Chapter 7 bankruptcy: how it's changed, why people file and how it affects them in the future

Essay by paperheartfairytaleCollege, UndergraduateA+, January 2008

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Who may file Chapter 7 bankruptcy? How has this changed over the past year?Chapter 7 is “traditional” bankruptcy where “most of a bankrupt person's debts are cancelled, but the bankrupt person may have to surrender items of property.” This may not be the best for someone if they have a lot of stuff, such as multiple properties, boats, or other excessive automobiles. Also child support payments, taxes or student loans are not discharged in bankruptcy. In order to meet the requirements, one must not exceed the median income, and not be able to pay 25% of the debt they owe. If neither of these happens, then one may qualify for Chapter 13 bankruptcy, or “New Bankruptcy”. This is more of a payment plan, which doesn’t stay on your credit for as long, and may be something people want to consider if they think they may be able to pay some of their debt off, or wish to have the satisfaction of doing so.

The “Means Test” is also new, and determines whether or not you are able to pay off some of you debt.

What are some of the reasons people file bankruptcy?Most people file for bankruptcy because large, unplanned expenses come up, these can include, but of course are not limited to, medical bills, overextended credit, marital problems, multiple pregnancies and/or a large family, and just being “in over your head” with bills to the point in which you feel as though you will not be able to make the paymentsHow does bankruptcy affect interest rates on loans? Credit cards?You can apply for loans after 2 years of filing for Chapter 7 Bankruptcy and after your payment plan is complete if you file for Chapter 13, but both can stay on your credit report for 10 years.