9th Jun 2016

The US Bankruptcy Court Seal

Perhaps no other issue has as much influence on an individual’s sense of happiness as that of finances.  That is not to say that money makes one happy.  However, it is unrealistic to deny that a shortage of it causes stress and a general sense of helplessness.  This carries over into the entire family unit.

When money problems get to the breaking point, the remedy of Bankruptcy might be considered.  Yet, there is a common belief lately that recent changes in the Bankruptcy laws have made it nearly impossible to file for this relief.  That is simply not true.  In fact, the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act made very little difference in who is eligible to file a Bankruptcy case.

Short of increasing the time requirements between filings, and requesting a little more paperwork from a would-be Debtor, the changes in the laws have made it more difficult only for Bankruptcy attorneys who prepare a case.  Those attorneys who hung in there after 2005, will tell you that Chapter 7 and Chapter 13 Bankruptcies are on the rise once more.

The person who files a Bankruptcy in the 21st century has most likely been pushed there by high-interest credit cards, unexpected medical bills, a divorce, or a combination of these scenarios.  Add to the mix an above-equity second mortgage loan, variable interest rates, and the downtrodden economy, then suddenly the diagnosis of being “strapped” is putting it lightly.

The Bankruptcy Debtor has many faces.  It is no longer fair to say that irresponsibility causes Bankruptcy.  In fact, Bankruptcy attorneys deal mostly with single parents, the elderly, the chronically ill, or the suddenly unemployed.  No one wants to lose everything they have, and there is no one who is not embarrassed to come in for a Bankruptcy consultation.

With that said, there are two main chapters of Bankruptcy for consumers: Chapter 13 and Chapter 7.  Chapter 13 is for those people who wish to reorganize their debts, in a sort of consolidation fashion, where payments are made in the form of a “plan” on one’s debt, for roughly three to five years.  Eligibility requires steady wages and enough income to fund the Chapter 13 payment schedule.  In Chapter 13, if it is demonstrated that a person can afford the items, it is likely that homes, automobiles, and other property owed on can be kept.  Unsecured debt is paid pennies on the dollar, according to what a person’s income shows he / she can afford over the payment period.  Taxes can also be dealt with in a Chapter 13, and interest on most items included can be drastically reduced.  Also, the attorney takes most of his fees in the payment plan.

Chapter 7 is the form of Bankruptcy where most, if not all of one’s debts are wiped away.  Eligibility is based on income.  In Chapter 7, it is possible for a Debtor to keep a home and, perhaps other items, like an automobile, assuming that they can be afforded in the absence of the other debts.  The Bankruptcy Court does not sell a Debtor’s property, as long as the Debtor does not own more than a Debtor is allowed to have.  There are exemptions in both home equity and other personal property that are relatively generous.  In other words, most people wishing to file a Bankruptcy case will not have to worry about losing any of their property.

People should be aware that creditors cannot get to most retirement and investment accounts to satisfy debts, and these accounts generally are not considered in the Bankruptcy analysis.  Thus, depleting these funds to pay bills is not wise.  It is also not advisable to borrow against a home to pay excessive debt.

Keep in mind, also, that most taxes and student loans cannot be discharged in a Bankruptcy case without being paid in full.  Other non-dischargeable debts are court fines and fees, judgments for personal injury or fraud, most debts to a governmental entity, and  alimony and child support obligations.  On this final kind of debt, be advised that if a person agrees in a divorce settlement to pay certain debts of the marriage, he / she cannot discharge that obligation in the Bankruptcy Court.

Bankruptcy is still an option to handle money problems, but should be viewed as a last resort.  Never let finances come between you and your family, or ruin your marriage, and don’t spend your retirement nest egg or child’s college fund to pay debt that is out of control.  Remember, it is only money.  See an attorney who knows this area of the law and get your questions answered.

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