The good news is that in many cases, bankruptcy can be avoided. Hundreds of thousands of people needlessly file bankruptcy each year. While bankruptcy may seem like the best solution to your problems, in many cases, it’s not. Make sure you properly look into all options prior to making the decision to file. The following is a link to information on some of those other debt relief options that may help in your decision making process.

Many people think that filing bankruptcy is the silver bullet that will fix all of their debt and credit related problems; however, filing bankruptcy is the worst thing you can do to your credit. Most lending institutions will consider your bankruptcy when evaluating you for a personal loan even after the bankruptcy has expired. Qualifying for a loan after filing for bankruptcy can be very difficult and could cost you considerably more than a person that has not filed for bankruptcy. It is understood that some situations will require you to file for bankruptcy. However, you should avoid bankruptcy if at all possible. Debt Regret can help eliminate most, if not all, of your unsecured debt so that you do not have to file for bankruptcy. If you require additional information on the subject of bankruptcy you may want to contact a bankruptcy attorney in your area.

Many people do not realize that there are five types of bankruptcy options available under the U.S. Bankruptcy Code; however, for most consumers there are really only two viable options; Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 bankruptcy is entitled Liquidation: In a Chapter 7 bankruptcy, a court-supervised procedure occurs during which a court-appointed trustee collects the assets of the debtor’s estate, converts them to cash for repayment, and makes all necessary distributions to the debtor’s creditors; however this is all done within the debtor’s right to retain certain exempt property. Traditionally, there is little or no nonexempt property in a chapter 7 bankruptcy.

Due to this fact, there may not be an actual liquidation of the debtor’s assets. In this case, it is called a “no-asset bankruptcy.” It is important to realize that a creditor that is trying to collect on an unsecured claim will only get a distribution from the bankruptcy estate if the case is an “asset bankruptcy” and the creditor can provide proof of their claim with the bankruptcy court. In almost all chapter 7 bankruptcies, the debtor will be grated a discharge that releases them of personal liability for most dischargeable debts. The entire process normally takes just a few months from the time the bankruptcy petition is filed. 

Chapter 13, bankruptcy is entitled Adjustment of Debts of an Individual with Regular Income: A chapter 13 bankruptcy is traditionally used for people who have a regular source of income or a full-time job. For many people, chapter 13 is preferable to chapter 7 because it allows the debtor to keep some assets. A chapter 13 bankruptcy allows the debtor to repay creditors over time.

This time traditionally varies from three to five years. This type of repayment proposal takes place at a confirmation hearing.  During this confirmation hearing, the court will either approve or disapprove the debtor’s repayment plan. This decision largely depends on whether the repayment plan meets the Bankruptcy Code’s requirements for confirmation. In a Chapter 13 bankruptcy the debtor is usually able to remain in control of their possession and property while making payments to creditors; however, payments are made via a court trustee. 

Unlike chapter 7 bankruptcy, the debtor does not receive an immediate discharge of their debts. Under chapter 13 bankruptcy, the debtor must complete the repayment plan before the discharge is granted; however, the debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect.

It is important to remain cognizant of the fact that not all debts are discharged under bankruptcy. The debts that are able to be discharged will vary under each chapter of the Bankruptcy Code. However, the most common types of non-dischargeable debts are tax claims, debts that are not presented by the debtor to the court while filing for bankruptcy, debts for spousal or child support or alimony, debts to governmental units for fines and penalties owed to government entities, debts for personal injury caused by the debtor’s operation of a motor vehicle while driving intoxicated, debts for willful and malicious injuries to person or property, debts for government funded or guaranteed educational loans, and debts for certain condominium or cooperative housing fees. 

In order to file for bankruptcy, you must file a petition in federal bankruptcy court. You must file a statement of assets and liabilities as well as schedules listing of your creditors. Once you have finished filing bankruptcy, your creditors can no longer take action against you to collect discharged debts.

In chapter 13 bankruptcies, you may end up paying back 50% or more of your current debts. Additionally, if you miss a regularly scheduled payment at anytime during your chapter 13 bankruptcy repayment plan, you could end up in violation of the court and forced to repay all the debt!

One of the most difficult parts of bankruptcy is learning to live with the fact that filing bankruptcy limits your personal spending to items that the court considers absolutely necessary. In most cases, debtors do not complete their chapter 13 bankruptcy repayment plans. Most people filing chapter 13 bankruptcies think they will be able to complete their repayment plan; however, only about a third of them actually do. Additionally, chapter 7 bankruptcies may stay on your credit longer than a chapter 13 bankruptcy. This time ranges from 7-10 years for most people. Many people do not realize that if you own a home with a sizable amount of equity, have a fair amount of assets to protect, or have co-signers on a loan, you most likely will not be able to file chapter 7 bankruptcy under current law. Now that the new bankruptcy legislation has passed, it will be even more difficult to file for bankruptcy.

 Note: This should not be considered legal advice of any kind. All information on this site is for informational purposes only! If you need any type of legal advice or advocacy, you must contact a licensed attorney.

With the new bankruptcy laws, no mater if you are thinking of filing Chapter 7 or Chapter 13 bankruptcy, you are required to attend credit counseling. This must be done before you file, and must be done before a court approved credit counseling center. You need to submit a certificate or in some cases, repayment plans to the courts, as proof that you have met the requirements under the new bankruptcy law.  After filing bankruptcy, you will then be required to submit another certificate showing that you have attended another credit counseling course, learning to manage your personal finances. 

