In 2005, Congress passed legislation that changed the existing bankruptcy system as we new it. The underlying idea was to make filing bankruptcy much more difficult to qualify for, in particular Chapter 7, and to push more consumers into Chapter 13 Bankruptcy, which involves paying back your debt over 3 to 5 years from your disposable income. Chapter 7 Bankruptcy, on the other hand, in many cases is able to wipe the debt out completely, with no cost to the debtor other than filing and attorney fees (and the credit impact of course).
The single most important change to the law is the fact that consumers can no longer choose which type of bankruptcy they want to file. Under the new law, any person with an income that exceeds the median income of their state may be forced into Chapter 13 "payment plan" or "debt consolidation" bankruptcy.
Some other changes:
-Increased lawyer fees: Due to the more complex nature of personal bankruptcy law, more attorneys are increasing their fees to make up for the extra work necessary to help someone file. Making matters worse, a lot of attorneys are leaving this area of law because of the new liability associated with any mistakes (intentional ones in particular) made when helping someone file. Less competition = higher fees
-More scrutiny: The new law presumes consumers are intentionally trying to game the system. This being the case, more and more cases will be checked for fraud, and any mistakes made are eligible for criminal prosecution.
-The credit counseling requirement: Among other new requirements is that every filer must have a mandatory credit counseling session to determine whether they another course of action is more suitable for helping them get out of debt.
Follow this link to learn about all the changes to the bankruptcy law.
How To Declare Personal Bankruptcy
The first step to filing bankruptcy is to determine if it is the most appropriate debt solution for you. There are many alternatives and ways to avoid bankruptcy (not to mention different types of consumer bankruptcy). One bankruptcy alternative is debt settlement, also known as debt reduction or debt negotiation. Debt settlement involves negotiating with credit card companies to lower your balances. In some cases, a debt negotiation company can reduce credit card debt by 40 to 60 percent and dramatically lower your monthly payment in the process. More importantly, it will also have a less damaging effect on your long-term credit than bankruptcy.
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If you determine that personal bankruptcy is your best option, then the steps to declaring are very simple:
Chapter 7 Bankruptcy
Declaring Chapter 7 is a fairly fast process, typically taking 6 months or less to complete. Filing fees are $299 and they can be waived if you show a legitimate hardship or inability to pay. To get started you will information about your income, your assets, your monthly expenses, any transactions involving your property in the past year (if any), information about residency changes that may have occurred in the past 6 months (if any), and of course, information about your debts.
Step 1: Meet with an approved credit counselor for a 90 minute session to determine if bankruptcy is your most suitable option.
Step 2: Determine your average monthly income for the past 6 months. Determine your state's median income for your household size. If your income exceeds the state's median, then you will have to pass the "means test" to see if you are even eligible for Chapter 7. Submit your paperwork to your local bankruptcy court. At this point, the "automatic stay" goes into effect and your creditors are obligated to stop hounding you.
Step 3: Turn over control of any non-exempt property to your court-assigned trustee. The trustee's job is to ensure that your unsecured creditors are paid as much as possible from any assets you own. Fortunately, every state has certain bankruptcy exemptions that may protect some or all of your assets.
Step 4: Go to the meeting of the creditors. This usually happens about 1 month after you file. The court trustee after this point will head the process to start selling any of your non-exempt property.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is normally a much more difficult and complicated process, and it can take three to five years to complete. Most people who choose Chapter 13 do it for a few reasons: a) you fell behind on your mortgage and are having problems catching up; b) you make too much money (see above about why this matters) c) you have an asset that would be liquidated in Chapter 7; d) the debts cannot be discharged in a Chapter 7-fines and penalties for example. For consumers who were considering the "do it yourself" route, Chapter 13 can be a difficult task to complete and the bankruptcy help of an attorney is usually recommended.
Step 1 - Step 2: The process to get started with declaring Chapter 13 is the same as Chapter 7.
Step 3: Go to the meeting of the creditors. Like Chapter 7, this also happens about one month after you file.
Step 4: Go to a confirmation hearing where a judge determines whether your proposed payment plan is approved or denied.
Step 5: You pay your disposable income (as determined by the courts) to a court-appointed trustee for three to five years. How long you are required to stay in a Chapter 13 depends on whether your income is below or above your state's median income for your household size. (Above the median means you are required to stay in a Chapter 13 plan for up to 5 years).
If you cannot complete your case or miss payments, it is possible your case will be dismissed. If this happens you will be owe the debt plus interest from the date before you filed. In some cases the court trustee will actually help you through any tough times by reducing your payments, allowing a grace period for late payments, or discharging your debts completely if you show that continuing the Chapter 13 will cause undue hardship on you or your family.
Are you sure that personal bankruptcy is your best alternative? Let PayingPaul.Com help you get out of debt fast, cheap, and without "Robbing Peter." Simply fill out a form and start on the past to becoming debt free!