Deciding to file bankrupsy is never an easy choice. However, if personal bankrupsy is the only option left, it is best to become as informed about the process as possible. Doing so will help reduce the stress associated with filing bankruptcy and help you stay focused on the task at hand.
A key element of bankrupsy is understanding the new bankruptcy laws enacted in 2005. The Bankruptcy Abuse Prevention and Consumer Protection Act was put into place as a way to protect both consumers and creditors
Prior to BAPCPA, the majority of debtors filed for Chapter 7. This bankruptcy chapter involves liquidation of assets to repay creditor debts. The remaining balance is discharged; providing the debtor with a clean financial slate.
Unfortunately, some consumers abused the system by going on wild spending sprees, filing bankrupsy and leaving creditors holding the bag. On the flip side, many creditors were engaging in predatory lending and charging outlandish fees to high-risk borrowers. It created a financial mess that needed to be overhauled.
Obtaining Chapter 7 bankruptcy protection is no easy feat these days. The new bankruptcy laws require debtors to repay a portion of their debts whenever possible. Anyone filing for bankrupsy protection must undergo the 'means test' - a financial tool used to determine the debtor's ability to pay.
Most debtors are now required to file Chapter 13. This bankrupsy chapter is oftentimes referred to as "reorganization". Chapter 13 payments generally last between three and five years. A large percentage of disposable income must be contributed to the repayment plan and no new debt can be taken on during the repayment period.
Many people are under the false impression they can file bankruptcy to stop foreclosure. While it is true filing for bankruptcy can slow down the process, if debtors are unable to adhere to their repayment plan, they fail out of bankruptcy. When this occurs, lenders can move forward with foreclosure proceedings and evict borrowers from their homes; sometimes within a matter of days.
Prior to filing for bankrupsy protection, consider looking into bankruptcy alternatives such as debt consolidation, credit counseling or budgeting. These are but a few options available to help avoid bankruptcy. We invite you to learn more in our bankrupsy article library.
Published on December 13, 2008 at 04:13 AM
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