Bankruptcy: Something to Think About
For many people, bankruptcy is a bad word. The idea of losing all one owns is mortifying. The fear of embarrassment and shame keeps individuals from getting their financial business in order. Emotional baggage attached to material possessions and status, has no basis in reality when it comes down to doing the numbers. According to psychologist the grief experienced during a bankruptcy is equivalent to the loss of a loved one.
Before you fall into worry and shame, do your best to learn more about what bankruptcy really is and try to see it as just another business transaction. Many consumers think bankruptcy is an easy way out of debt, but there are limits. While the process of filing for bankruptcy is relatively simple and painless, it will have lasting effects on your credit and finances for up to 10 years.
The best way to learn about bankruptcy is to make an appointment with a bankruptcy attorney. They can explain in detail what bankruptcy is, and help you fill out the necessary paperwork. The laws for filing bankruptcy are different from state to state, so getting the help of a good lawyer is a smart idea. Here are the basics for consumers in the State of California:
Chapter 7:
Individuals filing Chapter 7 must pass the “means test”
The simplest way to determine if you meet the test is to determine if your monthly income is less than the median income for the number of people in your household. If you have “disposable income” you may be required to pay back some of your debt or be forced to file Chapter 13.
Chapter 7 whips clean all “unsecured debt”. This is debt with no collateral, such as credit cards, and signature loans. Certain property is ‘exempt’ from liquidation, such as the home you live in. If you maintain the mortgage, you may remain in your home, even though the debt is removed from your credit report and you are no obligated to the debt. IF YOU DEFAULT ON THE MORTGAGE YOU WILL BE FORCLOSED ON because the lien on the property is still intact. Clarify these specifics with an attorney in your state. Some debts cannot be discharged with chapter 7.
Chapter 13:
Also known as the wage earner’s plan. When filing Chapter 13 you agree to a 3-5 year repayment plan. Chapter 13 can help you avoid foreclosure of your home if you’ve fallen behind in payments. All of the remaining debt that can be discharged will be written off at the end of the term.
Chapter 13 is usually selected by those who want to keep property that has significant equity. Utility bills are settled, as are most types of medical bills. What is left after that is basically a clean financial bill of health.
Every citizen of legal age has the right to file for bankruptcy. Federal law states that this can only be done once every six years for Chapter 13, or every 8 years for chapter 7. One final obligation to complete after filing bankruptcy is credit counseling. In many states completion of a certified credit counseling program is the law.
Before filing for bankruptcy, seriously consider whether or not you actually need to do so. If you are in a situation where you receive money that your creditors cannot garnish, or take part of, then you may not have to do anything at all. Whatever you decide; research the bankruptcy law in your state, and even if you intend to file on your own, consult with an attorney.
For more information visit: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics.aspx
