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What are Chapter 1 and Chapter 7: Coverage of Debt Consolidation
- How to qualify for consolidated debt relief
- It is possible to have debt exemption
In the United States, there are two main laws relating to the debt relief under the condition of bankruptcy of individuals and companies as such: Chapter 1 and Chapter 7. The core concept of both laws is that an individual or a company (this article would mostly concentrate on the individual filings) can file for a certain fraction of debt relief mostly related to the exempt property, when he or she cannot repay his/her outstanding debts including the interest payments and, as a result, files for official bankruptcy.
Under Chapter 7 the individual is assigned with the Trustee, who manages the liquidation of individual’s assets to repay unsecured debts to creditors. The amount of property related assets that can be exempt from liquidation varies from state to state. At the same time there are a number of unsecured debts that can also be exempt from liquidation, for instance, student loans and child support.
However, if you have consolidated debt secured against your property, it is very likely that it would not be except under Chapter 7, mainly due to the initial terms and conditions of the consolidated loan, that state that your property is used as a collateral for consolidated debt and would be subject to repossession should you run into difficulties of repaying the principal and monthly payments. If you would like to read the specifics of Chapter 7 and figure out whether you can file for any exemptions specific to your situation refer to Federal Judiciary website of the United States, which contains lots of useful information.
Chapter 1 under United States legislation represents the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which came into force in 2005. The main purpose of Chapter 1 is to reduce the abuse of the legislation such as Chapter 7. In other words, when Chapter 7 came into force, many people with extensive indebtedness would use it in order to intentionally receive debt relief and abuse the law. Chapter 1 makes it more complicated for the individuals to abuse privileges under Chapter 7.
Now it is in general much more difficult for an individual to proclaim him/herself bankrupt. Prior to Chapter 1 it was much easier to have most of the debts to be discharged including some property debts. However, after 2005 an individual must pass means test, which would be used by court when making the decision of how much debts need to be repaid. Meant test considers individual’s daily expenses such as living expenses, insurance expenses (health insurance, disability insurance and other), contribution to the care of family members, educational expenses and some other expenses that are crucial for daily existence as a part of American society.
If you would like to know more about Chapter 1 and Chapter 7 and to apply to your specific case, it is advisable not only to search for the information yourself, but also to seek professional help of debt counsellors, who can provide you with free initial advice and explain you the main concepts of each Chapter. It is quite complicated for the person not familiar with legal terminology and without financial background to clearly understand each of the clauses.