Newspaper article St Louis Post-Dispatch (MO)

Legally Speaking

Newspaper article St Louis Post-Dispatch (MO)

Legally Speaking

Article excerpt

Q: I've heard that a person can have too many debts to file for bankruptcy. Is this true? I would think that's just the kind of person who would most need bankruptcy. If it's true, what's the limit for filing? What could you do instead?

A: There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 is the traditional "fresh start" bankruptcy, in which assets are distributed, or protected, and debts are discharged.

Chapter 13 cases are sometimes called "wage earner" or "debtor reorganization" cases, in which debtors pay part or all of their debts over a period of time and are protected from their creditors by the court while doing so.

You can have too much debt to file a Chapter 13 case. The limit, which was raised by Congress last year, is now $250,000 in unsecured debt and $750,000 in secured debt. An example of a secured debt is a home mortgage, which is typically secured by a creditor's lien on the home. An example of unsecured debt is a credit-card debt because the creditor usually has no lien to secure payment.

If your debts exceed the limits for Chapter 13, you can file a Chapter 7 case, for which there are no limits. However, remember that you can't discharge debts incurred by fraud in a Chapter 7 bankruptcy, so don't run up a bunch of debts in anticipation of filing a Chapter 7; that would be considered fraud.

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Q: I went to a vocational school several years ago, with student loans to help pay for it. I was never able to find a job in the field after I graduated, and the school wasn't any help.

I've made payments on the loans when I could, but I haven't been able to keep up to date on them. I'm working for minimum wage right now, but I'm not making enough to pay for my basic necessities, much less old student loans. If I file bankruptcy, can I get out from under those loans?

A: Congress has made it much harder to discharge a student loan in bankruptcy, since a flood of bankruptcies filed by students in the early 1970s. The stronger limits were aimed mainly at college graduates who wanted to stiff the government, but unfortunately, the limits also affect students who went to schools that were more interested in getting money than in providing a useful education or helping graduates find jobs. …

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