Personal Bankruptcy may stop foreclosure.
Personal bankruptcy includes Chapter 7 and Chapter 13 of the United States Bankruptcy Code. Chapter 7 eliminates outstanding creditor debts through liquidation of assets, while Chapter 13 allows individuals to retain assets through restructure of payment to creditors.
Many Americans file personal bankruptcy when they are no longer able to keep pace with their financial responsibilities. Oftentimes, people are thrown into bankruptcy due to unemployment, medical issues, divorce or death of a spouse. Other times, bankruptcy is brought on due to reckless and irresponsible spending habits.
In 2005, Congress signed the Bankruptcy Abuse Prevention and Consumer Protection Act. BAPCPA is intended to protect consumers, while putting a stop to frivolous bankruptcy filings. Unfortunately, many people were abusing the leniency of filing bankruptcy to wipe out credit card debts caused by excessive spending.
Today, it is considerably more restrictive to file Chapter 7 or Chapter 13. Both chapters require individuals to obtain credit counseling prior to filing. Counseling must be conducted through an agency approved by the U.S. Trustee Program. In order to obtain bankruptcy discharge, a credit counseling certificate is required by the court.
Due to the complexities of BAPCPA, it's imperative to consult with a qualified bankruptcy attorney. During the initial meeting, the attorney will review the debtor's financial information to determine if they qualify to file bankruptcy and if so, which chapter is best suited for their situation.
Chapter 7 requires liquidation of all assets which are not exempt. The debtor must relinquish their property to a Trustee, which is then sold to repay creditors. In order to file Chapter 7, debtors must qualify through "the means test" established by BAPCPA. The means test requires debtors income must be equal to or less than their states' median income level. If the debtor earns more income than the median level, they will be required to file Chapter 13.
Many people turn to Chapter 13 in order to avoid foreclosure. While it is true filing bankruptcy can temporarily cease foreclosure proceedings, many people do not realize the ramifications bankruptcy can cause if they are unable to adhere to their repayment plan.
When personal bankruptcy is used to stop foreclosure it is crucial to realize one missed payment can cause them to fail out of bankruptcy. What this means is creditors can request the court revoke the bankruptcy and request immediate payment in full.
If the debtor is unable to pay their mortgage in full, lenders can initiate foreclosure proceedings. Not only will the debtor have their credit blemished by filing bankruptcy, but also foreclosure. When this occurs it could potentially take as long as ten years to rebuild positive credit.
Published on August 21, 2008 at 05:28 AM
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