Chapter 7 Bankruptcy - Get The Facts

If you’re facing an ever-growing mountain of debt and can’t find any way around it, you may consider filing bankruptcy. However, before you make this drastic decision, you should understand how bankruptcy laws have changed over the past few years.

In the past, bankruptcy served as an effective solution to heavy debtors who wanted to make a fresh start. Filing Chapter 7 bankruptcy traditionally meant that citizens could wipe out their debts while retaining certain obligations of their choice, such as car loans. The bankruptcy filing process was relatively simple and provided a much-needed clean slate for people who had acquired more debt than they could realistically pay off in a reasonable amount of time.

However, much of this changed when Congress passed a severe new bankruptcy law in 2005. Consequently, filing bankruptcy is no longer the trouble-free solution it was in the past. While some of the updated regulations are actually beneficial to consumers filing for bankruptcy, others are not quite as favorable.

What is Chapter 7 bankruptcy?
When you file Chapter 7 bankruptcy, also known as a “liquidation” bankruptcy, you must turn over most of your personal property to the court. The court then sells your property and uses the proceeds to pay of all or a portion of your debts.

After filing, creditors can no longer pursue you for payment. However, the bankruptcy remains on your credit report for 10 years, which means that you will probably be denied any type of credit during that time span.

The fine print
Although filing bankruptcy may seem to be the only solution for you, it’s important to understand the basics of the law. Here’s some of the fine print you may not have read about current Chapter 7 bankruptcy laws:

1. After you pay off a credit card company, it cannot cancel your card.
2. Bank regulators now watch over credit card companies to make sure they are not issuing cards to consumers who are unable to pay the debt.
3. Debtors are required to take classes in fiscal management.
4. People with IRAs can keep their money in the retirement account, although the amount is limited.
5. If your income falls above your state’s median income and you can afford to pay 25% of your unsecured debt, you will not be allowed to file Chapter 7. However, you may be allowed to file for Chapter 13.
6. You will be required to set up a debt repayment plan with your creditors.
7. Your living expenses for rent, food and other necessities will be based on inflexible national standards set by the IRS.
8. If you owe money on your car, you must pay it off completely or lose your car to repossession—even if the value of the car is less than the total you owe.
9. Property owners can rather easily evict you if you are behind on rent.
10. If you are late filing bankruptcy paperwork, creditors can change payback plans. Additionally, a bankruptcy case can be completely dismissed if all the appropriate paperwork is not filed in a timely manner.
11. You will be required to completely pay off any items that were charged on your credit card three months prior to filing for Chapter 7.
12. Once you file for Chapter 7 or Chapter 13, you may not file for bankruptcy again for eight years.
13. Chapter 7 includes stringent homestead exemption laws that vary by state. If you haven’t lived in the state for at least two years, you may only take the exemption of the state where you lived the majority of time for the 180 days before the two-year period. If you purchased your home less than 40 months before filing bankruptcy or have been found guilty of certain criminal conduct, you may only exempt up to $125,000 regardless of your state’s exemption laws.
14. You must continue to make any domestic support payments, such as child support or alimony as well as student loan payments. These payments are not dischargeable as they were in the past.
15. Creditors can request permission to look over your tax returns to ensure that the data corresponds with information provided during bankruptcy proceedings.

Avoiding bankruptcy
Considering some of these stringent rules and regulations, filing Chapter 7 bankruptcy may not seem as attractive. Filing for bankruptcy not only negatively affects your credit 10 years, but many consumers who go bankrupt end up having to pay back a great deal of their debt.

So, what can you possibly do to avoid the dire situation of filing bankruptcy? There are some other choices available to you. First of all, you might consider taking out a debt consolidation loan on your home or you could apply for an unsecured debt consolidation loan.

Click Here To Find Out How You Can Avoid Bankruptcy