As part of my job, I come across many different debt settlement and credit counseling companies advertising creative. A current trend that I have seen is the touting of the new bankruptcy law. The creative informs the consumer that filing for bankruptcy is nearly impossible or isn’t allowed anymore. Their lives would be ruined, etc. That’s simply not true.
Some major factors propelling bankruptcies for the past decade are still existent today. In almost 50% of all consumer bankruptcy cases filed, medical bills were a factor. About 41% of all moderate to middle income consumers are either uninsured or underinsured. That’s up by 28% since 2001.
More and more you are seeing credit card interest rates with no caps. The new provisions with most credit cards being issued provides that; if a consumer is late on a single payment (it doesn’t have to be with that issuing lender), the interest rate penalty can sore above 30%. People who are already facing medical bills or an unexpected job loss now further burdened with huge finance charges (they add up pretty quickly) will find themselves unable to keep up with future payments.
Even though the bankruptcy laws have changed, it is not impossible or more difficult to file (there are a few more obstacles but I wouldn’t call them difficult). If you do file for bankruptcy, you life is not over. Here are some things you should know about filing for bankruptcy:
1. All of your debts are not wiped out in a Chapter 7 bankruptcy. There are certain types of debts that can not be discharged under Chapter 7. Court ordered child support; alimony and debts incurred by fraud are not dischargeable. Some taxes and student loans may also not be dischargeable.
2. You won’t lose everything that you have. While bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your clothes, household goods, your home and your car (up to a certain value) as well as qualified retirement plans.
3. You must list all of your debts. Each creditor that you owe money to must be disclosed in your bankruptcy petition. Some people feel that there are certain creditors that they really want to pay back. That’s fine. Although the debt may be discharged through a bankruptcy and you have no legal obligation to pay back those selected creditors, there is nothing preventing you from doing so. If that is what you wish. You can talk to your attorney about entering into a reaffirmation agreement, which brings me to point #4. But you can’t play favorites. Every obligation must be listed.
4. It’s not difficult to file for bankruptcy. It really isn’t. The forms are pretty straight forward however, with reaffirmation agreements, non-dischargeability or relief from stay actions, you really should not go through the process without legal counsel. They can answer your questions and provide you with a peace of mind more so than doing it on your own.
5. You are not a deadbeat if you file for bankruptcy. Most people file for relief after a life-changing experience, such as a death of a spouse, divorce or job loss or after a serious illness that left them with thousands, if not tens of thousands, of dollars in unexpected medical expenses. Even after the new bankruptcy law went into effect, out of 60,000 filers who were required to go through credit counseling first to pre-qualify, only about 3% didn’t qualify for relief. Most people qualify and need to seek bankruptcy protection.
6. Don’t max out all of your credit cards and then file. If you are thinking about doing this then you are most likely part of the 3% who are deadbeats. When you disclose your debts and assets in a case, your trustee will review (and so will your creditors) all of your purchases that you made prior to the case being filed. Debts that were incurred during a specific period prior to the filing could be deemed non-dischargeable based upon fraud. If you find that bankruptcy may be a path that you are heading down, don’t incur any additional debt and talk to a reputable bankruptcy attorney.
7. Prior to filing for Bankruptcy, know and explore all of your options. When all is said and done, bankruptcy should be looked at as your very last option to get you out of debt.
Your first choice should be debt settlement, then perhaps a debt consolidation loan (I don’t like this option because you trade unsecured debt for secured and potentially can risk losing you home if you can’t make your payments. In addition, most people will go back and charge up the credit cards again, leaving them further in the hole) or credit counseling (I don’t like this one either. The plans can take up to 8 years, you pay everything in full with interest and they are financially backed by your credit card companies. Additionally the majority of people who try this fail and end up filing for bankruptcy anyway. I think of them as a “glorified” collection agency designed really to benefit the creditor and not the consumer).