Bankruptcy – Alternatives To Chapter 7
Bankruptcy is the result of being unable to meet ones financial commitments.
Chapter 7 is available to individuals, sole traders, partnerships and corporations, and is often the favoured chapter to file bankruptcy under, as once the bankruptcy is discharged, the individual or legal entity is no longer liable for any outstanding debt.
Chapter 7 is the most popular, despite the fact that the debtor has virtually all his or her worldly goods sold. However, this is often an attractive option if one is financially paralyzed by debt.
A compulsory means test was brought in in 2005 to check the true position of a debtor’s finances. Failure of this test will prevent a debtor filing under chapter 7 and a chapter 13, or repayment plan, will be enforced.
In effect, if your income, after allowable living expenses are deducted (and these expenses and amounts vary state by state), exceeds the median income of a family of the same size in the same state, over the preceding 5 months before the month bankruptcy was filed, further means test calculations are applied to see if any non secured debt can be repaid. If not, then chapter 7 will be allowed.
There are, however, alternatives to chapter 7
The first thing to consider is whether claiming bankruptcy can be avoided in the first place. Bankruptcy has a major negative effect on personal credit ratings and makes any future bank accounts, credit cards or loans very difficult to obtain. Bankruptcy should be an absolute last resort.
Creditors may fear that if one of their customers files for bankruptcy that they will get little or nothing and have to write off the debtor’s debts. The debtor should always seek a repayment holiday first, which may have some appeal to the creditors as delayed payment is better than no payment at all.
If a creditor is open to a revised payment schedule, then combine this with a debt counseling service to help formally arrange things. What you have then done is basically the same as a chapter 13 bankruptcy, but without the bankruptcy!
If you are in business, chapter 11 allows you to keep control of the company and keep trading, with no sale of assets, repaying debts under an enforced repayment plan.
It might be that due to these harsh financial times you might be considering declaring yourself bankrupt. If you need more free information about declaring yourself bankrupt, visit www.declaringyourselfbankrupt.net.
