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Can I File Bankruptcy?

There are 2 common types of bankruptcy, chapter 7 and chapter 11. The new bankruptcy laws (actually almost 2 years old now) make the common practice of filing chapter 7 bankruptcy much more difficult. Prior to the new laws, for most people who asked “Can I file bankruptcy?”, the answer was a resounding “yes, no problem, file a chapter 7”. Chaper 7 bankruptcy allowed you to basically wipe out your debts and start with a clean slate without too much hassle provided that:

    1. You had few assets or you were willing to sell much of what you had in order to pay back as much debt as possible (including your home and cars)

    2. You were ok with the fact that bankruptcy would destroy your credit score which means a long (very long) process of rebuilding your credit (no home or auto loans for a long time without huge interest rates)

For many people, this was a good solution because is was relatively fast and easy way to unload your debts, especially if you did not own a home.

Now the new laws force most people into chapter 13 bankruptcy, which is more like a debt management program that allows you to keep you home and cars assuming you can make those payments but it puts you on a strict budget forcing you to repay your debts in up to a 5 year court ordered program.

Each state has minimum income requirements that, if you exceed and you have at least $100 in discretionary monthly income (extra spending money after your essential bills are paid), will result in the court system forcing you into the chapter 13 vs. a chapter 7. The requirements in your state will be the key determinant in helping you answer the question “can I file for bankruptcy?” or if you’d be better off with a bankruptcy alternative.

In other words, you need to prove that you are struggling financially to the point where your income does not even cover your essential weekly bills in order to qualify for the faster chapter 7 bankruptcy option. As a result, many people are turning to debt settlement companies to lower their payments through a debt negotiation process.

The days of having lots of debt one day and then using chapter 7 bankruptcy to wipe them out the next, is not nearly as easy as it used to be.