Bankruptcy: The Definition

2009-06-22T14:21:00.000-07:00

Bankruptcy is a legal term, meaning that an individual cannot within reason pay off their various debts and have allowed the court system to take over their finances for this purpose. When filing for bankruptcy, the court will appoint someone to work out the payments to your creditors and to determine how much of your income must go to repay these debts. The court will either allow you to make payments, or more likely will deduct a portion of your paycheck toward this goal. During this time, your credit will be limited… both by legal action and by the reluctance of creditors to issue credit lines to individuals who have declared bankruptcy. Once the total amount set by the court has been repaid, the bankruptcy will be discharged and you will be able to start rebuilding your credit from the ground up.

Several different types of bankruptcy exist, defined by legal codes for certain purposes. The exact types of bankruptcy available differ from one country to the next… in the United Kingdom bankruptcy can only legally be applied to individuals and partnerships, whereas in other countries such as the United States or Canada they can be applied to businesses as well. Regardless of the limitations or allowances set by the government on who is allowed to declare bankruptcy, the general purpose of bankruptcy remains the same.

Chapter 7 Bankruptcy -- Who Can File?

2009-06-17T05:57:00.000-07:00

Chapter 7 bankruptcy filing can be very powerful in dealing with overwhelming debt. But not everyone can avail to this. There are some situations wherein you won't be allowed to file for Chapter 7 bankruptcy.

For instance, you have enough income to pay all your debts.

Under the old bankruptcy rules, it was stated that the bankruptcy judge had the power to disregard a Chapter 7 bankruptcy case if he/she thought the debtor had sufficient income to fund a Chapter 13 repayment plan.

Now that the New Bankruptcy Law took effect, there are clear criteria however that dictate who will be allowed to stay in Chapter 7 bankruptcy — and those who will be in Chapter 13 bankruptcy if they would want to file. People whose debts come primarily from the operation of a business and disabled veterans whose debts were obtained during active duty easily get to pass Chapter 7 bankruptcy. The rest must meet the requirements for filing.

Do you have a Low Income?

The first step in figuring out whether you can file for Chapter 7 bankruptcy, under the new rules, is to measure your "current monthly income" against the median income for a family of your size in your state. Your monthly income is your average income over the last six months before filing. If your current income is less than or equal to the median, then you qualify file for filing Chapter 7 bankruptcy.

If your current income is higher than the median, you must pass "the means test" — it's another requirement of the new law — for you to file Chapter 7 bankruptcy.

Is Your Disposable Income Enough to Repay Your Debts?

The means test figures out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to at least repay a portion of your unsecured debts over a span of five-year repayment period.

The Bankruptcy Means Test: Is Your Income Low Enough for Chapter 7 Bankruptcy?

For much more information on these new requirements, including detailed worksheets that will help you figure out whether you can use Chapter 7 bankruptcy, see How to File for Chapter 7 Bankruptcy at DoMyBK.com.

Have You Previously Received a Bankruptcy Discharge?

You can never file for Chapter 7 bankruptcy if you already filed a Chapter 7 bankruptcy during the last eight years, or a Chapter 13 bankruptcy case within the last six years.

If you think you qualify to file Chapter 7 Bankruptcy, go here.

Online Bankruptcy Assistance

Bankruptcy: The Definition

Chapter 7 Bankruptcy -- Who Can File?