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Here is a true story about bankruptcy and the advantages it offers. A husband and wife team of practicing psychiatrists, with a joint income of $78,000 per annum, accumulate personal debts totaling $22,000, and also have outstanding a $33,000 mortgage on their comfortable suburban New York home. They are not in arrears, nor even over their heads. They simply seek more discretionary spending power.
Their solution to the problem? They file for bankruptcy and are able to immediately reduce their debt load to a mere 10 cents on the dollar, repayable on an extended schedule in very small amounts. An officer in one of their finance companies notes that they could refinance the mortgage or even sell the house. But you will see in a moment why that was not necessary.
In the United states there are two tpe of bankrupcies they are discussion below: Two type of bankrupcies:
Chapter 7 makes no reference at all to the debtor's income. It permits debtors to clear the slate by turning over all their assets except those specifically exempted to creditors. Among the exemptions: Up to $7,500.00 equity in the debtor's house (15,000 if both file); $4,000.00 in accrued dividends; $1,200.00 in automobile equity; $500.00 in jewelry; $200 per category of household items (including clothing, books, etc.) and more!
Chapter 13 requires that debtors show only a regular income to handle a reasonable three-year pay-back plan. The court's definition of reasonable happens to be as little as 1% to 10%, even when a payment of 50% could easily be managed.
The bankrupcy process:
When filing under Chapter 7, you file several forms with the bankruptcy court listing income, expenses, assets, debts and property transactions for the past two years. A court-appointed trustee is assigned to oversee your case. About a month after filing, you must attend a meeting of creditors where the trustee reviews your case and asks questions. The meeting typically lasts about five minutes, and creditors rarely attend. If you have any nonexempt property, you must give it (or its value in cash) to the trustee. Bankruptcies are typically discharged three to six months later.
When filing under Chapter 13, you file all the same forms plus a proposed repayment plan, in which you describe how you intend to repay your debts over the next three to five years. A trustee is assigned to oversee the case, and you will be required to attend a meeting of creditors about one month after filing. Often one or two creditors attend this meeting, especially if they don't like something in your plan. After the meeting of the creditors, you attend a hearing before a bankruptcy judge who either confirms or denies your plan. If your plan is confirmed, and you make all the payments called for under your plan, you often receive a discharge of any balance owed at the end of your case.
The most common applicants for bankruptcy include recent college graduates who file in order to avoid paying back government-guaranteed student loans. Their rationale? They feel society owed them an education.
You will also find older, "keep up with the Joneses" types filing for bankruptcy. For suburban executives to Wall Street professionals, they are unwilling to live within their means.
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