Debt Settlement or BankruptcyThere 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 â€œBankruptcy Abuse Prevention and Consumer Protection Act.â€ [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 clientâ€™s expenses will be examined using the governmentâ€™s â€œmeans testâ€ which was introduced as part of the 2005 revision to the law. This test analyzes a clientâ€™s income and expenses using national and local living standards, and the median income for the clientâ€™s state.
Chapter 7: â€œNo assetâ€ 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 Trusteeâ€™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 â€œmeans test.â€ 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.