What is bankruptcy?
Bankruptcy allows people to either get rid of most of their debt and start over or work out a plan to replay creditors.
Types of Bankruptcy
Chapter 7 Bankruptcy provides for liquidation of assets.
Chapter 11 Bankruptcy provides for reorganization and payment of debts.
Chapter 12 Bankruptcy is for farmers and their families.
Chapter 13 Bankruptcy provides for debt repayment for only individuals.
Have you lost a job or had your income reduced? Do you have unanticipated medical bills? Have your living expenses increased beyond what you need to make your normal minimum payments on your credit cards and other bills? The vast majority of people who need to file bankruptcy end up in that position through no fault of their own. That isn’t intended to mean that people who file aren’t responsible for their debts. They are. But the bankruptcy laws exist to enable people to get a “fresh start” when unexpected or unforeseen events occur to render them unable to pay their debts.
Whether to file bankruptcy is a serious decision and whether to file bankruptcy is something you should only make after consulting with licensed bankruptcy lawyers. Depending on your circumstances, you may be eligible to file for either Chapter 7 Bankruptcy and wipe out most, if not all, of your debts without having to repay anything; or Chapter 13 Bankruptcy in which you propose a repayment plan to your creditor based on your income (which can repay anywhere from zero to one hundred percent of your debts), or even Chapter 11 which is essentially the same as Chapter 13, but more complicated and designed for businesses and those with higher debts and more assets.
Benefits of Filing Bankruptcy
Bankruptcy provides very specific and tangible benefits, which should be compared against the costs of filing, as well as alternate options for your situation. The benefits of deciding to file bankruptcy include discharging your legal obligation to pay your debts. This is obviously the biggest benefit. Bankruptcy also gives you the ability to start over with your finances (the so-called “fresh start”), and start rebuilding your credit. It is true that a if you file bankruptcy, you may temporarily lower your credit score (depending on what it was prior to filing), but filing any one of the bankruptcies gives you a definite starting over point from which you can rebuild your credit. This cannot occur outside of bankruptcy laws because people usually have multiple delinquent debts which continue to accrue interest and continue to be late month after month, so that there is no definite starting over point from which to rebuild your credit.
There are many other benefits to filing bankruptcy, such as the ability to avoid (remove) judgment liens that have already attached to property you own, the ability to purchase secured assets, such as automobiles, for their current market value, without necessarily having to repay the full balance due on them, and many other things.
However, a bankruptcy should only be filed after consideration of all available alternatives, such as debt consolidation, negotiation, refinancing, etc. Many times these other options are either unavailable, or simply not the best options for one’s situation, but they should always be explored.
Bankruptcy File Mistakes
The biggest mistake people make is waiting too long to explore filing bankruptcy as a possible option. Many times, there are actions that can be taken to optimize the benefits (and minimize the negatives) of filing a bankruptcy, if it is properly planned for ahead of time. This doesn’t mean bankruptcy will be best for your personal situation, but failing to explore it as an option early on, may leave you unable to file when you need to.
New Bankruptcy Law Changes in 2005
Among the many changes that came into effect on October 17th when the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became law are limits on your ability to choose between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy, changes in the manner in which disposable income is calculated when determining how to fund a Chapter 13 repayment plan, and a longer residency requirement for those choosing state exemptions. And, to make a bad situation even worse, before an individual can file for bankruptcy, they must first complete an approved credit counseling course.
How has the Bankruptcy Law changed?
So, what does all of this mean? Essentially, the new laws were enacted in an effort to reduce the increasing number of fraudulent bankruptcy filings that seem to occur each year. Part of the way the new laws achieve this is by making it more difficult for people with above-average incomes to apply for bankruptcies. This is done by assigning higher values to collateral including homes, cars, and other similar items which, in turn, inflates the overall value of the debtor’s assets. And, when the debtor is worth more, they will be expected to pay their creditors more.
More stringent residency requirements
The new laws also place more stringent residency requirements on filers to prevent them from moving to a particular state just to take advantage of their more lenient bankruptcy laws. Further, there are new limits on the period of time that must elapse between filings. While under the old laws, there was no minimum waiting period for filing a new Chapter 13 case subsequent to either a Chapter 7 or Chapter 13 case, the new laws require debtors to wait eight years between Chapter 7 cases, four years between a Chapter 7 and Chapter 13 case and 2 years between Chapter 13 cases.
Finding and Researching your Bankruptcy Attorney
The first step if you decide you want to file bankruptcy is to find a bankruptcy lawyer, attorney or law firm to help with your bankruptcy law case. Bankruptcy lawyers usually specialize in bankruptcy law and nothing else, which gives them exceptional experience with bankruptcy legal procedures, case history and anything else related to bankruptcy that a bankruptcy attorney should know. A bankruptcy attorney will take your case if you qualify and can pay their fees. They will help you to focus on your bankruptcy issues and take care of your health and achieve some peace of mind knowing you will get through the process.
While filing bankruptcy without bankruptcy lawyers may seem right for your situation, you still take chances if you don’t have an expert on your side. Bankruptcy lawyers specialize in bankruptcy law litigation and are the wisest option when entering bankruptcy.
Your bankruptcy law firm may also have referrals or resources to help with other situations related to your bankruptcy and will assist you in anyway they can. During your research process to find bankruptcy lawyers, be sure to talk to several before deciding on one that you feel comfortable with. Remember, a good bankruptcy attorney will have a track record of success in bankruptcy law litigation.