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As of December 2007, bankruptcy
filings are up 28% from last year and are expected to increase in
2008 due to the combined factors of high household debt and rising
mortgage costs.
American Bankruptcy Institute
This is the article that no one hopes to need and we would prefer not to write. The word 'bankruptcy' is weighed down by such
doomsday words as failure, defeat, impoverishment...well, you're getting the depressing
idea. However, it is not
'the end of the world' to declare bankruptcy. Instead of running away from this topic,
it is time to
demystify bankruptcy with a little 'Bankruptcy 101.'
What is bankruptcy?
For most people, bankruptcy is a way to get a fresh start after
acquiring too much debt. Most individuals who file for bankruptcy
will file under Chapter 7 or Chapter 13. Depending on which is
filed, one may get most of their debt erased or work out a workable
solution with lenders to pay off existing debt.
Are bankruptcy laws determined by Federal or State government?
Bankruptcy laws are made by the Federal government. States can
pass laws that protect the "lender and debtor relationship" but they
cannot regulate how a bankruptcy is processed or if it is to be granted.
Can all debts be erased?
No. Whichever type of bankruptcy is filed, there are certain
debts that cannot be erased at all. These include alimony, child
support, most student loans and legal judgments against fraud or
criminal negligence such as a drunk driving accident. Some taxes
may be erased, but not all. In fact, taxes have their own set of
bankruptcy rules.
Do I need a lawyer?
When filing for bankruptcy it is important to find a bankruptcy
lawyer who can help you navigate the process. Bankruptcy lawyers
specialize in this area of law and are familiar with the distinct
differences and effects of the process; they can be your greatest ally
in a tough, seemingly bureaucratic system.
How long will bankruptcy effect my credit?
Bankruptcy will stay on your credit report for 10 years. There
are ways to improve your credit rating and make yourself more appealing
to lenders. For more information on this, check out this useful
website:
www.lifeafterbankruptcy.com. It is not an easy road back and
those filing for bankruptcy should have a realistic expectation to work
hard at their future spending practices.
Do I have to do debt counseling?
Yes. Under the new bankruptcy act passed in October 2005, it is
now required that all persons applying for bankruptcy meet with a
government qualified debt counselor first. After one has
successfully filed for bankruptcy, the debtor must again meet with a
counselor before the bankruptcy file will be closed.
What is Chapter 7 bankruptcy? (In a nutshell)
Chapter 7 bankruptcy is also known as a "liquidation of debt." A
person can file for Chapter 7 every 8 years. This usually involves
the liquidation of property to pay back debts. An appointed
trustee sells all secured, non-exempt property for the debtor and
distributes money raised among the lenders. Unsecured debts, such
as credit card bills and most medical bills can be erased. This
may mean the loss of secure debts such as a home. However, most
states do have protections for debtors in place to insure they may keep
life necessities such as clothing and some furniture. Retirement
funds such as IRA's are also protected and debtors may keep these as
well. After the changes to bankruptcy law in October 2005, many
debtors may not get approved for Chapter 7 and be required instead to
apply for Chapter 13. In short, if you still have an income and
make more than the median for a household of your size in your state you
may have to file for Chapter 13. To find out if you should
be filing for Chapter 7 or Chapter 13, you can use a mean calculator
like the one at
legalconsumer.com.
Again, this is where consulting a lawyer becomes very important.
What
is Chapter 13 bankruptcy? (In a nutshell)
Chapter 13 bankruptcy is also known as a "reorganization of debt" or the
"wage earners' plan." One can file for Chapter 13 more often as
long as any previous filings are already closed. This is the
bankruptcy for those trying find a way to get out of debt but still
expect to pay off some of their debt. Generally speaking, if you
still have a source of income and could make payments, just not the high
ones you have now, you can be restructured into a debt payment plan
under Chapter 13. This is the most likely to be used to try to
stop a mortgage foreclosure. In this scenario, you can keep
the house, car and more than you could under Chapter 7. There are
limits to the amount of debt that can be restructured. If one is
above those limits they would file under Chapter 11, however, the
average American Joe/Jane is not in this category.
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What
can you do to prevent Bankruptcy?
- Continue to take care
of essential bills first: mortgage/rent, taxes, child support,
and utility bills.
- Eliminate frivolous
expenditures. No more department store credit cards, cable
TV, magazine and newspaper subscriptions, etc. Be honest
about what you can live without with for a while.
- If you own your home,
consider a home equity loan to get rid of high rate debts such
as credit cards.
- Watch your credit
report. Close unused accounts, check for errors and
resolve any questions with lenders immediately.
- Know the warning
signs: -Are you using credit cards to pay off bills or credit
cards? -Are you borrowing against unprotected debt? i.e.
Are you borrowing from a credit card to pay the mortgage?
When you see you are bouncing debt around and not making any
headway, it is a good time to look at credit counseling.
- Warning about credit
counseling: If you choose to do debt consolidation
recognize that it will effect your credit score. Also,
make sure you understand how the payments will work and if you
can really make the payment - sometimes they are set too high!
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Avoid
aggressive lenders. If you begin to get offers for loans
that sound too good to be true - they are!
There has been a big push to penalize aggressive lenders
who only help people acquire more debt. However, they are
still out there and you should be a careful shopper of any loans
you take.
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More
Resources
US Department of
Justice - US Trustee Program
www.usdoj.gov/ust/
A complete listing of approved credit counseling agencies is
available through links on this Web page. [Listed by state.]
www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm
A complete listing of approved providers of financial management
instructional courses is available through links on this Web page.
[Listed by state.]
www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm
American Bankruptcy Institute
www.abiworld.org
The American Bankruptcy Institute is the largest multi-disciplinary,
non-partisan organization dedicated to research and education on matters
related to insolvency. ABI was founded in 1982 to provide Congress and
the public with unbiased analysis of bankruptcy issues.
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
www.govtrack.us/congress/bill.xpd?bill=s109-256
Bankruptcy Action
www.bankruptcyaction.com
The objective of this website is to provide the person, thinking
about filing bankruptcy, the information he or she needs to make an
informed decision.
Lawyers Listings
www.lawyerslistings.com/asp/index.asp
Our mission is to present to the Internet community an easy-to-use site
in which to search for law firms and individual lawyers.
Life After Bankruptcy
www.lifeafterbankruptcy.com
On this website you'll discover everything I did to recover so
quickly...and many other bankruptcy recovery and credit repair
strategies you'll find nowhere else.
NOLO Bankruptcy Library
www.nolo.com
Nolo is your legal companion, empowering you and saving you money
whenever the law touches your work, life or finances.
US Courts - Bankruptcy Basics
www.uscourts.gov/bankruptcycourts/bankruptcybasics.html
Bankruptcy Basics provides basic information to debtors, creditors,
court personnel, the media, and the general public on different aspects
of the federal bankruptcy laws.
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