In the past, the perception of personal bankruptcy has been just for the poor. Since the economic meltdown back in 2008, bankruptcy is taken on a new face. Now the US is seeing people with six-figure incomes being forced into filing bankruptcy. In this new economy there are more affluent people being pushed into bankruptcy than in any previous recession in the past 80 years. The group of people that is most affected by this recession is the middle class. Recently, the survey showed that most individuals filing for bankruptcy made more than $60,000 a year. With the real estate market continuing to spiral down to the point where no one knows where the bottom is. This has cut deeply into the business world as companies are afraid to hire individuals because of not knowing what’s in store for the future. One of the major groups of those filing for bankruptcy is mortgage brokers, realtors and contractors. This sector of business was the first to get hit with the recession and probably will be the last to recover. The indirect consequences of a down real estate market trickles through the entire economy. When people don’t buy houses, they don’t buy refrigerators and home goods. As the tightening continues it affects even down to the local coffee shop as people just don’t have enough money to eat out.
When thinking about filing personal bankruptcy most people don’t understand that one size does not fit all. First of all, filing bankruptcy will not get rid of certain types of obligations like child support, alimony and in most cases student loans. It is possible to discharge a student loan in a bankruptcy, but the debtor has to prove to the bankruptcy court that paying back that debt would put an undue hardship on them. Usually this is in the case of individuals that have a permanent disability and will never be able to pay those debts back.
There are many positives to filing personal bankruptcy and there are different chapters they can be used to discharge the debt. There are two basic chapters of personal bankruptcy. First of all there is Chapter 7 that is best used for individuals with large amounts of unsecured debts like credit cards and medical bills. Most people think of Chapter 7 bankruptcy when they think of bankruptcy. In a Chapter 7 there is no repayment plan that is required of the debtor. The debtor is required to pass a means test to qualify to file for Chapter 7 bankruptcy. When the bankruptcy code changed in 2005, they put restrictions on the amount of household income a person could have and still qualify to file for Chapter 7.
On the other side of the fence is Chapter 13 bankruptcy. A Chapter 13 is best for an individual that is employed and wants to protect their property. Rarely does the debtor lose any property in a Chapter 13 bankruptcy filing. The downside to a Chapter 13 is they are required to come up with a feasible repayment plan that lasts 3 to 5 years. The court does understand that a lot can happen during this timeframe allowing the debtor to make changes to the plan during the bankruptcy. A Chapter 13 should not be attempted without the help of a bankruptcy attorney.
Filing personal bankruptcy has taken on a new complexity since the code changed back in 2005. Although it’s not required, it’s best to always use a bankruptcy attorney to file. Using the expertise of a bankruptcy attorney will make sure that the debtor gets the maximum benefits from the bankruptcy exemption laws, protecting as much of the debtor’s property as possible.