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Ch. 7 restrictions may still allow for bankruptcy protection

Bankruptcy laws underwent major modifications in 2005. The purpose of the changes was intended to make it harder for individuals to potentially abuse the system.

One of the most noted changes related to Chapter 7 bankruptcy is a provision that limits seeking this form of bankruptcy protection to no more than once every eight years. In addition, costs associated to filing for bankruptcy were increased and a so-called "means test" was implemented to make sure that the petitioner actually is in need of the debt relief afforded by bankruptcy.

These restrictions might lead some in Arkansas who have filed for protection before to conclude that bankruptcy is out of the question, but that might be wrong. Every case is different and the circumstances of each should be examined with the help of a skilled bankruptcy attorney to determine what options exist.

This is well reflected in one woman's story that appeared in the news recently. She and her husband filed for Chapter 7 bankruptcy in 2006. But that didn't prove to be the full solution they required. In the subsequent years, as they got rocked by the Great Recession, they ended up incurring a lot of credit card debt. Now, with one child and another on the way, she fears they could lose their house and more. She wonders if bankruptcy is still possible.

She may have good reason to be concerned, but there may be hope. Because of the eight-year restriction on filing for Chapter 7, that option is off the table until sometime next year. But, in the face of possible pressures from creditors, it might be possible for this family to file for Chapter 13 protection.

Such a filing structures payments to creditors based on the current assets and income available to the petitioner. After a certain time frame, usually three or five years, certain remaining debts that remain are typically forgiven. That could be enough of a window to allow for financial recovery. But checking with an attorney is paramount.

Source: FoxBusiness.com, "Too Soon to File for Bankruptcy Again?," Justin Harelik, Aug. 14, 2013

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