Filing Bankruptcy

Many people end up having to file for bankruptcy due to large amounts of unsecured debt. The bankruptcy laws were lenient before 2005, now the law has been made tougher to file. These laws were revised due to individuals taking advantage of the system. With the law change it has made it difficult to file for a Chapter 7 bankruptcy, if filers are no longer eligible for the Chapter 7 bankruptcy a Chapter 13 bankruptcy must be filled, and child support and alimony are now a priority to be paid back.

A Chapter 7 bankruptcy is when it is not mandatory to make a payment plan when filing. Chapter 7 claims were approved or denied based on income proof for what an individual could provide. In the past, these were approved in court by a judge. Now when filing for a Chapter 7 bankruptcy the system has the IRS send over the income records to provide proof of income. If the individual truly can not make any payments throughout the year due to not having enough income versus expenses, then the individual can be approved for filling a Chapter 7 bankruptcy.

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If approved, this filing status dissolves all past debt prior to filing. Chapter 7 bankruptcy does not allow credit collectors, lending companies, and or medical facilities to collect the old debt. This filing status is a full liquidation of assets. When the filer has available income to set up payment plans then they file a Chapter 13 bankruptcy.

Chapter 13 bankruptcy must have a payment plan extending into a multi-year plan.

This is decided with the expense versus income sent by the IRS. The courts take the median of the state you have filed in and the information from the IRS to decide what the payment options are in a budget for the individual. This individual generally has a trustee to make the payments for the individual to be sure these are paid properly. A reason for some individuals to file for a chapter 13 over a chapter 7 is that the chapter 13 can stop a foreclosure on a mortgaged property. Another reason for filing a chapter 13 bankruptcy over a chapter 7 is the credit report. When filing a chapter 13 this will stay on a credit report for seven years instead of 10 years from filing a chapter 7. With these changes to regulations when filing for bankruptcy another change is that child support is now listed as a top priority.

When the law was passed in 2005, child support is now listed as a top priority to be paid back prior to credit collectors or other lending companies. Many people who file for bankruptcy do not have the funds to pay child support and the past debts within the time limit given. The courts make the decision about how much an individual must pay per month to each debtor, this is over a three to five-year plan. With this law change it eliminates having to pay collectors or lending companies prior to making a child support payment as stated, “under the Bankruptcy Code’s priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.”(“Bankruptcy Basics,” 2011). For individuals who are trying to keep from paying child support for whatever reason is no longer an option. This change in the law is to help plan financially how all debts will be paid.

The law passed in 2005 has many benefits and disadvantages for individuals. Everyone has their own needs for which filing status is requested. Chapter 7 and chapter 13 bankruptcies each have good and bad sides. This law has made it much more difficult for individuals who are trying to have creditors and debt collectors write off the cost of what was borrowed. Many individuals no longer qualify for Chapter 7 bankruptcy and are made to file Chapter 13 as all parties associated with the individual filing for a past due debt. Changes to the rules of filing bankruptcy have benefitted many companies and families.