Bankruptcy
More times than not, assets are not available in a Chapter 7 bankruptcy; thus, creditors are rarely paid. In a Chapter 13 bankruptcy, the monthly payment established only pays a fraction of the amount owed. Therefore, creditors will still have significant losses to report on the consumer’s credit report. While a bankruptcy attorney may tell you creditors cannot deny you on the basis of having filed bankruptcy, the truth is, creditors can deny you because those unpaid balances still reflect on your credit report for at least seven years.
In some cases, the very debts a consumer is trying to avoid will not necessarily be canceled. As you will see, the rules are restrictive.
Aspects of Bankruptcy Reform
Consumers must participate in credit counseling prior to filing. The counseling agency must be approved by the Bankruptcy Court. This can be a very good thing as the counseling can provide the consumer with accurate information and an understanding of whether bankruptcy is, or is not, the answer in their particular situation.
Means testing for Chapter 7 is required. This provision is intended to curb abuse of the bankruptcy system. If income exceeds the allowable amount, the claim will either be dismissed or re-organized as a Chapter 13 bankruptcy. Disposable income will take center stage for a Chapter 13 bankruptcy. The means test, mentioned above, will be used for Chapter 13 to determine how much will be repaid to creditors. Those with higher income levels will repay more, relative to their income levels.
Chapter 13 discharges become more limited. Educational loan discharges will become even more limited. Further, domestic support obligations and debts where criminal or civil restitution are ordered cannot be discharged.
The list above is not all-inclusive; however, some of the more notable elements of the reform are mentioned.
