Bankruptcy Law: What You Need To Know

Author: Matthew Hick

Until just a few years ago, filing for bankruptcy was fairly easy. Not anymore. When Congress changed the nation's bankruptcy laws in 2005, many debtors found the new "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," to be more hindrance than help in overcoming past mistakes and starting anew.

The new law is stricter, featuring more requirements than ever before. It is important for anyone considering filing bankruptcy to understand the following:

Credit Counseling:
It doesn't matter whether you file for Chapter 7 bankruptcy that discharges your debt or Chapter 13 bankruptcy which enters you into a repayment plan with creditors, anyone filing bankruptcy is required by law to attend credit counseling by a court-approved counseling service.

Chapter 7 Filings:
Under the new law, it is no longer your right to be allowed to file Chapter 7 bankruptcy. If, after proving your income the court determines that you make more than the medium income within your state, you may be required to file Chapter 13 bankruptcy instead and enter into a repayment schedule to pay back all (or most) of your creditors.

Chapter 13:
It is not uncommon to find your repayment schedule a bit more than you can financially handle under a Chapter 13 filing. The amounts you must repay each month are calculated according to specialized guidelines that take into account your income in the last year (not what you make now), and your assets.

Residency:
While everyone must obey federal bankruptcy laws, some states offer their own, more lenient exemptions. The new federal law, however, requires residents to live in a specific state for a specified amount of time (usually at least two years) in order to qualify for any state-exemptions.

Allowable Expenses:
In the past, those filing bankruptcy could virtually erase their debt and start new in seven years, while continuing to live the lifestyle they'd grown accustomed to. That's no longer the case.

Under new federal bankruptcy laws, the IRS determines your monthly budget, and what you should be able to repay. Most are forbidden from having cell phone expenses as well as cable TV, high-speed Internet access, movies, meals out with the family, and anything else beyond the minimum allowable expenses as determined by the IRS and the courts.

Bankruptcy isn't what it used to be, thanks to millions of Americans who abused the system in the past. Once reserved for people in dire financial situations to help them free themselves from excess debt and start fresh, today's bankruptcy laws are designed t punish those who have been financially irresponsible and force them to pay back most or all of the debt they've accumulated. While filing for bankruptcy may have once seemed like a good way out of a bad situation, many consumers are now opting to try and fix their financial woes themselves in lieu of letting the government fix it for them.

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Bankruptcy Process - Essential Steps Overview

Author: Matthew Hick

If you are considering bankruptcy, you'll need to know what to expect during each phase of the process after filing.

Here's a basic overview of what to expect during the entire process:

First, you must decide which type of bankruptcy you want to file. Chapter 7 will free you of all of your debt, and allow you to begin rebuilding your credit after a few years. Many people do not qualify for this type of bankruptcy under new government guidelines established in 2005, however, which allow the court to determine if you indeed do qualify. Basically, the law requires you make less than the medium income in your state to file for Chapter 7 bankruptcy.

Chapter 13 bankruptcy requires you to pay back all of your debt within a specific timeframe in accordance to a schedule set by the court. While this may sound like a good solution, after all it's allowing you to pay back everyone you owe, it can be difficult since the court decides how much of your income is used for debt payments, and how much you are able to keep to live on. Their criteria is usually stringent, and doesn't allow for anything but necessities during the repayment period.

Once you've decided which type of bankruptcy to file for, it's time to start filing out mounds of legal paperwork. If you'll be filing yourself, be prepared to file app. 30 to 60 pages in your petition, including schedules and other papers filed at the time of your bankruptcy. You must follow all local and federal bankruptcy court rules carefully when completing these forms. It can be very tedious and confusing work. You must learn and understand a variety of bankruptcy laws and requirements specific to your state, and be able to type them in a specific manner.

About 4-6 weeks after filing for bankruptcy with the court, you will be required to attend a hearing presided over by the bankruptcy trustee called the First Meeting of Creditors. You will be required to answer detailed questions about your bankruptcy papers, assets, debts and other matters from both the trustee and your creditors.

Your creditors now have 60 days in most states to contest your bankruptcy filing. Once that deadline has passed you can expect the court t notify you of your official debt discharge in about 60 to 75 days.

Does filing bankruptcy mean the end of credit for a lifetime? Absolutely not! You can begin to reestablish your credit two years after the discharge of Bankruptcy. However, it will be recorded for 10 years and must be reported if asked. You may not file a new bankruptcy request for six years.

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