Bankruptcy May not be the Right Answer for you
Most consumers who are looking at a mountain of overwhelming debt as well as students who have graduated from college and needing to start paying back that huge amount of student loan debt may be considering bankruptcy to wipe the slate clean and start over again. But bankruptcy may not be the right option for you, and you may not even be eligible to file bankruptcy.
The vast majority of consumer bankruptcy filings are done using Chapter 7 bankruptcy law which will wipe out most unsecured financial obligations, which typically includes most credit cards, signature loans and similar lines of credit. One of the most important aspects of chapter 7 bankruptcy is that it also stops creditors cold in their tracks from calling you, harassing you at all hours of the day and weekends, and also stops any wage garnishment proceedings which may be in progress.
But you need to take a long hard look at the source of your debts since there are multiple types of debts that bankruptcy will not absolve you of. Bankruptcy will not get rid of secured debts where you have put up collateral to get that loan originally. If you have student debt that was federally funded, bankruptcy does not eliminate this type of student loan.
For the consumer, one of the requirements of the recently changed bankruptcy laws is that they attend mandatory credit counseling. To a certain extent, this is foolish, since many bankruptcy filings are not due to financial mismanagement on the part of the consumer but are due to circumstances beyond the control of the consumer, such as huge medical bills, a job layoff, a messy divorce, etc. In this case, credit counseling may be helpful to an extent, but that was not the reason that bankruptcy is being considered. Nonetheless, credit counseling is a requirement and there is no way around that.
Contrary to popular belief, bankruptcy does not mean you will lose everything. The federal bankruptcy courts will make an exemption or allowance for you to keep things that are necessary for basic living, such as your house, your car, etc. But each case is evaluated individually, so if your current house is a beachfront condo in Miami and your current car is a late model Porsche, that may be replaced by order of the court for something a bit more economical.
You need to be aware of the ramifications of filing bankruptcy. It will stay on your credit reports for the next 7 to 10 years, and will be a huge red flag to lenders where you are requesting a new line of credit. With a bit of digging, you can get approved for new credit, but you will almost certainly be paying a higher rate of interest until you can get yourself back on track.
You should thoroughly investigate all your bankruptcy alternatives and options before filing. Make sure you know the law, since with the recently changes, this is no longer something you would want to attempt yourself. A good bankruptcy lawyer can save you more than you would lose and would be worth the investment many times over.
Jon Arnold
http://www.articlesbase.com/finance-articles/bankruptcy-may-not-be-the-right-answer-for-you-261662.html
This entry was posted on Friday, July 3rd, 2009 at 8:19 pm and is filed under bankruptcy laws. Follow the comments through the RSS 2.0 feed. You can post a comment, or leave a trackback.
When is declaring bankruptcy the right answer to financial difficulties?
July 3rd, 2009 at 8:19 pm
Only as a last resort…please try credit counseling first..they would be the best source for infor on filing.
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July 4th, 2009 at 1:21 am
Many people over extend themselves and think that this is such an easy solution. Bankruptcy laws and been revamped and some debts do not go away.
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July 4th, 2009 at 1:23 am
In reality the debts that don’t go away haven’t changed from the new laws. The change is that if you file a chapter 13 and have a car loan on a car less than 910 days, you can’t "cram down" the car (essentially only pay the value plus interest rather than the actual loan amount) and there are less debts that the chapter 13 "super discharge" apply to (all of which are debts that are NOT dischargeable in a chapter 7 and never have been).
A new type of debt that isn’t dischargeable is debts subject to property division in divorce. Child support and maintenance were already nondischargeable but now, so are property settlements (like dividing up the credit card debt). If you are planning to get a divorce, a bankruptcy is often a good way for both of the soon to be exes to get a fresh start (a joint filing is a good way to save money on fees too even if you hate each other’s guts).
If you had a major emergency that resulted in massive medical bills, that is a common reason to file, as well as massive credit card debt (but then, don’t let yourself get to that point again and don’t get more credit cards afterward.
You are required to get credit counselling prior to filing and a debtor education course after filing but before you can get a discharge, but those are with approved providers by the US trustee and don’t require multiple sessions.
Also, you need to look at how much debt you have, is it enough to warrant filing? look at the cost of filing and see if you are actually saving money by filing.
Chapter 13 bankruptcy is also an excellent way to save your house, if you were unemployed but now able to catch up, it will be more affordable than most loan modification plans that mortgage companies provide people without a bankruptcy.
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July 4th, 2009 at 1:25 am