Bankruptcy is a process that has been established by a set of federal laws to help a debtor discharge his/her debts. Bankruptcy is a complex process and if you are thinking about filing bankruptcy, it would be in your best interests to understand certain facts that are associated with it.
First Modern Bankruptcy Law
The first modern bankruptcy law was the Bankruptcy Act of 1898. Ever since then, the law has been defined by the existing economic and social conditions. For example, during the Great Depression, several changes were brought about in the bankruptcy laws to enable debtors to discharge their debts.
Today, the bankruptcy cases are governed by federal and state laws. Each state also has its own provisions for handling bankruptcy cases. These provisions differ from federal laws in terms of income and debt limits that the debtors must meet in order to file for bankruptcy. State bankruptcy laws also differ in terms of the time limits given for the reorganization plans. In the past, these difference led people and business to look for states that offered the best bankruptcy terms.
There is no doubt that this led to the abuse of bankruptcy laws by debtors. It was due to that misused leniency that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed. The 2005 bankruptcy law tilts the scales in favor of the creditors.
2005 Bankruptcy Law
Various provisions introduced in the 2005 bankruptcy law ensure that the debtors are not able to abuse the law. The changes in the bankruptcy law have made it harder for people to file for bankruptcy, especially under Chapter 7. Under the present scenario, you have to meet certain requirements before you can file for bankruptcy. First, you have to seek credit counseling services six months prior to filing for bankruptcy. Furthermore, in order to file for Chapter 7 bankruptcy, your income should not be above your state’s average income.
Under Chapter 7 Bankruptcy, the debtor’s property is more vulnerable to being seized by creditors. The property that can be liquated is now valued at the amount that it would cost to replace it rather than at the price that it could be sold for in an emergency.
Exemption
However, some property is exempt from seizure. Your state bankruptcy law will determine the exempt list. However, in order for you to qualify for exemption, you should have been living in that state for two years. Furthermore, in order for you to use your state’s homestead exemption, which relates to how much equity you can keep in your home, you should have been living in that state for 40 months.
Debtor Education Class
Another fact that you must understand about the bankruptcy law is that before you can get a discharge from the bankruptcy court, you need to attend some type of debtor education class from an approved provider. The United States Trustees office will decide which education provider you can select.
The main purpose of the debtor education class is to educate the debtor on topics of budget development, money management, wise use of credit cards and general consumer topics. You will learn how to set short-term and long-term financial goals. How to effectively manage your monthly budget is also explained. The basic purpose of this class is to inculcate good money management habits.
Bankruptcy District Courts
At present, there is a bankruptcy court for every judicial district in the country. Every state has one or more districts and in total, there are 90 bankruptcy districts in the country. Every bankruptcy court generally has its own clerk’s office. The bankruptcy judge has the power to decide on any matter related to a bankruptcy case. In total, there are six types of bankruptcy cases. Chapter 7, 11, 13, 15, 9 and 12 are the various bankruptcy cases that one can file under.
Though you can file for bankruptcy on your own, it is better to consult an attorney. An attorney can give you sound advice on your bankruptcy case. Besides helping you understand the ins and outs of bankruptcy law, he/she will make the right decision when it comes to deciding which chapter to file under. After all you are looking for a fresh start and you should do so under the expert guidance of a good attorney.