Is Bankruptcy The Right Way To Go? You Decide
By: Frank Hague
There are 2 sides to the changes in bankruptcy rules.
It will be a lot harder to file bankruptcy under chapter 7 and get a
totally clean slate.
For businesses, relying on issuing credit, the new personal bankruptcy law
is doing great, reducing personal bankruptcy claims from the thousands to
double digits (in the short run).
However, lawyers working with the actual people filing for bankruptcy say
that the new law is seriously flawed because it puts more financial
burdens on already broke clients and reduces potential debt repayment to
small businesses.
And then of course you have the credit card companies charging high
interest rates which in quite a few cases caused the bankruptcy in the
first place. According to some financial specialists, much of the debt
people accumulate is a result of keeping up with the Joneses and not
thinking ahead.
For 80% of clients counseled each month, the debt is credit card related
and averages $32,000 - a result of six to eight cards. Consumer credit
organizations say the new law provides debt-reducing strategies for those
considering filing bankruptcy and curbs abuse.
Under the new law it has become a requirement that the person filing
bankruptcy obtains credit counseling both before and after filing for
which that person will be charged.
So now the consumer would then know the advantages and disadvantages of
declaring bankruptcy. Yet it seems merely another expense for an already
financially stressed individual.
People filing bankruptcy in general are not over spenders, but merely
faced with temporary financial disasters such as medical costs, layoffs, a
divorce, gambling debts or other crises. Before you can file bankruptcy,
you are now required to complete credit counseling with an agency approved
by the U.S. Trustees office.
This credit counseling is designed to help you determine whether or not
bankruptcy is appropriate.
Once you complete your bankruptcy, the law requires you to attend another
credit counseling session.
These are new requirements, before this law was passed the law did not
require a person to go through counseling either before or after the
filing of bankruptcy.
Second, under the old law, a person could decide to file under Chapter 7
or Chapter 13. Under the new law, the court will look at your monthly
income and apply a means test relating to the state in which you live. If
your income is less than or equal to the medium income then you will be
allowed to file Chapter 7 which in effect will give you a clean slate.
This medium income can vary from $28,000 in Missouri to $56,000 in Alaska.
If your income is greater, you may be forced to file Chapter 13 unless you
can demonstrate you do not have enough disposable income.
Under Chapter 13 you will not get a clean slate but will have to make
payments on your debts.
Also, your attorney now has to personally certify that your bankruptcy
filing is accurate. This means more work for the attorney, with higher
legal fees.
Advantages of declaring Bankruptcy:
- Legal protection from creditors
- Takes care of all or most debt
- In some cases, can keep home and car
- May stop complete financial ruin
- Provides a fresh start
Disadvantages of declaring Bankruptcy:
- Bad credit
- May have to repay partial debt load and return collateral to
creditors
- May lose assets, including house and car (If the house is worth
more than a certain amount)
- Bankruptcy becomes public record, and
- Remains on credit record for seven to 10 years
"In the past, a bankruptcy offered a fresh start for the filer," said
Columbia attorney Gwen Froeschner Hart. "The new federal legislation
offers language directed at helping creditors."
If you analyze credit card expenses for most people you'll see that they
often include medical bills and day-to-day expenses for the elderly or
those earning low or fixed incomes. Records show that 50% of credit card
holders do not pay their full credit card bills every month.
33% of the population can't afford medical insurance so have to charge
their prescription drugs. With the recent Medicaid cuts and rigid
bankruptcy legislation who knows what is going to happen to these people.
There are some who say consumers are abusing creditors. The irony is that
credit card companies are begging for customers and offering large amounts
of unsecured credit, yet at the same time, lobbying for stricter debt
controls.
Author Bio
Frank Hague is interested in Bankruptcy Laws
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