Debt Negotiation vs. Bankruptcy
According to the American Bankruptcy Institute, every year over 1.5 million Americans file bankruptcy. The same pressure that you are feeling now from your creditors and collection agencies is a factor in this high bankruptcy statistic. If you file for bankruptcy your credit will be scarred for 10 years and your bankruptcy discharge can also appear in public court records for up to two decades.
Bankruptcy will affect you when you try to purchase a home or car, rent an apartment, find employment, obtain insurance, or get a security clearance. Moreover, depending on which type of bankruptcy you file,Chapter 7 or Chapter 13, the courts may force you to make payments to your creditors. You may very well be forced to pay back a portion of the debt with interest. Bankruptcy should be treated as a very last resort!
Bankruptcy is regarded by many in the credit industry as "financial suicide". Certain types of bankruptcy can remain on your credit report for as long as 10 years. Potential lenders review your credit report to see what type of risk you will be to them. The majority of their approvals and denials are based on your credit worthiness. If you have failed to pay your debts back most creditors will refuse to extend you any additional credit. And in most cases if they do approve you for a loan or line of credit it's usually at a higher interest rate because you are considered a high credit risk.
This does not necessarily mean that extreme cases of indebt ness and extenuating life circumstances don't warrant a bankruptcy petition. However if you have the financial means and desire to avoid bankruptcy our program will help accomplish your goals.
Chapter 7 Bankruptcy
This form of bankruptcy requires the debtor to liquidate all non-exempt assets to pay off their creditors. Chapter 7 filing is generally used by those who lack sufficient income to cover outstanding debts after taking care of basic necessities. Because it enables debtors to "wipe the slate clean" and make a new start it has become the most common form of bankruptcy. Those considering Chapter 7 filing should also be advised that certain obligations cannot be included in their petition.
Examples include: Alimony and child support Back taxes and student loans Recent purchases for substantial amounts
Chapter 13 Bankruptcy
For those who do not qualify for Chapter 7 bankruptcy, either because of disposable income or assets they may want to protect, there is an alternative. With a Chapter 13 bankruptcy, the debtor makes a commitment to repay all or a part of their debt. This allows the debtor to restructure their payments and set up a new payment schedule (usually 3-5 years). This form of bankruptcy is used when the petitioner has property they want to keep, e.g., a mortgage that is about to be foreclosed or other non-exempt assets that would be liquidated under a Chapter 7 filing. Filing under this code will halt all collection and foreclosure proceedings and allow the debtor to catch up on their payments and reinstate their original agreement. The court will appoint a trustee to handle the repayment plan with the debtor's creditors.
All forms of bankruptcy should be considered very carefully and as an option of last resort after all other avenues have been pursued.
Bankruptcy Law Reform
Major Intent of Bankruptcy Reform: The major intent of bankruptcy reform is to require people, who can afford to make some payments towards their debt, to make these payments, while still affording them the right to have the rest of their debt erased. These people must file Chapter 13
Status of the Bills: Bankruptcy Reform has had great difficulty in getting passed into law since it was introduced in 1998. As of March, 2005 it has passed in the Senate and is being considered by the House.
When will this be Law: If the Bills are passed then the President must sign the Bills. The provisions of the law will come into effect 180 days later.
Major Changes:
This will identify debtors who have the financial capacity to pay some money to their creditors. The test will work as follows:
TEST # 1: Is the family earning above the average income for their state? 1997 US average for a family of one = $18,762 1997 US average for a family of two = $39,343 1997 US average for a family of three = $47,115 1997 US average for a family of four = $53,165 If the answer is "No" Chapter 7 can be filed!
TEST # 2: If the answer is "Yes" to TEST # 1 , do you have excess monthly income of more than $83.33/month to pay $5,000 of debt over 5 years (House version); or more than $250 /month income to pay $15,000 of debt over 5 years, (Senate version)? If the answer is "No" you must answer another question, if "Yes" Chapter 7 cannot be filed but Chapter 13 may be filed!
TEST # 3: If the answer is "No" to TEST # 2 do you have excess income to pay over the next 60 months at least 25% of your unsecured debt? If the answer is "No" you can file Chapter 7, if "Yes" chapter 7 cannot be filed but Chapter 13 may be filed!
Proof of Income: Debtors filing Chapter 7 or Chapter 13 bankruptcy, must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due.
State Exemptions: You cannot use the exemptions in your state of residence unless you have lived there at least 2 years.
Vehicles: If there is security (put in place within 3 years (Senate Bill) or 5 years (House Bill)) over your vehicle, you must pay the full amount owed or lose the vehicle.
Current bankruptcy laws allow you to get the loan stripped down to the value of the vehicle and you make payments at that rate.
Counseling: You must have finished counseling within the last 6 months before you can file.
Child Support and Alimony: These debts would go from a priority of 7th to 1st.
Tithing: Up to 15% of your income can be given to charity. This is seen by some as a loophole allowing people who may be just over the thresh hold of having to file Chapter 13 to drop down low enough to file Chapter 7.