For those who feel that they are in serious financial distress, bankruptcy may have crossed their minds. Bankruptcy is not something to be taken lightly. While your debt may be wiped clean, there are far-reaching consequences for that "new freedom".
When a person's debt has risen to a level that they can't hope to get under control, they may consider filing for bankruptcy. For a consumer there are two bankruptcy choices: Chapter 7 and Chapter 13. Chapter 7 bankruptcies involve wiping out the debts in part or in their entirety and liquidating assets to do it. Chapter 13 bankruptcies are more of a debt restructuring plan that gives you more time and a plan to pay back a portion of the debt that is owed to creditors.
Bankruptcy damages a person's credit. A bankruptcy judgment stays on credit reports for as long as ten years. During that time, any credit that is applied for will disclose the bankruptcy to the creditor. If filing Chapter 13, you still have to pay back part of your debt and the judgment stays on your credit report for ten years.
Previously, people have taken advantage of bankruptcy laws. They were allowed to file more than once for Chapter 7 so many used it to wipe out all their debt.
Each state decides on what assets they will exempt from being seized during a bankruptcy hearing. Knowing that, some may use available cash to purchase those items (homes, cars, etc.) in an effort to avoid payment and still retain the stuff they purchased. In this instance, creditors receive little or nothing from the bankruptcy settlement.
The new laws concerning bankruptcy have changed this. Whereas courts used to have the leeway of deciding who could file for Chapter 7 bankruptcy, there are now criteria that must be met first. In order to file for Chapter 7 bankruptcy, a person has to have an income that is below the median income for the state where they live. Their income must be put through a calculation that determines if they have enough disposable income to pay twenty-five percent of their outstanding debt.
More people will have to file for bankruptcy under Chapter 13. The courts will decide the amount of repayment from facts that they receive. An allowance is made for rent or mortgage, food and other relevant bills. With the new laws, the IRS regulates the value of each bill, exempts a certain amount, and payments are decided from the rest.
Because there are more hoops to jump through, bankruptcy lawyers are charging more for their services. The whole process of bankruptcy will cost the filer more than before, which will make them think twice about the process. Credit counseling sessions are also required as a precursor to filing for bankruptcy. A credit counselor may determine that they can help you and thus eliminate the need for bankruptcy proceedings.
Bankruptcy should always be a last resort. While it will give you a clean slate, it comes at a price.
When a person's debt has risen to a level that they can't hope to get under control, they may consider filing for bankruptcy. For a consumer there are two bankruptcy choices: Chapter 7 and Chapter 13. Chapter 7 bankruptcies involve wiping out the debts in part or in their entirety and liquidating assets to do it. Chapter 13 bankruptcies are more of a debt restructuring plan that gives you more time and a plan to pay back a portion of the debt that is owed to creditors.
Bankruptcy damages a person's credit. A bankruptcy judgment stays on credit reports for as long as ten years. During that time, any credit that is applied for will disclose the bankruptcy to the creditor. If filing Chapter 13, you still have to pay back part of your debt and the judgment stays on your credit report for ten years.
Previously, people have taken advantage of bankruptcy laws. They were allowed to file more than once for Chapter 7 so many used it to wipe out all their debt.
Each state decides on what assets they will exempt from being seized during a bankruptcy hearing. Knowing that, some may use available cash to purchase those items (homes, cars, etc.) in an effort to avoid payment and still retain the stuff they purchased. In this instance, creditors receive little or nothing from the bankruptcy settlement.
The new laws concerning bankruptcy have changed this. Whereas courts used to have the leeway of deciding who could file for Chapter 7 bankruptcy, there are now criteria that must be met first. In order to file for Chapter 7 bankruptcy, a person has to have an income that is below the median income for the state where they live. Their income must be put through a calculation that determines if they have enough disposable income to pay twenty-five percent of their outstanding debt.
More people will have to file for bankruptcy under Chapter 13. The courts will decide the amount of repayment from facts that they receive. An allowance is made for rent or mortgage, food and other relevant bills. With the new laws, the IRS regulates the value of each bill, exempts a certain amount, and payments are decided from the rest.
Because there are more hoops to jump through, bankruptcy lawyers are charging more for their services. The whole process of bankruptcy will cost the filer more than before, which will make them think twice about the process. Credit counseling sessions are also required as a precursor to filing for bankruptcy. A credit counselor may determine that they can help you and thus eliminate the need for bankruptcy proceedings.
Bankruptcy should always be a last resort. While it will give you a clean slate, it comes at a price.
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