ONCE rarely discussed in the military, bankruptcy is now a common topic as more Soldiers and their family members seek legal help for financial troubles.
Bankruptcy is a court process whereby debts are modified or "wiped out" when it is impossible for the debtor to fulfill his or her financial obligations. The goal is to give the debtor a fresh start and to somehow satisfy creditors. The bankruptcy concept has existed for centuries, and the U.S. Constitution gives Congress the power to make one set of rules for the entire nation. Thus, Congress established bankruptcy courts with judges appointed by the president.
The two most common types of bankruptcy applied to individual debts are referred to as Chapter 7 and Chapter 13.
Chapter by Chapter
Chapter 7 proceedings have a court appointed trustee who notifies the creditors, conducts meetings among the parties, sells the nonexempt property and determines what share each creditor will receive. Creditors have 90 days from the meeting date to file their claims. Generally the debtor may keep, as exempted property, a portion of the residence or a specified property allowance, insurance proceeds, immediate personal possessions, kitchen utensils, some furniture, tools related to one's employment or occupation, and provisions to support a family for six months.
The new 2005 statutory changes are noted below.
Debts that cannot be discharged normally include taxes owed, student loans guaranteed by a government institution, alimony, child support, property obtained by false pretenses and debts not listed by the creditor in the bankruptcy petition.
Chapter 13 permits a debtor with a regular income to propose a plan to repay all or part of the debts on a monthly basis, over a period of at least three and sometimes up to five years. The trustee schedules a meeting of all creditors, who may pose questions on financial matters which the debtor must answer under oath.
The proposed plan is submitted to the court and creditors for approval. If the plan is approved, the debtor's disposable income is paid to the trustee for distribution to creditors. The trustee may approve or disapprove the plan, even if the creditors agree or convert it to a straight Chapter 7.
The lifestyle effect of a Chapter 13 requires debtors to adjust their standards of living, since the trustee only provides the debtor enough funds to meet expenses on a "no-frills" basis. The plan is not rigid and may be modified by the court if the debtor shows good cause to include emergency financial needs.
Common Concerns
* Once a petition for bankruptcy is filed under Chapter 7 or 13, an automatic stay results by prohibiting creditors from making further collection efforts without the permission of the court.
* One spouse may file a bankruptcy petition without approval of the other.
* Court monetary judgments obtained before the petition are not affected by the present bankruptcy action.
* The filing of any bankruptcy is harmful to the debtor's credit rating, since it can remain on all credit reports for up to 10 years.
* Military members may be placing their security clearances in jeopardy by both the accumulation of large debts and the bankruptcy itself, since financial conduct is a matter of concern for officials who approve security clearances.
* Bankruptcy relief for one debtor does not relieve the other joint debtors and co-sureties for the same debts.
2005 Legislative Changes:
Effective in October, Congress amended the law to tighten bankruptcy relief. While there are a number of new provisions, the three major changes are:
* Creation of a "means-testing" formula that replaces a presumption of legitimacy by looking at the debtor's monthly income, minus certain allowed expenses, multiplied by 60. If the amount exceeds certain benchmarks, (roughly amounting to an extra $100 per month), the filing will be presumed abusive--and if not rebutted, the court may dismiss the case or convert it to a filing under Chapter 13.
* State exemptions permitted are curtailed by requiring the debtor to reside in the state in which exemptions are claimed for at least 730 days before bankruptcy filing. Additionally, homestead exemptions may not exceed $125,000 for any property acquired within 1,215 days before filing the petition.
* Debtors, at their own expense, must complete a credit-counseling course within 180 days before filing a petition.
Borrowers Beware!
The ease with which credit and credit cards are offered can quickly place a Soldier, and family members, at financial risk if this easy credit is abused.
Also, "debt consolidation" schemes do not erase debts and often add another layer of costs that increase the original debt.
Just as marriage can be said to be the chief cause of divorce, the failure to act prudently by avoiding the accumulation of huge debts is the chief cause of bad credit, bankruptcy and family discord.
