Filing for Bankruptcy and Non-Exempt Assets
Unsecured Debts, Credit Card Debt- Protect Assets from Creditors
Jul 7, 2009
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was introduced to prevent the widespread abuse of insolvency laws. New eligibility criteria now apply, including passing a state-based means test. Certain debts cannot be written-off by filing for bankruptcy, such as car loans, student loans, taxes, alimony and government loans. They will be completely excluded so it is important to consult a qualified debt counselor to establish whether this is the right option.
How Filing for Bankruptcy Helps
The objective of filing for bankruptcy is to clear unsecured debt, such as credit card debt and medical bills. An unsecured debt is a form of borrowing that isn't backed by collateral. Chapter 7 bankruptcy allows someone to write-off debt, whereas chapter 13 bankruptcy is more concerned with the restructuring of personal debt in order to protect certain non-exempt assets.
- Latest figures from the Administrative Office for the Courts show that there were a total of 1,074,225 private individuals declared bankrupt over the course of 2008.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy could potentially allow someone to become debt-free in 4 to 6 months. In return, a debtor will have to pass a means test and forgo all non-exempt assets, such as stocks and shares. Research undertaken by Best Case Solutions show that 85% of those filing for bankruptcy have an income that is below the median for their state so will qualify. Non-exempt assets will be sold-on and the proceeds disseminated to creditors. The classification of what a non-exempt asset is varies greatly between individual states. An individual state has the right to decide whether state, federal bankruptcy laws or a choice should be granted to the insolvent.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows someone to reorganize their debts and make an affordable payment to creditors over a 3 to 5 year period before becoming debt-free. Further interest and charges will no longer be applied to personal debts. Chapter 13 is normally chosen by those who have non-exempt assets that they wish to protect from creditors. For example, a primary residence that doesn't meet the strict criteria necessary to qualify for chapter 7 bankruptcy. The majority of insolvents will be able to keep their home without filing under chapter 13.
Filing for bankruptcy is a useful way of escaping unmanageable unsecured debts or avoiding mortgage foreclosure. Whether chapter 7 bankruptcy or chapter 13 bankruptcy is the right option will depend largely upon whether the debtor has non-exempt assets that they wish to protect. Always consult a qualified debt counselor before proceeding with a debt solution to make sure it is the right option.
Sources
Bankruptcyaction.com
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
 |
 |
 |
 |
 |
