Chapter 10 bankruptcy could soon be a reality. This new bankruptcy chapter will replace Chapter 7 and Chapter 13 bankruptcy under the newly proposed Consumer Bankruptcy Reform Act. If Chapter 10 is adopted, you will be able to file a single Chapter where you can choose to either clear out your debts or propose a repayment plan.
This first type of Chapter 10 bankruptcy is very similar to the current Chapter 7 setup. It allows the filer to get a full release of debts without doing a repayment plan. This first route for Chapter 10 will allow lower-income families to get a full discharge of their debts. Additional discharge abilities may be available under the proposed Reform Act. For instance, the current version of the Act proposes that student loans can once again be discharged through your Chapter 10 bankruptcy case.
Under Act, the no-payments version of Chapter 10 bankruptcy will also be available to a larger portion of the population than currently under Chapter 7. Currently, you will be able to make almost 35% over the median income for your household size and still get a simple discharge in Chapter 10. This is better than the current system that forces many debtors into a Chapter 13 repayment plan after they go over the median income line even by amounts only 1% or greater.
Under the new Bankruptcy Reform Act, Chapter 10 bankruptcy will also allow for the filing of 3 types of repayment plans. The first type is simply called a Repayment Plan that only repays unsecured debts such as medical bills and credit cards. This is the simple bankruptcy plan that only repays general debts.
The second type of repayment plan under Chapter 10 is the Residence Plan. This plan will allow the debtor to come up to date on the mortgage on their residence. Any behind-portion and the ongoing payments will be paid to the mortgage company through a Residence Plan.
The final type of Chapter 10 plan will be called a Property Plan. This type of plan will repay debts where there are liens on other secured property such as cars, tools, or other secured items. This type of plan will address the amount of interest and repayment required. The amounts required for repayment will be based on the current value of the collateral in the majority of cases.
It is currently uncertain whether the term “Chapter 10” will be adopted to bring the two former Chapters together. However, due to bi-partisan support, some form of the new Bankruptcy Reform Act will most likely be adopted. More than likely a variety of negotiations and modifications will take place before the Act will be adopted. The final form of Chapter 10 (or simply bankruptcy itself) will emerge after Act is signed into law and put into practice.
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