Bankruptcy

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The New Bankruptcy Law
Public Law No: 109-8 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

• Enacted April 20, 2005
• Effective October 17, 2005 (Monday)

Once the new law takes effect, consumers will find it much harder and more expensive to file for bankruptcy. In order to qualify for Chapter 7 relief, consumers must first meet the median income test for the state in which they reside. Those that do not qualify will be directed to the Chapter 13 alternative.

The second component of the new law requires those consumers seeking bankruptcy relief to get credit counseling from a nonprofit agency before filing. In addition, debtors have to complete an approved course on personal financial management before the final bankruptcy determination.

The new law also places limits on the automatic stay. Among other things, the automatic stay no longer stops or postpones:

• evictions
• actions to withhold, suspend, or restrict a driver's license
• actions to withhold, suspend, or restrict a professional or occupational license
• lawsuits to establish paternity, child custody, or child support
• divorce proceedings, or
• lawsuits related to domestic violence.

Regardless, those who are able to file for relief after October 17 will get significantly less benefit from the whole process.

Bankruptcy as a Last Resort - There are Alternatives
If you are considering bankruptcy, there are alternatives:

• Self-Help
• Develop a Budget
• Contact Your Creditors
• Manage Your Auto and Home Loans
• Credit Counseling
• Debt Management Plans
• Debt Consolidation
• Debt Negotiation Programs

Danger Signs of Financial Trouble

• Can’t seem to save money or spending down savings accounts
• Paying only the minimum on charge accounts
• Borrowing from family and friends to pay basic expenses
• Consolidating debts by way of high interest lenders
• Counting on overtime, tax returns, or sudden windfalls to pay your bills
  

How to Get Out of Debt
Stop digging the hole deeper
Stop charging or borrowing
Assess what’s going on: What do you make? What do you own? What are your expenses? Who and how much do you owe?
Take control
Learn, budget, and save

Get help now by calling The Credit Network at 1-877-778-3328

Additional Bankruptcy Resources

109th Congress S. 256: Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005

The U.S. Trustee Program

The American Bankruptcy Institute

The Federal Trade Commission

Findlaw.com

Nolo.com

Process of filing:
You must file a bankruptcy petition complete with disclosures of assets you own and prepare a statement of financial affairs. You will have to disclose any recent sales of personal property.

You must disclose your income, debts and account for any money you spent over the two-year period prior to filing.

You must pay a filing fee of approximately $175 to the court and fees to your attorney for representing you.

You may be required to meet with your creditors depending on the type of bankruptcy you are filing for. Creditors may dispute the value of assets listed in your disclosures and may seek to work out a partial repayment plan with you. (Chapter 13)

Creditors reserve the right to file an adversary proceeding if they feel the filer is abusing the bankruptcy system.

Two Types of Bankruptcy

Chapter 7

Pros

• You are permitted to retain all “exempt” assets
  
• Excessive unsecured debt can be completely eliminated and the debtors legal liability for the debt may be eliminated
  
• Can be discharged in 3-5 months. When discharged you are no longer legally liable for the debt.
  

Cons

• The bankruptcy court may require you to liquidate all “non-exempt” assets, which may include unprotected personal property. Laws vary from state to state and you would need to consult an attorney who specializes in bankruptcy laws in your state.
  
• Debtor is still responsible for all secured debt.
  
• Creditors may pursue cosigners of the debt.
  
• If you desire to keep personal property used to secure a loan, a creditor may require you to sign a reaffirmation agreement through which you would again become legally liable for the debt.
  
• Some debts cannot be discharged through a Chapter 7 including purchases made within the previous 40 days of filing, debts from fraud, debts from traffic, drunk driving, and criminal negligence, alimony and child support, student loans, and in most cases income taxes.
  
• This type of bankruptcy often stays on your credit report for 10 years.
  

Chapter 13

Pros

• The debtor is permitted to keep all of their assets.
  
• The debtor repays the unsecured debt at a fraction of what they owed
  
• Cosigners are protected
  
• Consumer’s secured assets are protected because they can pay back the delinquent debt over a five-year period.
  
• This type of bankruptcy may remain on your credit report for a shorter period of time than a Chapter 7.
  

Cons

• Chapter 13 does not eliminate unsecured debt. It is a repayment plan that is submitted to the bankruptcy court and the bankruptcy trustee for approval.
  
  

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