Article by Roger Schlueter
Bankruptcy – The Types of Personal Bankruptcy
Why do I talk about personal bankruptcy ? Why do I, not, talk about company bankruptcy ? Well, the personal credit report is the most important. There is no, Business Credit Report. Well there is but it is not as used, or important, as the Personal Credit Report. The main things that are reported on the Business Credit Report are Tax Liens, Judgments and of Coarse Bankruptcy’s. The Personal Credit Report is constantly reported as to the current, timely payments made as well as the amount of debt in relation to the availability of credit. Most banks do not run a Credit Report on the Business, but always run a Credit Report on the Owners / Guarantors of the Business Loans.
The Bankruptcy Code has changed since 2005. The two chapters of Bankruptcy are a Chapter 7 and Chapter 13. The Chapter 7 is the fastest and simplest method to receiver relief and get your debts discharged. Under the Chapter 7 the Non-Exempt Assets are seized by the Court Appointed Trustee. The Trustee then sells the property and gives the proceeds to the debtor’s Creditors. Non-Exempt property is usually a Second Car, Stocks, a Second Home etc. The individual keeps his or her Exempt property which includes, a Home, a Car, Furniture, Health Aids and Clothing.
Chapter 7 does not discharge debts in Student Loans, Alimony, Child Support, Criminal Fines, Divorce Property Settlements, and Recently Owed Property and Income Taxes. The Debtor still must make payments on the Exempt Obligations like your Mortgage and your Car Loan.
Chapter 7 Bankruptcy remains on your Personal Credit Report for 10 years and will make it harder to get loans, especially in the early years.
The Means Test – To qualify for Chapter 7 you must pass the Means Test. The Means Test compares your income to the Median Income of a similar size family in the state where you live. The court will look at disposable income that left over after paying for Exempt Necessities as Food and Housing.
You must also take a Pre-Bankruptcy and Post-Bankruptcy Course that your attorney’s office will enroll you for these classes. These are usually offered by a not-for-profit Consumer Credit Management Company.
Chapter 13 may be applied for if you do not qualify for Chapter 7 and is not as desirable as Chapter 7 because the court make you pay back some of the money with a payment every month for three to five years. You do not get your debts discharged until you have completed your payment plan.
This is a quick overview of the Chapters available in Personal Bankruptcy and I stress Personal Bankruptcy because it has the most impact on a persons financial future. Banks have not gotten to the point of reporting all business loans to a centralized credit bureau. Most of the current Credit Bureau’s for Business do a good job for Tax Liens and Judgments but not the run of the mill Reporting of current and timely payments of bills.
Please address any questions or comments to the blog or to roger@rogerschlueter.com or go to my website at schlueterfinancial.com.