Debt Settlement or Bankruptcy

There are 2 different types of bankruptcy that a client may consider: Chapter 7 or Chapter 13. On October 17, 2005, the bankruptcy code was revised by the “Bankruptcy Abuse Prevention and Consumer Protection Act.” [BAPCPA] This revision was intended to eliminate the option of Chapter 7 Bankruptcy for people who could afford to repay some of their debts. Now, in order to qualify for Chapter 7, a client’s expenses will be examined using the government’s “means test” which was introduced as part of the 2005 revision to the law. This test analyzes a client’s income and expenses using national and local living standards, and the median income for the client’s state.

Chapter 7: “No asset” bankruptcy-You do not have to pay any portion of your debts.

To qualify for a Chapter 7, first a client must obtain Consumer Credit Counseling from an organization approved by the United States Trustee’s office within 180 days of filing. The counseling is intended to provide the client with alternatives to filing for bankruptcy. A client must pass the “means test.” If a client has a certain amount of disposable income left monthly, then they will not qualify for Chapter 7 and will only qualify for Chapter 13.

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