With consumer debt and bankruptcy filings rising every year, it is important for all Americans to consider the real advantages and disadvantages associated with Chapter 7 & 13 Bankruptcy . Most people know that bankruptcy will create future credit problems , but they do not know the extent. Most people know that new laws for bankruptcy change the attractiveness of it as a debt option, but few people know how or why. The purpose of this article is to clearly elucidate the top four circumstances when you may want to consider avoiding bankruptcy.
Your Future Plans Necessitate Good Credit
Chapter 7 Bankruptcy can stay on your credit report for 10 years, and Chapter 13 is only moderately better, staying on your credit record for seven years at least. Even worse, the credit impact after bankruptcy is not just relegated to your credit report---bankruptcy stays on legal records for 20 years. If you have long-terms goals in mind that will require a solid credit profile, it is likely that you should consider a debt help service to avoid bankruptcy. One of the main considerations that people have is the impact on employment after bankruptcy . If you plan on changing jobs soon, you know your potential employer may do a credit check, and if you have the income to do a debt consolidation program, at the very least you should consider this route.
You Will Be Forced Into Chapter 13 Bankruptcy
Thanks to the new bankruptcy laws, more consumers who file are being forced into Chapter 13 "reorganization" plans. The targets: people who make more than the median person in their state. If you make more than the median person in your state given your household size, you will have to pass the means test to qualify for Chapter 7.
The reason why Chapter 13 is such an unappealing bankruptcy option has to do with the fact that it is possible you will have to pay the debt back in full while still suffering the devastating credit effect of bankruptcy . When someone is forced into a Chapter 13 bankruptcy, they are obligated to turn over their disposable income to the courts for up to five years before the debt is finally discharged. Worse yet, your disposable income isn't determined by subtracting your income from your monthly expenses. It is calculated by subtracting your income from the average expenses of people in your county. In other words, if you have any expenses whatsoever that are out of whack with your county average (children's tuition, car payments, etc), your situation can be even more tight financially. It is for this reason that the vast majority of Chapter 13 bankruptcy plans are never completed.
Avoid Bankruptcy If Your Debt Can Be Construed As Fraudulent
Again, thanks to the new bankruptcy law, there are stricter guidelines in regards to what debts can be interpreted as being fraudulently run up. Here are the common scenarios when a creditor can object to including your debt obligation to them in your bankruptcy:
-You misconstrued your financial status on a loan application. Typically this involves over-stating your income.
-You did a cash advance totaling more than $825 on a credit card or consumer credit line in the last 70 days prior to filing.
-You ran up more than $550 in luxury purchases in the past 90 days prior to filing bankruptcy. Luxury purchases are things like big screen televisions, vacations or anything else that does not deal with providing for you or your dependents.
-Debts that were deliberately fraudulent. For example, you wrote a check and then promptly stopped payment on it.
If your debts fall under any of these categories, you may want to consider avoiding personal bankruptcy.
You Have A Lot Of Equity In Your Home
This varies depending on the state you live in, but in most states, if you have a lot of equity in your home, it is likely in a Chapter 7 that you will be forced to sell your property and use at least a portion of the proceeds from the sale to pay back your unsecured creditors. Again this depends on your homestead, but you can learn more about your asset protections in bankruptcy in your state by checking out our bankruptcy information page.
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