Monday, August 8, 2011

Top 10 Reason To File Bankruptcy – #4

Total debt is more than you can repay even over a long period of time.  This reason, like many of the others, may sound obvious. Of course people file bankruptcy that have too much debt. But the leaves the question of, how much debt is too much debt? The bankruptcy code does a very poor job of addressing this issue. However, it does address abuse. Should the court find that your seeking relief from having to pay creditors is abusive, then you may be in a position of either having your case dismissed, or the Court refusing to enter a discharge; the discharge is an order from the Court that says you do no longer owe any money on your dischargeable debts.

As a general rule, if based on your current and projected income you will be able to repay creditors a significant portion of the amount due over 3 to 5 years, the Court may require you to enter into a Chapter 13, or repayment plan, bankruptcy, and not allow the debts discharged in a Chapter 7. However, if the debt is such that you would not be able to pay the debts over 3 to 5 years, then you may be in a position of filing bankruptcy.

What's strange about this rule is, it seems to run against public policy. A debtor is actually being rewarded for having too much debt. There are court cases that recognize this, and it is in keeping with the current bankruptcy code. Of course, this does not mean one can simply go out and accumulate a lot of debt for the purpose of filing bankruptcy; this runs into another problem that falls under the category of fraud. Yes, the bankruptcy code does definitely address fraud.

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