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Is Bankruptcy For Me?

During these tough economic times, many Americans are experiencing an inability to meet their obligations as they become due. Whether the inability is due to a loss of job, illness, the requirement to take a lesser salary, divorce or another change in your economic health, you do have options. As more and more people find themselves in tough financial binds, no longer is bankruptcy considered socially unacceptable. With foreclosures at an all-time high, unemployment on the rise and government stability in question, now is the time to take charge and get back on your financial feet.

When filing for bankruptcy, you will have many questions. First, you will want to determine which type of relief fits your needs. While it may sound odd, you must qualify for bankruptcy. In 2005, the United States Congress passed the Bankruptcy Abuse and Consumer Protection Act.  This Act sought to strike an economic balance in instances of bankruptcy by “requiring” more people to file Chapter 13 cases versus Chapter 7 cases. The difference is that, in a Chapter 13 case, you will be made to repay at least a percentage of your unsecured debt. In contrast, a Chapter 7 filing allows you to discharge (or eliminate) most unsecured debt.

Chapter 13 bankruptcy cases require the filer to create a monthly budget and submit it to the court for review. Your budget comes in the form of a Chapter 13 Plan that sets forth monthly payments to your secured creditors as well as unsecured creditors. A creditor is said to have a secured debt when you pledge collateral in exchange for the loan. Homes and cars are the most common forms of secured debt. Unsecured debt is usually in the form of credit card and signature loans, where no property is used to secure repayment.

Chapter 7 bankruptcy cases are ones where the debtor can decide to discharge (or eliminate) certain debts completely. Typical debt discharged is credit card debt. In a Chapter 7, your financial fresh start comes from the elimination of unsecured debt as long as you are able to maintain payment on things like your car and house. If you choose not to continue paying for your home, you are permitted to surrender it back to the creditor and owe no more for the loan.

Given the choice, most people prefer a Chapter 7 over a Chapter 13. The debt discharged is usually greater and the length of time the case takes is much shorter. A Chapter 7 is final in approximately three to four months, while a Chapter 13 can last up to five years. However, the decision of which kind of bankruptcy to file for is no longer entirely up to the debtor. The Bankruptcy Abuse and Consumer Protection Act implements a test to determine for which type of relief you are eligible. Eligibility is dependent upon a complex mathematical calculation called The Means Test. This test examines your secured debt and income, and the formula is geographically distinct. The formula presumes an average income for your geographic location and, once calculated, gives you an answer as to whether filing Chapter 7 is considered an abuse of bankruptcy law. If it is found abusive, you will be required to seek Chapter 13 relief whereby at least a part of what you owe to unsecured creditors is repaid.

Only a skilled bankruptcy attorney should calculate your eligibility to file Chapter 7 instead of Chapter 13. Once the calculation is complete, many people overwhelmed with debt are provided relief through bankruptcy. If you are facing financial hardship, contact Houston attorney David A. Fernandez, P.C. for assistance.

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