The Dreaded Chapter 13 Personal Bankruptcy Trap
The kind of personal bankruptcy you want is called a
Chapter 7 Bankruptcy.
You
submit your financial forms to the court, they approve them, the judge bangs
his gavel and all your debts vanish instantly and permanently. The
bankruptcy court sends a legal notice to your creditors that the debts
have been legally cancelled and you walk out of court entirely debt-free.
But there's another kind of bankruptcy out there - one you need to carefully avoid. It's called the Chapter 13 Repayment Plan Bankruptcy. Under this version you submit your forms just as before but the bankruptcy court denies you a Chapter 7 Bankruptcy. All your debts remain but you're given longer to repay them. In many cases that means five years.
But here's the catch. Under the old Chapter 13 bankruptcy rules the judge was free to determine how much of your monthly paycheck you got to keep to live on and most bankruptcy judges tried to be fair. After all, you're going to be living on this paltry sum for five very long years.
But under the new law the bankruptcy judge has no say. Instead you get only the amount found on an IRS list. The rest of your income goes directly to the repayment of your debts. In my state that means you'll have to struggle through those five long years on the whopping sum of only $672 a month! Can you imagine trying to pay your rent, car payment, gas, food etc on such a small sum today? Who said slavery is dead?
The new bankruptcy law contains a formula the bankruptcy court must use to determine which kind of bankruptcy you're qualified for. If your numbers come up short, you end up with the Chapter 13 bankruptcy.
The tricks people used to use in the past don't work any longer. (Quitting your job to reduce your income used to be an effective tactic but under the new bankruptcy law the bankruptcy court is required to use your income over the past 12 months in their calculations)
