Personal bankruptcy
The Bankruptcy Abuse and Consumer Protection Act, signed into law by President Bush last year, promises changes to Federal bankruptcy law that have been long sought by the lending industry. Generally speaking the bill promises sweeping changes to Federal law, and will make it much harder for the average consumer in financial trouble to have their debts wiped out by filing for bankruptcy. Present trends suggest that those considering a personal bankruptcy filing should do so now, as the line to do so is already getting rather long.
The bill will make it tougher for the average consumer to file under Chapter 7 of the Federal code, which allows the courts to wipe away consumer debt and give the debtor a fresh start. Furthermore filings after the October 15 deadline will be subject to a means test and those that pass a rather generous income gauge will have to file under the more strenuous Chapter 13, which requires a repayment plan and the assistance of an attorney. Theoretically speaking indications are that with the deadline looming, bankruptcy filings are not only higher than they were last year, but they are also higher than anticipated. Nationwide, filings are 20-25% higher as compared to last year, and some bankruptcy attorneys say that their business has nearly doubled.
Complicating matters is another law, passed in 2003, that needs credit card companies to establish a payment schedule that allows consumers to repay their debts in a reasonable amount of time. It is
worthwhile remembering that since the beginning of this year, the major credit card companies have doubled their minimum payments from 2% of the balance to 4% of the balance. On the other hand for the average household with $10,000 in credit card debt, this doubles the minimum monthly payment from $200 to $400, an increase that many consumers cannot afford.
The dramatic rise in bankruptcy filings has overwhelmed bankruptcy attorneys, who will face the additional burden of being liable for false information filed by their clients once the new law takes effect. This additional pending liability, combined with the additional workload, has prompted plenty of attorneys to raise their fees by an average of nearly 20% over the same time last year.
What does this emphasizes for those with problem debt. The courts and law offices are already becoming blocked with bankruptcy problems. Therefore anyone who may be considering filing for bankruptcy to overcome his or her problem debt should do so now. Waiting even another day could be too late in this regard.
If in case youre completely in debt and creditors have your phone ringing off the hook, personal bankruptcy might seem the only way out. Indeed, for people whose debts dwarf their ability to pay, declaring bankruptcy can be a brilliant way to gain a fresh financial start.
In an ideal scenario there are two types of bankruptcy petitions you can file: Chapter 7 and Chapter 13. Each of these have a different perspective and different set of circumstances attached.
Chapter 7 bankruptcy on his part involves the seizing and liquidation of your assets. This more often than not includes real estate, stocks, bonds and valuable property. Once liquidated, the proceeds are used to pay off the many creditors you owe. Additionally property exempt from Chapter 7 bankruptcy includes vehicles worth less than $1500, most household furnishings and goods and clothing. Whats more you are also entitled to retain $18,450 worth of equity in your home.
The objective here is to leave you with enough to make a fresh start after bankruptcy is declared so you dont end up completely destitute. At this point of time, you are discharged of all remaining debts. Once personal bankruptcy is filed, it is quite compulsory that your creditors must cease from any lawsuits, wage garnishing, letters or telephone calls compelling you to pay.
Though there are some debts that cannot be discharged by filing for bankruptcy. These include present or back-owed child support and alimony payments, most student loans, recent tax bills or debts to creditors toward whom youve exhibited dishonesty in the past.
Within a relatively short span of time after filing for Chapter 7 bankruptcy, your debts will be discharged and you will have a clean financial slate. Though, filing for Chapter 7 does not always assure freedom from your debts. In case if a judge deems you fit to pay, you may be denied Chapter 7 bankruptcy and forced to file for Chapter 13.
Chapter 13 bankruptcys objective is not to discharge you of your debts but to reorganize them and develop a court-ordered repayment schedule. An individual who files for Chapter 13 bankruptcy typically has three to five years to pay off all debts to creditors. Chapter 13 bankruptcy is more or less preferable for people who want to retain ownership of their property and assets, and/or have a reliable and prolonged source of income.
Irrespective of which type of bankruptcy you file, you must consider your co-debtors carefully before making the decision to file for bankruptcy. On the other hand if there are people who have co-signed for loans but who are not declaring bankruptcy jointly with you, if your debts are discharged, your creditors will go after your co-debtors to collect your portion of the debt.
Speaking in general terms you may be afraid that declaring bankruptcy will permanently ruin your credit rating, but this is not true. In case if you are already in a position to considering bankruptcy, chances are that you credit rating is already so poor that declaring bankruptcy could not make it any worse. A fresh financial beginning and the prospect to rebuild credit from the ground up may even improve your credit rating in the long term.
Whatever decision you make concerning personal bankruptcy, remember it is never a bad idea to consult with a lawyer, financial advisor or credit counselor before proceeding. These professionals can play a pivotal part in advising you on the most prudent course of action to protect the integrity of your financial future.
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