New Bankruptcy Law – Chapter 7 Filings:  The requirements for filing a Chapter 7 bankruptcy have also changed. Now, due to the changes in the laws, you have to prove your income. If you have a higher income than stated by the median income within your state, you will likely have to file a Chapter 13 bankruptcy instead of a Chapter 7.  With chapter 7 the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds to pay the creditors. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Potential debtors should realize that the filing chapter 7 may result in the loss of property. 

Bankruptcy Law – Chapter 13:   With the new bill and filing chapter 13 your “reasonable living standards” is no longer determined by a judge on a case by case basis, there is now a National Standard determined by the IRS for all debtors. You will also be required to take what is called a means test. This is used to determine rather you are capable of making repayments under a Chapter 13 repayment plan bankruptcy So basically you are now on a long payment plan paying back all your debt. A lot more than what you would be paying if you chose another form of debt relief If your thinking of filing chapter 13 or chapter 7 you can pretty much say good bye to cable TV, cell phones, movies, or anything else that are not with in “reasonable living standard”. 

The tough new bankruptcy law will have Americans do away with the court systems of filing bankruptcy and turn to settling their debt. Banks started settling for less then the original balances because it is beneficial to them for the following reasons.  1.) Lump-sum of 30-50% today is far better than the same amount collected over 3 to 5 years. 2.) Under Chapter 13, it will take the creditors 3 to 5 years to recover that 30-50%. 

It is important to understand the new bankruptcy laws and how they would affect you before you even think about filing bankruptcy in any state. Make sure you do your research and know what is best for you before you decide on how to eliminate your debt. 

Note: This is not to be considered legal advice of any kind. If you are interested in filing bankruptcy, you should consult with a licensed attorney in your state.

Re-Pay Your Way Out of Debt

When looking at debt, and trying to avoid bankruptcy, the process can often feel overwhelming. It is important to remain calm and to think clearly and objectively about the situation; try and remove the emotional factors. For example, you must ask the question, can you afford to pay off your debts over a period of time? In the short term, it may seem like you simply can’t afford your debt; however, in many cases, a second opinion or another set of eyes may be able to help you find some extra money to re-pay debts and avoid bankruptcy. A great place to begin is the extras that just are not necessary. Fro example, do you have cable television with all the extra channels or the latest cell phone? To that point, do you have a cell phone and a home phone? If so, one of these expenses can be removed and save you a bunch of money. When you begin to add up all the payments you no longer have to make, you can save quite a bit by just making small sacrifices and these are just a few examples of some expenses you can cut without too much trouble. 

Debt Settlement or Debt Negotiation

Debt settlement can often be a good alternative to bankruptcy and prove beneficial for everyone involved. In most cases, your creditors would rather get some money from you than no money at all, which is what happen in a chapter 7 bankruptcies. A reputable debt settlement company can assist in letting your creditors know you are having financial difficulty and help negotiate lump sum settlements that will allow you to settle your debts for less than the full. Debt settlement is often a good way to get out of debt and to avoid bankruptcy, but keep in mind that it does have its drawbacks as well. With debt settlement, you may experience damage to credit continued interest accrual and possible collection activities until all debts are settled. However, this is the case if you were in a debt settlement program or not. Simply by not being able to make these payments, you run the risk of late fees, increased interest and collection activities. 

Consumer Credit Counseling Services

If you are looking to avoid bankruptcy, in many cases, a credit counselor can help reduce interest rates and eliminate late fees; however, this is different than debt settlement in that you will still pay back the full balance owed plus a reduced interest rate. With debt settlement, you will typically repay a portion of the full balance owed. With that being said, a consumer credit counselor has experience working with creditors and often knows the right things to say to get your payments and interest rates reduced. However, similar to debt settlement CCCS will most likely damage credit while in the program. Although CCCS does not necessarily damage your credit score, most banks and lenders consider CCCS as a similar program to a Chapter 13 bankruptcy filing, so they may not extend you credit despite a positive credit score. 

Sell Assets to Pay Debts

Prior to seeing the help of a professional, it is first wise to evaluate your situation and see what can be done with things you already have available to you. If you own any assets of value and are able to part with them, this may help you avoid bankruptcy. You can try selling some of these items for cash and then use the money to pay off your debts or even settle them if possible. To avid bankruptcy, it is especially important to take action when you realize that you can no longer afford to make the minimum required monthly payments on the asset, for example a home or car. It is always best to take action as soon as possible when you notice you’re unable to pay or begin to borrow from “Peter to pay Paul”. To avoid bankruptcy, it is important to realize you can’t borrow your way out of debt. In most cases, if you wait until you’re reasonably far behind on payments; it can be too late to take the necessary action to correct the debt problem.  While it may be an inconvenience you for to take such measures, it is also necessary if and when possible. In the end, if you want to avoid bankruptcy, you have to decide if the temporary inconvenience is worth saving your credit and getting out of debt.

Put Together a Get-Out-of-Debt Plan

Once you have evaluated all the way you can cut expenses and found nothing else to trim, you make need to make a different approach to avoid bankruptcy. If you can’t cut any expenses, try increasing your income as an alternative approach? There are many ways to go about this. For example, your employer may be willing to consider increasing your hours? If this is not the case, perhaps you can get a second income from another job. While this may seem difficult, it can often be a big help. You won’t have to do it forever; just until the bills are under control. Coming up with some extra money might be the best way for you to avoid bankruptcy. 

Additionally, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 mandates that you take credit counseling classes prior to bankruptcy filings. Though you may be convinced that bankruptcy is the only answer, it’s in your best interest to open-mindedly consider credit counseling of debt settlement as an alternative.

Note: Please keep in mind that none of the information provided in this blog is to be considered legal advice. If you need legal advice, you should seek the assistance of a licensed attorney.