Features

Bankruptcy is a way to reach a deal with creditors about overall levels of debt and to determine an effective plan to pay back what is owed, under the guidance of the courts.

Types

There are two types of bankruptcies: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is when the assets of the person making the filling can go into liquidation to satisfy claims of the creditors. Chapter 13 bankruptcy is when the debtor is reorganizing her debt under an interest-free plan set by the courts.

Legal

In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect. This requires debtors to go through different tests in the bankruptcy process to determine which filing is most appropriate.

Means Tests

During bankruptcy proceedings the debtor must undergo two tests. The first deducts basic expenses such as rent or food, then seeks to determine if the debtor can pay 25 percent of his outstanding debt with the remaining funds. After this test is completed, the debtor must then have his income compared to the state's average income to see if a Chapter 7 or a Chapter 13 filling is most appropriate.

Considerations

The new bankruptcy law imposes fines and other penalties on attorneys who have filed inaccurate bankruptcy cases. This means that legal fees and finding a bankruptcy lawyer could be more challenging because of the added work and liability to confirm a debtor's information.

Source:

CNN: Bankruptcy Info

Resource 4 the People: Bankruptcy

Justice Department: Bankruptcy Law