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In general terms, declaring bankruptcy under Chapter 7 provides
quick, affordable and complete discharge of all debts in as little as 4
to 6 months from the day the original petition is filed with the Clerk
of the Court. For this reason, many lenders decry Chapter 7 as an
unreasonable abuse of process.
In 2005, the US Senate and House of Representatives passed
legislation promoted by financial interest groups with the blushing
support of President George W. Bush. In late 2005, the new Reform Act
required all debtors prove their total income, disposable income, total
debts, and strictly comply with an assortment of new requirements
collectively known as "means testing" procedures.
Declaring bankruptcy under Chapter 13
Qualification for reorganization of debts for wage earners is
provided by Chapter 13 of the Code. Individuals who earn regular income
and who can reasonably pay a portion of their debts may choose to
propose a Chapter 13 plan.
Plans of reorganization may provide for repayment of only a portion
of debts, over a period of 3 to 5 years, with remaining balances
discharged at the end of plan term in a similar fashion as if filing
Chapter 7 cases. Chapter 13 also provides wider latitude for debtors to
retain assets, prevent foreclosures, repossession and tax seizures. If
earning what the Code considers excessive income, 5 year plans are
mandatory.
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