Coastal Debt Guide

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6 Step To Joining A Debt Consolidation Program
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When to consider a debt consolidation program
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Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is used by individuals to eliminate unsecured debt and businesses to liquidate assets under the bankruptcy laws of the United States. Chapter 7 Bankruptcy is normally considered when all other options have been exhausted. The reason Chapter 7 Bankruptcy is the most popular form of Bankruptcy accounting for roughly 65% of all filings is Chapter 7 of the code gives the debtor a fresh start as the result of some type of financial crisis. In addition, Chapter 7 Bankruptcy is a relatively quick process, taking as little as four months start to finish.

Chapter 7 Bankruptcy for Business:

A business that is unable to service their debt is a candidate for Chapter 7 Bankruptcy. Many times, the unpaid creditors force the company into Bankruptcy. A Chapter 7 filing means the business will be dissolved and cease operations, unless the appointed Chapter 7 trustee decides to continue the business.

The Chapter 7 trustee is appointed immediately after filing. The trustee’s responsibility is to examine the financial affairs of the business and execute the liquidation of assets. The proceeds from the liquidation are divided up amongst the creditors. The creditors have a pecking order starting with fully secured creditors such as mortgage lenders or bondholders. Collateralized creditors secure their loans with assets of the company therefore have a right to the assets used in as collateral. These rights cannot be defeated by bankruptcy. Debt Management companies work directly with Creditors to offer the benefits listed above: Reduced interest rates, possible lower monthly payments, consolidate all the bills into one simple payment, eliminate late and over limit fees, and stop harassing calls (if behind)

Chapter 7 Bankruptcy for individuals:

Individuals typically file Chapter 7 Bankruptcy when they can no longer afford their debt. Unsecured debt is typically wiped out, where other debts like real estate mortgages survive the bankruptcy. The property that is considered exempt varies from state to state. Other assets are liquidated to pay the creditors. Unsecured debt such as credit cards, are legally discharged in Chapter 7. Some debt like child support and student loans are commonly not discharged.

Chapter 7 Bankruptcy for individuals:

Individuals typically file Chapter 7 Bankruptcy when they can no longer afford their debt. Unsecured debt is typically wiped out, where other debts like real estate mortgages survive the bankruptcy. The property that is considered exempt varies from state to state. Other assets are liquidated to pay the creditors. Unsecured debt such as credit cards, are legally discharged in Chapter 7. Some debt like child support and student loans are commonly not discharged.

The downside to filing Chapter 7 Bankruptcy is the impact to the individual’s credit score. Chapter 7 Bankruptcy stays on the individual’s credit report for 10 years, opposed to 7 years with a Chapter 13 filing. Chapter 13 is a reorganization supervised by the court.

The individual is required to go in front of a US Trustee. The US Trustee can deny the Chapter 7 Bankruptcy filing if the trustee determines the individual has the ability to repay some of all of the debts in a five-year timeframe. The Chapter 7 filing is abusive if the US Trustee determines the debtor can actually repay the debt. If the US Trustee denies the discharge under Chapter 7, this forces the individual into Chapter 13.

Changes to bankruptcy law impact Chapter 7:

On October 17, 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was initiated. The most striking change was subjecting the debtors to a Means test. Essentially the Means test is used for debtors that have income above a certain threshold to conduct a 60 month disposable based income test. The Means test determines if there is potential for abuse. Another notable change deals with eligibility. The law enacted requires debtors that are filing to complete a review from a non-profit budget and credit counseling agency. In addition the debtors are required to complete an instructional course concerning personal finance management. The law, which was supported by the creditors, made it more difficult to abuse the use of Chapter 7 Bankruptcy.