Why Avoid Bankruptcy?
Lawyers and other advisors may suggest that bankruptcy is the only suitable way to get out of debt, but this is not the case. Bankruptcy results in consequences for years to come, not the least of which is a damaged credit score.
Rising Bankruptcy Fees
New bankruptcy regulations have added to the complicated requirements in order to file for bankruptcy. Today, filing for bankruptcy is a more time-consuming process than ever â€“ a process you pay for in the form of high legal fees. New regulations also mandate that your legal representative must personally vouch for the accuracy of the information that you provide. Of course, your legal representative will charge you accordingly for this extra time and effort. It stands to reason that with new bankruptcy legislation proposals occurring all the time, this is only the beginning of the rough ride that is to come.
New Bankruptcy Laws
There are two types of bankruptcies that apply to most individuals: reorganization (Chapter 13) and liquidation (Chapter 7). In 2005, legislation was passed that allowed federal courts to change the order of Chapter 7 Bankruptcy into Chapter 13 Bankruptcy. Although Chapter 13 filers are required hand over all of their disposable income, they are also still required to calculate their disposable income using the allowed expense amounts dictated by the IRS â€“ not their actual expenses. This means that debtors may be required to pay a much larger amount of their "disposable" income.
Bankruptcy and Property Values
Under the previous legislation, Chapter 7 filers could rate or value their property at what they could get for it at auction. Today, new laws have completely transformed the Chapter 7 filers are required to value their property. According to new law, the debtors are allowed to value their property according to what a retail buyer would have offered them â€“ in other words, at a much higher number. Because of this, many of these debtors stand to have their property taken and sold by the trustee.
Eligibility Constraints for Chapter 7 Bankruptcy
Originally, a debtor had the right to choose from the type of bankruptcy that he saw fit. Mostly debtors prefer Chapter 7, but new laws have imposed some constraints. Now, debtors who are determined to be high income are often prohibited from filing Chapter 7 bankruptcy. Depending on your monthly income and the median income in your state, you may be required to pass a complicated means test in order to qualify for filing Chapter 7.
New Requirements for State Exemptions
Today, those filing for bankruptcy must live in a state for at least two years prior to filing in order to use that state's exemption laws (previously, they only needed to live in the state for three months). For those who have lived in their current state less than two years, the exemptions of the state in which they previously resided must be used.
Because exemption amounts vary widely from state to state, these new residency requirements could make a big difference in the amount of property bankruptcy filers are permitted to keep. For example: If you recently moved from California to Nevada and you have a fairly valuable car, you can claim Nevada's $15,000 exemption for motor vehicles once you have been in the state for two years. If you have resided in Nevada less than two years, you are required to use California's exemptions â€“ only $2,300.
The only debtors who may be allowed certain bankruptcy exceptions are hurricane victims. If this applies to you, please read on:
Hurricane Victim Debt Relief
After Hurricanes Rita and Katrina, federal trustees announced enforcement guidelines to benefit those who filed for bankruptcy after these disastrous events. The goal of the guidelines was to provide leniency to bankruptcy filers who became displaced as a result of the hurricanes. Now, victims of natural disasters who file for bankruptcy enjoy the following exceptions:
Credit counseling will not be required.
Debtors who cannot provide required documents due to a natural disaster will not face enforcement actions.
Trustees have to consider the income loss, increased expenses, and other effects of a natural disaster as "special circumstances" that may allow a debtor who doesn't otherwise pass the means test to qualify for Chapter 7.
Trustees will provide alternate means for debtors to attend creditors' meetings, if necessary. More on these guidelines can be found HYPERLINK "http://1.usa.gov/e43sYg" here.
Bankruptcy: The Bottom Line
Bankruptcy is not always the best option. By seeking debt relief from Federal Debt Reliefs, you can avoid bankruptcy and start over with a cleaner, more attractive credit record.
To avoid bankruptcy and seek credit counseling now, fill out our quick contact form for a prompt response. We look forward to helping you!