Considering Bankruptcy?

The final option for many borrowers who find themselves unable to repay accumulated obligations, bankruptcy protection will eliminate debts (school loans, taxes, and others remain unaffected), but the negative repercussions can linger for years. Depending upon the state, bankruptcy can haunt credit reports for up to a decade and severely limit the opportunities available to those who file.

For those suffering the most dire circumstances, bankruptcy can be a necessary safeguard, and, if all hope seems lost, it may be best to talk with a bankruptcy attorney about your situation. Even within bankruptcy, there are different programs – Chapters 7 and Chapter 13 of personal bankruptcy have their own advantages and drawbacks. Neither one, though, should ever be considered if another alternative seems possible.

Though media coverage of debt relief programs tends to lump them all together, there’s actually a great difference between the competing debt relief solutions. The bankruptcy plan is often compared, for example, to debt settlement, and to consumer credit counseling, but much separates the superficially similar methods.

Bankruptcy - Bankruptcy should be considered only as a last resort. The effects of filing for Bankruptcy protection are long-lasting – up to 10 years in certain states. Recently the rules for filing Bankruptcy changed, and it is now harder than ever to “wipe the slate clean”...Bankruptcy continued

Debt Settlement - Debt Settlement is the fastest and least expensive way to get out of debt. Often referred to as Debt Negotiation, Debt Settlement is a direct and ambitious approach to debt reduction and it is best suited for individuals that have considered filing for Bankruptcy protection...Debt Settlement continued

Debt Consolidation - Also called a Consolidation Loan, Debt Consolidation is the replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. Unfortunately the credit markets have tightened in recent months and if your FICO credit score is less than 660 your options for an unsecured Debt Consolidation Loan are going to be severely limited...Debt Consolidation continued

Credit Counseling - Consumer Credit Counseling companies are organizations that operate nonprofit financial counseling programs. Typically they will charge a fee for their services and they attempt to work with your creditors in order to reduce your interest rates and your minimum monthly payments. Recently, many credit counseling organizations have faced scrutiny because of their misuse as a "nonprofit" organization...Credit Counseling continued

Do Nothing - You struggle along while your creditors are turning up the heat. And now you’re at the point where the late fees, penalties and interest expense make it impossible to keep your head above water. That’s why you started looking for help. That’s why you are reading this page. The worst thing you can do at this point is to Do Nothing. You owe it to yourself to speak with a Debt Management professional as soon as possible...Do Nothing continued

In Chapter 7 bankruptcy, those filing must list all household assets – whether vehicles, furniture, entertainment systems, even treasured family keepsakes – and guess their approximate value if auctioned. Since most used possessions have little worth when calculated in this way, the newly-bankrupt were allowed to maintain ownership under an exempt property statute through most of the country.

This, as well, has changed with the new Chapter 7 bankruptcy laws. In order to elevate the value of these possessions, the monetary worth of personal property is now calculated with regard to replacement costs – the amount necessary to purchase something similar. Obviously, this greatly increases any object's value and, more importantly, the chances it would be seized by the courts for sale. Even those qualifying for Chapter 7 bankruptcy protection under current guidelines may find themselves unable to ever again pay the 'replacement costs' for their life's possessions.

After filing for bankruptcy, a hearing will be scheduled with a judge to analyze the worthiness of the request. With Chapter 13 bankruptcies, those seeking protection were formerly required to give all income not expressly ear-marked as living expenses to a fund with which to repay debtors. After changes in regulations, those expenses are now determined by amounts set by the IRS should they earn more than their state's median income no matter specific exceptions.

The disadvantages of this should be obvious – essentially, it forces the newly bankrupt to live under pre-set conditions entirely under the government's control – and, as things now stand, the filer's income will be solely determined by the six months prior to bankruptcy. Not only may expenses be far greater than what the IRS deems reasonable, but, after one period of long-awaited bonuses or above-average overtime, the government could mis-represent the filer's income well above actual earnings.

It's important to remember that even bankruptcies can fail. The arbitrary distinctions of current Chapter 13 law forces many of those filing to default upon so-called 'protection'. It's more important than ever to investigate all potential scenarios of bankruptcy and investigate every last alternative.

The bankruptcy means test was designed to calculate whether debtors' incomes, apart from traditional living expenses and payment schedules for debts not covered through bankruptcy, could be repaid as part of the Chapter 13 program.

To determine Chapter 7 qualifications, prospective filers should average their earnings from the past six months and deduct the pre-set expenses that the IRS deems necessary – which are far less than most debtors' true costs for food, gas, vehicle upkeep, clothing and day-to-day bills. The IRS' prescribed expenses vary from state to state, ignoring the substantial regional differences for cost of living within states, and those curious about Chapter 7 or 13 bankruptcies should contact local officials to check their state's specific requirements before venturing further.

Once past income has been averaged and the Chapter 7 filer has learned the governmentally-adjusted expenses for his or her state, they should deduct the monthly outlay for priority debts (taxes, alimony or child support payments, etc) which, by law, would have to be repaid before any creditors. After that, deduct the payments for secured loans – house, car, anything that could be repossessed or foreclosed upon.

At the end of the calculations, should "disposable" income remain demonstrably less than one hundred dollars, the filer may qualify for a Chapter 7 bankruptcy. If income's greater than one hundred and sixty-six dollars, the courts would likely suggest a Chapter 13.

For those whose incomes fall somewhere between $100 and $166.66, things get even more complicated. Is the remainder sufficient to fund more than one-fourth of existing debts neither unsecured nor deemed priority in the next five years? The debtor could, then, file for Chapter 7 bankruptcy – though, as should be clear, professional help remains a necessity to cleave through the thicket of new regulations whatever the costs.

Considering the penalty for fraud, the ever-shifting statutes, and the difficult computations for ordinary debtors, the importance of bankruptcy lawyers for anyone thinking about a Chapter 7 or Chapter 13 cannot be over-estimated. However, changes within the law have only raised fees across the board for attorneys specializing in bankruptcy.

The sweeping changes within the laws have inevitably resulted in more hours spent by (and money spent on) bankruptcy lawyers upon casework. Under the new laws, attorneys will be held responsible to guarantee their clients' information – with greater responsibility and corresponding financial obligations. A worthwhile change, perhaps, but one that's already seen more and more lawyers move their focus away from bankruptcy.

As regulations become increasingly complex, debtors more than ever require the services of bankruptcy lawyers before undergoing Chapter 7 or Chapter 13 proceedings, but the spiraling costs of initial consultations should make this the last resort.