In the 18th and 19th centuries, English prisons housed individuals who were unable to pay their debts. This practice was known as the debtor's prison. However, the law now in the United States gives debtors a fresh start under certain circumstances. This post will discuss bankruptcy legislation and credit counseling, including how NextChapter integrates credit counseling. Let's start now!
Bankruptcy Law in the United States
Through bankruptcy, people and organizations can eliminate or pay off their obligations. It enables individuals to get their debts forgiven or reorganized. Federal law, more specifically, the Bankruptcy Code, which can be seen in Title 11 of the United States Code, governs bankruptcy law in the United States. Individual states, however, have regulations that specify what assets a debtor may keep when filing bankruptcy.
Although bankruptcy law is complicated and challenging, knowing the fundamentals can help people make wise financial decisions. There are various sorts of bankruptcy, and each has its guidelines. Chapter 7 and Chapter 13 bankruptcy are seen as the most prevalent types of bankruptcy for people.
Chapter 7 Bankruptcy
Since Chapter 7 bankruptcy necessitates the sale of assets to pay creditors, it is frequently called "straight bankruptcy" or "liquidation" bankruptcy. A principal residence, personal property, and retirement savings are common examples of assets that might not be subject to liquidation. For people with little to no disposable income and a lot of unsecured debt, Chapter 7 bankruptcy is a good alternative.
A "means test" that compares an individual's income within the past six months to the median income in their state and the amount being owed. This test is used to separate those who have the ability to repay their debt partially and gradually from those who can't.
To file for Chapter 7 bankruptcy individuals must pass the means test. If their income falls below the median and the owed amount, they can be qualified to petition for Chapter 7 bankruptcy. If they can prove that they don't have enough disposable income to offset their debts, even if their income exceeds the median, they may still be qualified to apply for Chapter 7 bankruptcy.
In a Chapter 7 bankruptcy, the court chooses a trustee to sell or liquidate the debtor's non-exempt possessions and distribute the proceeds to the creditors. With Chapter 7 bankruptcy, most debts are discharged, which means the debtor is no longer required to pay them.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy or a "wage earner's plan" is intended for people who make a consistent living and can pay off some or all of their obligations over time. The debtor constructs a plan to repay their debts for three to five years in a Chapter 13 bankruptcy. If the debtor follows the plan to completion, the majority of their outstanding obligations are forgiven under the supervision of a trustee.
People who have a consistent income and want to maintain their possessions, such as a home or car, frequently file for this kind of bankruptcy. People must have a steady income source, and debt levels must fall within a set range to file for Chapter 13 bankruptcy. Before declaring bankruptcy, they must also finish a credit counseling course.
Favorable outcomes of filing for bankruptcy
When filing for bankruptcy, individuals usually look forward to the outcomes. The two most common benefits of filing for bankruptcy are court injunctions that help relieve the financial strain on debtors. These are:
If a person files for bankruptcy, they receive an automatic stay from the court. This order prevents creditors from taking any collection action against the debtor. This includes phone calls, letters, wage garnishments, and foreclosure actions. The automatic stay becomes effective immediately upon filing for bankruptcy, regardless of whether creditors have been informed. This is a significant advantage of declaring bankruptcy because debtors can sue creditors for violation.
Discharge of Debts
The ultimate goal of declaring bankruptcy is to have all of your debts discharged. A court order of discharge frees the debtor from having to pay back specific obligations. However, some debts—such as student loans, the majority of tax debts, and debts incurred by fraud or wilful misconduct—are not eligible for discharge.
After the debtor has finished all needed coursework and the trustee has examined all of the debtor's financial records, the discharge of debts is often granted at the conclusion of the bankruptcy case.
In order to understand their financial condition and create a strategy for managing their debt, people can benefit from credit counseling. It is a crucial step in the bankruptcy process since it aids the development of a debt relief strategy by educating people about their options. Counselors analyze clients' financial circumstances while assisting them in creating a budget and a system for controlling their debt. The counselor may also speak with creditors on the client's behalf to agree to a fee waiver, a reduction in interest rates, or to create a repayment schedule.
Individuals must complete credit counseling and debtor education courses from an approved provider before declaring bankruptcy. Credit counseling aims to help people comprehend their financial situations and explore alternatives to bankruptcy, such as debt negotiation or consolidation.
Credit counselors assist clients in creating budgets and debt management plans or negotiating with creditors to reduce interest rates or waive fees. Credit counseling aims to provide support, education, and resources to those struggling with debt while also assisting people in learning how to manage their finances and prevent future financial issues.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 stipulates that a person who intends to file for bankruptcy must complete credit counseling with a credit counseling organization that the law has approved before filing a bankruptcy petition. Before filing for bankruptcy, credit counseling needs to be finished within 180 days. A certificate of completion from the credit counseling organization must also be given to the client and submitted to the bankruptcy court.
Anyone considering bankruptcy must attend two credit counseling sessions, one prior to filing for bankruptcy and a second time before their debts are discharged. The second session, frequently referred to as the debtor education course, is when a person can learn how to manage their finances after declaring bankruptcy. The debtor education course must be finished with a credit counseling organization that has been approved, just like the first session.
NextChapter's Credit Counseling Integration
The filing process for lawyers and their clients is made simpler by NextChapter, which is a web-based bankruptcy software. Successfully completing a credit counseling course from an accredited provider is one of the prerequisites for filing a bankruptcy case. Before filing for bankruptcy, this course must be completed, and to move on with the case, a certificate of completion is required.
NextChapter has partnered with DebtorCC, a well-known company that issues certifications to students who complete credit counseling courses. Filers can quickly receive the necessary credit counseling certificate through this interface on the NextChapter platform. For attorneys and their clients, this connection eliminates the need for manual certificate information entry, saving time and effort.
For lawyers and their clients, this integration has several advantages:
It lessens the possibility of mistakes and delays when manually entering certificate information.
It speeds up the credit counseling certificate acquisition procedure, saving lawyers and their clients time.
DebtorCC guarantees that clients obtain a top-notch course that satisfies the legal requirements for a bankruptcy filing by giving consumers access to a provider of credit counseling who has been pre-approved.
Features of NextChapter's DebtorCC Integration
NextChapter's integration with DebtorCC is a standout feature in the bankruptcy software industry. Here are the essential components of this integration.
Attorneys can create a new account for DebtorCC or use their existing details to log in through the NextChapter platform. This links their account with their details and cases on NextChapter.
Without leaving NextChapter, you, as the attorney, can invite your clients via mail to enroll in credit counseling and track their progress. Clients can also access the credit counseling course directly within NextChapter and complete it at their own pace.
The completion date and certificate will appear in the NextChapter case after finishing the bankruptcy course. Since the data transfer is automatic, attorneys can completely avoid manual entry and guarantee accuracy.
View all of your clients' course status updates in one location. Also, when you go to file the case, NextChapter notifies you if the credit counseling certificate has expired. This is another way to aid lawyers with correctly filing bankruptcy petitions.
People can reclaim control of their finances and attain long-term financial stability by learning the fundamentals of bankruptcy law and credit counseling. Asides being a prerequisite for filing bankruptcy, credit counseling offers direction, information, and tools to assist them in managing their debt. Overall, the combination of DebtorCC with NextChapter provides a practical and effective way for bankruptcy clients to acquire the necessary credit counseling certificate.