When Faced With A Possible Bankruptcy Action:
ONCE rarely discussed in the military, bankruptcy is now a common topic as more Soldiers and their family members seek legal help for financial troubles.
Bankruptcy is a court process whereby debts are modified or "wiped out" when it is impossible for the debtor to fulfill his or her financial obligations. The goal is to give the debtor a fresh start and to somehow satisfy creditors. The bankruptcy concept has existed for centuries, and the U.S. Constitution gives Congress the power to make one set of rules for the entire nation. Thus, Congress established bankruptcy courts with judges appointed by the president.
The two most common types of bankruptcy applied to individual debts are referred to as Chapter 7 and Chapter 13.
Chapter by Chapter
Chapter 7 proceedings have a court appointed trustee who notifies the creditors, conducts meetings among the parties, sells the nonexempt property and determines what share each creditor will receive. Creditors have 90 days from the meeting date to file their claims. Generally the debtor may keep, as exempted property, a portion of the residence or a specified property allowance, insurance proceeds, immediate personal possessions, kitchen utensils, some furniture, tools related to one's employment or occupation, and provisions to support a family for six months.
The new 2005 statutory changes are noted below.
Debts that cannot be discharged normally include taxes owed, student loans guaranteed by a government institution, alimony, child support, property obtained by false pretenses and debts not listed by the creditor in the bankruptcy petition.
Chapter 13 permits a debtor with a regular income to propose a plan to repay all or part of the debts on a monthly basis, over a period of at least three and sometimes up to five years. The trustee schedules a meeting of all creditors, who may pose questions on financial matters which the debtor must answer under oath.
The proposed plan is submitted to the court and creditors for approval. If the plan is approved, the debtor's disposable income is paid to the trustee for distribution to creditors. The trustee may approve or disapprove the plan, even if the creditors agree or convert it to a straight Chapter 7.
The lifestyle effect of a Chapter 13 requires debtors to adjust their standards of living, since the trustee only provides the debtor enough funds to meet expenses on a "no-frills" basis. The plan is not rigid and may be modified by the court if the debtor shows good cause to include emergency financial needs.
Common Concerns
* Once a petition for bankruptcy is filed under Chapter 7 or 13, an automatic stay results by prohibiting creditors from making further collection efforts without the permission of the court.
* One spouse may file a bankruptcy petition without approval of the other.
* Court monetary judgments obtained before the petition are not affected by the present bankruptcy action.
* The filing of any bankruptcy is harmful to the debtor's credit rating, since it can remain on all credit reports for up to 10 years.
* Military members may be placing their security clearances in jeopardy by both the accumulation of large debts and the bankruptcy itself, since financial conduct is a matter of concern for officials who approve security clearances.
* Bankruptcy relief for one debtor does not relieve the other joint debtors and co-sureties for the same debts.
2005 Legislative Changes:
Effective in October, Congress amended the law to tighten bankruptcy relief. While there are a number of new provisions, the three major changes are:
* Creation of a "means-testing" formula that replaces a presumption of legitimacy by looking at the debtor's monthly income, minus certain allowed expenses, multiplied by 60. If the amount exceeds certain benchmarks, (roughly amounting to an extra $100 per month), the filing will be presumed abusive--and if not rebutted, the court may dismiss the case or convert it to a filing under Chapter 13.
* State exemptions permitted are curtailed by requiring the debtor to reside in the state in which exemptions are claimed for at least 730 days before bankruptcy filing. Additionally, homestead exemptions may not exceed $125,000 for any property acquired within 1,215 days before filing the petition.
* Debtors, at their own expense, must complete a credit-counseling course within 180 days before filing a petition.
Borrowers Beware!
The ease with which credit and credit cards are offered can quickly place a Soldier, and family members, at financial risk if this easy credit is abused.
Also, "debt consolidation" schemes do not erase debts and often add another layer of costs that increase the original debt.
Just as marriage can be said to be the chief cause of divorce, the failure to act prudently by avoiding the accumulation of huge debts is the chief cause of bad credit, bankruptcy and family discord.
When Faced With A Possible Bankruptcy Action:
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