Petitioning a court for a judicial declaration of bankruptcy is always an option for people who simply cannot fulfill their debts because of some financial woes. There are 2 kinds of bankruptcy: voluntary bankruptcy where the debtor himself initiates the proceedings; and involuntary bankruptcy where the creditors are the ones who initiate the proceedings to protect their interests and enforce their rights.
There are 2 kinds of voluntary bankruptcy that are commonly used by consumers, those that owe consumer debt as opposed to business debt: one which is filed under Chapter 7 of the Bankruptcy Code, and another which is filed under Chapter 13 of the same law. Chapter 7 bankruptcy, once granted, will ask the debtor to surrender his properties - at least those which are not exempted by law - to a trustee who will thereafter liquidate the same and send the proceeds to the unsecured debtors in proportion to how much they have lent the debtor. Regardless of whether or not the liquidated properties will be enough to satisfy these debts, they will be discharged upon distribution of the proceeds (most consumers that file chapter 7 bankruptcy in Texas do not lose any property).
The debtor can start his financial life all over again. Chapter 13 bankruptcy, on the other hand, works the same way, with one major difference. The debtor will be asked to satisfy a portion of his unsecured loans before he will be discharged of the same. This portion depends on the court's judgment, taking into consideration the debtor's financial abilities in the foreseeable future, no matter how woeful it may seem at the time of the grant of the petition. Immediately, one would think that Chapter 7 bankruptcy is a better option. Well, it is.
Unfortunately, it's not up to the debtor to decide under which chapter of the statute he should file his petition for judicial declaration of bankruptcy. The law is quite explicit when it comes to this matter. First, the petitioner's income will be taken into consideration. If his income is below the median, then he will be allowed to file for bankruptcy under Chapter 7. But if his income is slightly above the median, he will be asked to undergo a "means test." This "means test" will gauge his ability to pay his debts, as well as how much of such debts he will be able to pay.
This will be the basis of the terms and conditions under Chapter 13 of the Bankruptcy Law. The above is a relatively new law passed by Congress in 2005. A debtor is advised to seek the services of a bankruptcy lawyer so that his interests will be protected in the best way possible. An attorney will defend the petitioner against any and all attacks against his petition so that, at the end of the day, he may be declared bankrupt and his financial misery will be alleviated.
J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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