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Here we are Part 5 of the series – Should I Go Bankrupt – and we can only hope this has made perfectly good sense to you but what if it hasn’t? Now what will you do? Well my best advice is if you are still struggling with the information we gave you, please send us a message and let us know what you would like to see clarified. However if it is not in the way we presented it and you just find this information overwhelming due to your own situation, then understanding the law around bankruptcy might be a great place to start. This is where legal counsel can help but before we end this series I think it is only fair that we touch upon some of the rules and laws.
Now we need to be clear this sort of stuff can be boring so we will attempt to keep you awake through the lecture. With all the legal forms and jargon, understanding bankruptcy law can be very frustrating. One of the primary laws that was passed in the United States in 2004 is the Bankruptcy Abuse Prevention and Consumer Protection Act -the law actually went into effect October 17, 2005 and since then has caused quite a stir in the Financial community.
One of the main objectives of this law was to reduce losses for credit card companies and the savings these companies would be rewarded as a result, was to be passed on to the customer of the companies through lower fees and lower interest rates – unfortunately this did not happen. The credit card companies seen record breaking profit margins and kept the wealth for themselves.
Some of the major changes to this law were:
- If you were filing for bankruptcy after October 17th, 2005 you would have to of filed tax returns for four years in a row prior to insolvency.
- Dis-chargeable debts, or those debts where personal liability is taken away by the courts, is more difficult to come by.
- Mandatory credit counseling session – Here is a quote from Wikipedia – “Credit counseling and debtor education requirements: Another major change to the law enacted by BAPCPA deals with eligibility. Section 109(h) provides that a debtor will no longer be eligible to file under either chapter 7 or chapter 13 unless within 180 days prior to filing the debtor received an “individual or group briefing” from a nonprofit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator.”
Besides making it more difficult to qualify for Chapter 7 bankruptcy, or complete protection, the law imposes stricter rules and budgets on Chapter 13 debtors. Chapter 13 filing is that which allows you to keep some assets once proving you have limited debt and a steady income. This is preferable by those of you who are experiencing major financial difficulty but still have a means of paying for some assets.
The court will setup a repayment schedule and budget that allows for full repayment of mortgages or cars within a five year period. Should it be that repayment is simply not an option then you would have to file for Chapter 7 proceedings. Those of you who wish to file under Chapter 7 must meet certain eligibility requirements under a “means test.” (resource – Click Here )
Exempt items in a bankruptcy hearing are determined by the court and are usually items that are a necessity, such as a car to get to work. As well, the courts will distribute debts into two categories: non-dischargeable and dischargeable debt. To take it one step further non-dischargeable debts fall into two categories:
- non-dischargeable due to wrongful conduct on the debtor
- non-dischargeable due to public policy.
Wrongful misconduct by the debtor could mean theft or laundering money while public policy could include child support payment or court related judgements. When it comes to filing for financial protection, that particular protection is only extended so far. For the most part you will always be required to still pay your taxes, student loans, alimony, child support, court fees and fines imposed due to criminal acts. This is the place where many are misled in the Chapter 7 proceedings, as it is often referred to as “a fresh start”.
Another major point which needs to be made is that a record of bankruptcy will now stay on your credit report for approximately ten years in the United States. This makes it extremely difficult to become eligible for any type of credit, even a credit card, but especially a car loan or a mortgage for a house. Some creditors are willing to offer limited credit to bankrupt individuals however the interest rates and finance charges are usually through the roof. This makes it that much more difficult for you to get back on your feet.
Remember that bankruptcy is the last resort to get that fresh start you desperately need but it is not the best solution so we don’t want to come off as glorifying the process therefore you need to know the disadvantages along with the advantages. We are now concluding our series on “Should I go bankrupt” therefore, for specific bankruptcy law questions it is best to contact legal advice or a financial professional. Thank you for being a part of this series – we will continue to bring you up to date financial information which you can be assured will have a positive impact on your financial health.