Filing for Bankruptcy is Still an Important Option for Many Consumers
Though bankruptcy has always been a legal course of action that is intended by the government as a way for consumers to protect themselves, the options it provides have been brought back into the forefront of public discourse due to the record number of bankruptcy filings that have occurred since the beginning of the economic downturn. Initially spurred by the crash of the sub-prime housing market in 2008, the continuing economic difficulties, including declines in retail that have been aggravated by a loss of consumer confidence and concerns about public debt, have created a situation where many businesses and individual families that once never thought a bankruptcy would be in their future to seek such a declaration of insolvency. Fortunately, though filing for bankruptcy may seem to be an intimidating, if not life-altering, process at first, the benefits it offers can literally save a family and enable it to regain what once may have been a secure financial footing.
For individuals who are unfamiliar with the exact nature of a bankruptcy declaration, it should be emphasized, first and foremost, that such a filing enables them to retain certain essential assets. Such 'exempt' items, as is the case with Chapter 7 filings, are often homes, older vehicles, and assets like trade-related tools, as these and some other forms of property are considered essential to financial rehabilitation. Under Chapter 7, however, all non-exempt assets will generally be liquidated, or sold, by a trustee, with the proceeds going to repay part of any debt a consumer might have towards a creditor. In return, some of their debt is forgiven. In contrast to Chapter 7, however, Chapter 13 filings do not require that all non-exempt assets be sold off to repay part of a debt. A debtor, however, will be required to repay all debts in full within 3 to 5 years. Such a so-called 'Wage Earner Bankruptcy' is intended for debtors who still maintain the income or means needed to repay their creditors and, due to changes in bankruptcy law brought about by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, if an individual petitioner does not pass the 'means test' while filing for Chapter 7 protection they must re-file under Chapter 13 if they wish to proceed with an insolvency claim.
The 'means test', as the name implies, seeks to discover if an individual is capable of actually repaying their creditors. By calculating their income over a 180 day period and subtracting certain allowances for living expenses and secured debt payments, it is determined whether or not they have disposable income. If none is found, these individuals may proceed with a Chapter 7 filing. Otherwise, they must proceed as a Chapter 13 case if it's their desire to continue bankruptcy proceedings. Though perhaps the most well-known change brought about by BAPCPA, the 'means test' is only one of many such alterations that impact both debtors and creditors. Another is a limitation to one bankruptcy filing per debtor within an eight year period and the inclusion of mandatory credit counseling within the rehabilitation process.
Anyone who is thinking of filing for bankruptcy, especially in situations where they are unsure of how the changes to bankruptcy law will affect their claims, should feel free to consult with one of our attorneys. The reason bankruptcy exists as a legal option in the first place is, after all, because it's in everyone's best interest if every member of the community has a chance to rehabilitate their economic situation.