairs are and how well he understands business law. The lawyer's responsibility is to know the law and advise the person on how best to handle the overwhelming debt.

Making this decision is a serious step, and the person who files needs to take into account all the ramifications of declaring himself insolvent. It will affect the borrowers credit rating and his ability to borrow money in the future. Therefore, finding free forms for filing bankruptcy should be a last resort. But sometimes, people can find themselves in a situation not of their control that brings on terrible debt, such as the loss of a job, an injury in which the borrower cannot work, or piled-up medical debts. In these cases, different types of bankruptcy may be the only solution. Some people have found that one method of avoiding becoming bankrupt is to negotiate with the lenders to work out individual payments. Some nonprofit organizations will help a person through this process; however, some creditors are not willing to negotiate with borrowers. For the person who decides to continue with the plan to claim a bankrupt state, free forms for filing bankruptcy can be found on the Internet. Most people should consult a legal specialists to help them through the process in the courts. If documents are filled out wrongly, the petition may be dismissed in court and the creditors are then free once again to take action against the debtor. This would be especially difficult is the owner is facing a foreclosure or a repossession. The correct petition in court will stop these actions by creditors and allow the debtor to repay the back payments over time.

There are four different types of bankruptcy--chapters 7, 11, 12, and 13. Chapter 11 applies to businesses, but can apply to someone who has an extremely large debt, and chapter 12 usually applies to farmers. Most individuals file under chapters 7 and 13. With chapter 7, the filer should have few assets and mostly unsecured debt. To qualify, the filer takes a Means Test to determine whether the filer has the right monthly income to qualify. This means that the family must have an average income that is equal to or less than the median income in his state. If a person has equity in a home or other property, he shouldn't file for Chapter 7 because his assets may be liquidated to pay the creditors. Under Chapter 13, the filer can keep his property and files a plan to repay the debt over a period of several years; therefore, the assets are not sold to pay for the debt, as what often happens in chapter 7. For both types of legal actions, the debtor is assigned a counselor or trustee who helps make up the plan to pay off the debt. Once the plan is made, the court either approves the plan or orders changes to the plan. Once the court has approved the plan, the debtor must follow through with it until all has been completed. In Chapter 13, the debtor is assigned a trustee to help manage the accounts and see to it that the borrower follows through with what he has promised to do about his finances. In both cases, the debtor is protected from creditors' harassment.

It is essential to understand the different types of bankruptcy because some are not appropriate legal action for certain individuals. On October 17, 2005, a new law was put into effect called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which prevents people with high incomes to file with chapter 7. Instead, the applicant must file with Chapter 13. In chapter 7, the debtor's property may be sold to raise some money for the creditors, therefore people who own property will want to avoid this action. One exception to this rule is when a homeowner's house is homesteaded. That means that no one can touch the home, not even those who want to recoup their losses in a bankruptcy. However, debtors may have to turn over their income to the government. For those who struggle with money, Solomon writes in the Bible, "For wisdom is a defence, and money is a defence: but the excellency of knowledge is, that wisdom giveth life to them that have it. (Eccles. 7:12). When debts rise, God is a refuge who can take the anxious heart and give peace. Different types of bankruptcy can solve some of the problems people have with too much debt. Finding free forms for filing bankruptcy on the Internet can be the first step in that process.

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