Understanding bankruptcy laws
Bankruptcy laws are prevalent in the United States from a long time. The first bankruptcy law was introduced in 1800. The initial laws were more prone to the benefits of the creditors. Later, new laws were introduced and modified to provide debt relief to the debtors. Bankruptcy laws can be found within Title 11 of the United States Code.
Chapter 7 bankruptcy is a process by which the non-exempt properties of a borrower are sold to pay off his debts. On the other hand, in case of Chapter 13 bankruptcy, a debt repayment plan is provided by the court to a borrower, following which he has to pay off his debts within a period of 3-5 years. For dealing with matters relating to bankruptcy, there are a number of courts in each state of the United States. They are part of the District Courts of the United States.
Changes provided by new bankruptcy laws
In the year 2005, new bankruptcy laws were passed which brought few changes to the existing ones. Given below is a list of changes brought by the new bankruptcy laws:
1.) Earlier, most debtors were eligible to choose a type of bankruptcy that seemed beneficial for them. They could choose Chapter 7 or Chapter 13 bankruptcy. With the introduction of the new laws, certain limitations were presented in filing for Chapter 7 bankruptcy. Certain debtors with higher income are not allowed to file for Chapter 7 bankruptcy to clear their debts.
In order to determine whether he is eligible for filing Chapter 7 bankruptcy or not, a debtor needs to compare his monthly income with the normal median income of his state. In case it is equal to or lower than the median income, he is eligible to file for Chapter 7 bankruptcy. However, if his income exceeds the median income, he needs to qualify the means test to become eligible for filing Chapter 7 bankruptcy.
2.) It is mandatory to go through credit counseling before debtors can file for Chapter 7 or Chapter 13 bankruptcy. A debtor must select a credit counseling agency which is recognized by the United States Trustee’s Office. The reason for this is to determine whether it is really necessary for a debtor to file for bankruptcy. Credit counseling will help a debtor to understand whether he can resolve his economic problems and obtain debt relief through means other than bankruptcy.
For obtaining debt relief, people from every part of the country take help of bankruptcy. If you’re eligible for it, you can utilize it for eliminating your debts. However, bankruptcy will produce a negative impact on your credit report. Record of Chapter 13 bankruptcy can remain in your credit report for 7 years and record of Chapter 7 bankruptcy can remain for 10 years.