American citizens often turn to filing bankruptcy in hope of reducing debts or saving their home from foreclosure. Although personal bankruptcy does offer debtors the opportunity to make a fresh financial start, new bankruptcy laws enacted in 2005 have created considerable confusion.
In most cases, filing bankruptcy requires the assistance of a qualified bankruptcy attorney. Financial experts recommend interviewing a minimum of three lawyers before making a final decision.
Most law firms provide complimentary consultations to determine if they are the appropriate lawyer to suit your needs. Filing bankruptcy is an emotional and stressful process, so it is important to work with a bankruptcy attorney whose personality matches yours.
New bankruptcy laws require debtors to undergo credit counseling prior to or during the bankruptcy process. According to the Bankruptcy Abuse Prevention and Consumer Protection Act, credit counseling must be obtained through an approved U.S. Trustee Program agency a maximum of 180 days prior to filing.
In order to determine which bankruptcy chapter debtors can apply for, they must undergo the ‘means’ test. This financial tool compares debtors’ income to their states’ median income and determines how much debt they must repay.
BAPCPA rulings require all debtors to repay a portion of their debts when possible. If debtors’ income falls below their states’ median income level, they might be allowed to file for Chapter 7. This bankruptcy chapter discharges all outstanding debts except for tax liens, child support and government-backed student loans. Otherwise, debtors must file for Chapter 13 bankruptcy and adhere to a debt repayment plan.
When filing bankruptcy, debtors first petition the bankruptcy court in the judicial district where they reside. Within a few weeks, debtors attend a 341 creditor meeting to develop a repayment plan. BAPCPA requires debtors to pay upwards of 60-percent of disposable income toward repayment of debt.
Bankruptcy repayment plans typically last between three and five years. When debtors are unable to adhere to the repayment plan, creditors can petition the court and request dismissal of the bankruptcy. When debtors fail out of bankruptcy, they lose all protection from the court and creditors can commence with collection action; including foreclosure.
If debtor’s filed bankruptcy to avoid foreclosure, it is imperative to take action to ensure they can remain current with chapter 13 payments. Mortgage lenders can initiate the foreclosure process from the date it expired when the homeowner filed for bankruptcy protection. In some instances, borrowers are only days away from eviction when filing bankruptcy. If they fail out of bankruptcy, the lender can foreclose in a matter of days.
Filing bankruptcy has far-reaching effects and should be considered only when other types of debt reduction plans have failed. These might include debt consolidation, debt settlement, credit counseling or budgeting.
Personal bankruptcy remains on credit reports for ten years and can prevent consumers from obtaining any type of credit for years to come. Those able to enter into lending agreements are generally assessed considerably higher interest rates and may require a qualified co-signer.
Take time to understand the pros and cons of filing bankruptcy. Consult with professionals or conduct research online. Look for bankruptcy alternatives that can provide the same result without the serious financial consequences.
Simon Volkov is a real estate investor and successful entrepreneur offering solutions to individuals facing bankruptcy and foreclosure. His website at
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