Whether your debt dilemma is the result of an illness, unemployment, or simply overspending, it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes. While the ads pitch the promise of debt relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it’s generally considered the option of last resort. The reason: its long-term negative impact on your creditworthiness. Bankruptcy information (both the date of your filing and the later date of discharge) stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live. Be cautions and read between the lines when faced with ads in newspapers, magazines or even telephone directories that say: “Consolidate your bills into one monthly payment without borrowing.” “STOP credit harassment, foreclosures, repossessions, tax levies and garnishments.” “Keep Your Property.” “Wipe out your debts! Consolidate your bills! How? By using the protection and assistance provided by federal law. For once, let the law work for you!” You’ll find out later that such phrases often involve filing for bankruptcy relief, which can hurt your credit and cost you attorneys’ fees. If you’re having trouble paying your bills, consider these possibilities before considering filing for bankruptcy: Carefully consider a second mortgage or home equity line of credit. While these loans may allow you to consolidate your debt, they also require your home as collateral. Consider debt settlement or a debt management plan if a Chapter 13 is the bankruptcy you are considering or the only option the court gives to you.
If none of these options is possible, bankruptcy may be the likely alternative. There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees are $274 for Chapter 13 and $299 for Chapter 7. Attorney fees are additional and can vary. The consequences of bankruptcy are significant and require careful consideration. Other factors to think about: Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows you, if you have a steady income, to keep property, such as a mortgaged house or car that you might otherwise lose. In Chapter 13, the court mandates a repayment plan that allows you to use your income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts. Carefully consider a debt management plan or debt settlement before filling for Chapter 13. Almost anyone with the ability to repay some of the creditors will be enrolled into the Chapter 13 and not the Chapter 7 by the court. Chapter 7, known as straight bankruptcy, involves the sale of all assets that are not exempt. Exempt property may include cars, work-related tools, and basic household furnishings. Typically if you have no income, are medically disabled or have some other exteme burden that would hinder your ability to repay all or a portion of your debts; you will be enrolled in to a Chapter 7 and not a Chapter 13 by the court. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait eight years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings. Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary by state. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it. Also, if there is little to no equity in your home the mortgage lender can avoid foreclosure stoppage and get the court to approve an immediate re-instament of the foreclosure preceedings Another major change to the bankruptcy laws involves certain hurdles that you must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. Before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. How will the bankruptcy effect my credit rating? You may find that in less than four years after a bankruptcy your credit record will have been re-established. After two years from the discharge date most home loan programs will be available. However, if you have any late payments or negative marks on your credit during the two years just after the discharge date you may be disqualified from most loan programs. Underwriters follow strict guidelines for post bankruptcy credit requirements. They typically require anywhere from 2-4 accounts to have been established after the bankruptcy and paid with no lates. The bankruptcy will remain on your credit record for 10 years. Days after the court approves the completion of the bankruptcy (discharge) there will be numerous offers for new credit mailed to you. The interest rates the creditors offer will reflect your recent bankruptcy. Watch out for scams. Remember to keep all of the discharge and filling paper work from the bankruptcy. Even though the courts have correctly completed your bankruptcy there may be errors on your credit report. Future lenders may require copies of the paperwork to qualify you for a loan. Tip-offs to avoid Rip-offs lawyers that are unable to clearly state what your costs will be and what is included you never meet the attorney and always speak to their assistant or paralegal lawyers that are not licensed in your state any lawyer that cannot clearly explain the process and what they can do to help
How to find a bankruptcy attorney - check your local BAR association for any violations and call them up for an opinion
- look them up on the Better Business Bureau for complaints
- search a reputable directory
Search the Web Links section to find a bankruptcy attorney or check resources
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