Reorganization Bankruptcy: Its Not Just For Businesses

Many Americas were completely unprepared for the huge-scale downturn and financial crisis that is currently happening all over the world. Because so many Americans were unprepared and easy credit dried up, their expenses and liabilities quickly outstripped their ability to pay for their lifestyles. The financial crisis causes a tightening of credit all over, in turn leading to astounding increases in bankruptcy filings in the United States.

Many people considering filing for bankruptcy think of the more traditional Chapter 7 bankruptcy procedure first. This typically involves the wholesale liquidation of the petitioners assets, although there are some items that are exempt. Most unsecured debts, like credit card debt and medical bills, are discharged. Today, the United States Trustee who oversees Chapter 7 bankruptcies also imposes a strict means test, which may deny Chapter 7 relief to persons making enough money that the bankruptcy claim appears to be abusive.

The alternative to Chapter 7 bankruptcy is a Chapter 13, which is known as a reorganization bankruptcy. It is called reorganization because it restructures the petitioners finances to arrange for eventual payment. It is a good option for people who have assets that would be liquidated under a Chapter 7 and want to keep them; it is also for people who have sufficient income to repay their debts with restructuring. Special protection is given to third parties such as a spouse or co-signer under Chapter 13 bankruptcies. Reorganization under a Chapter 13 plan take three to five years to be complete, whereas Chapter 7 discharges debts within just a few months.

There are certain restrictions that come into play when considering a Chapter 13 petition because it is a reorganization of finances rather than a discharge of debts. To be eligible a debtor must be able to demonstrate a reliable income that will be steady for the duration of the reorganization plan. Once a steady income is proven, then living expenses are subtracted and if there is money remaining to make significant payments the petitioner will qualify. However, any unsecured debts over $336,900 and secured debts over $1,020,650 will disqualify a petitioner.

One rather peculiar restriction strictly forbids stockbrokers and commodity brokers from receiving Chapter 13 relief even if it is solely for their personal finances. Other than these basic restrictions, Chapter 13 relief is available to most people.

Filing a Chapter 13 bankruptcy is not a simple process. Most professionals that will assist a petitioner require some up front fees so it is wise to take action before the situation is completely out of hand. A Chapter 13 bankruptcy requires great discipline, but it can be a good alternative for professionals and those that can be successful in the future.

Wendy Polisi is the founder of Credit Repair College and Finance the Dream. Credit Repair College empowers people to take control of their financial future by learning everything they need to know to repair credit on their own. For more information on repairing credit history please visit them on the web. Finance the Dream offers rent to own houses throughout the United States.