Overwhelmed about how to file bankruptcy? If so, you are not alone. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was enacted by Congress in 2005 to reduce the number of bankruptcies filed by individuals attempting to write-off credit card debt. Instead of allowing debtors to file Chapter 7, BAPCPA requires all debtors to repay a portion of debts through Chapter 13 payments.
Understanding BAPCPA requirements of how to file bankruptcy requires the assistance of a bankruptcy attorney. Although there is no law requiring debtors to retain a lawyer, few individuals are capable of adhering to the stringent criteria of BAPCPA without legal assistance. Debtors who attempt to undergo the process alone could place themselves at risk for having their bankruptcy petition denied.
The first step of filing for bankruptcy protection involves determining which bankruptcy chapter best suits the debtor. There are six bankruptcy chapters including: Chapter 7, 9, 11, 12, 13 and 15. Chapters 7 and 13 are established for individual debtors while the remaining four chapters are set aside for business owners and corporate entities.
Chapter 7 is also known as ‘liquidation’ bankruptcy. Debtors must liquidate assets to repay creditors. Not all debts can be discharged through bankruptcy proceedings. Excluded debts include: delinquent taxes, outstanding child support, pending lawsuits, and federal student loans.
Chapter 13 is known as ‘reorganization’ bankruptcy because debtors are required to reorganize debts and establish a payment plan. Chapter 13 payments typically extend for two to three years. Debtors are required to submit payments to the bankruptcy Trustee who in turn distributes payments to creditors.
In order to comply with BAPCPA regulations, debtors must submit to the ‘means’ test which is a financial calculator that compares debtors’ income to their states’ median income level. When debtors’ income exceeds median income they are required to file Chapter 13. If debtors’ income falls below median income they might be allowed to file for protection under Chapter 7.
The new bankruptcy laws also require debtors to obtain credit counseling through an agency approved by the U.S. Trustee. Credit counseling must take place no more than six months prior to submitting the bankruptcy petition. Debtors receive a certificate once counseling is satisfactorily completed, which must be presented to the bankruptcy judge.
Most people that file for personal bankruptcy must file Chapter 13 and develop a repayment plan. It is important to note that debtors are prohibited from incurring new debts during the repayment period. If debtors encounter an emergency situation which requires them to take out a loan, they must obtain permission from the court.
Additionally, a large percentage of disposable income must be used to repay outstanding debts. Chapter 13 payments can place serious financial restrictions on debtors and often cause debtors to fail out of bankruptcy. If debtors are unable to adhere to their payment plan, creditors can petition the court seeking dismissal of bankruptcy. When bankruptcy petitions are dismissed, debtors lose protection from the court and creditors can commence with collection actions.
Debtors can locate how to file bankruptcy information via the Department of Justice website.Visitors can download bankruptcy forms and locate helpful resources including approved debt education and credit counseling agencies.