Recent Bankruptcy Laws Do Not Help Debtors!
It crosses many debtors minds when swamped in debt, at one time or another have contemplated the option of going through a bankruptcy proceeding. In this article I am going to give you some very serious reasons as to why you should evade a bankruptcy proceeding at all costs, if possible. Many debtors do not understand the deep negative impact a bankruptcy can have.
1. Bankruptcy has an tremendously negative effect on your FICO credit rating and becomes a permanent public record!
Bankruptcy is one of the worst negative remarks that you could have put on your credit report. Thus making any additional credit you try to get extremely hard, and if you do obtain credit it usually comes accompanied with a pretty high interest rate. Additionally, it will stay on your credit report for between 7-10 years. Even when it gets removed from your credit report it remains a public record for the duration of your life. So when you try for new credit at any point in the future, if asked the question whether you have ever filed bankruptcy by law you must answer yes.
2. New Bankruptcy changeover in 2005!
In 2005, our government approved a law which forces anyone filing for a Chapter 7, which will wipe the table clean of all your debts much more difficult. Basically if you have an income and a home than most likely you will go through a review to find out if you should do credit counseling first for at the minimum 6 months. According to NFCC close to 80% of debtors who try can not abide by the very regimented guidelines set from the creditors to complete the program thus throwing them back into the bankruptcy filing. That's when Chapter 13 comes into play which is a form of personal bankruptcy in which the court system will decide how much you will pay back each creditor you list based on your financial situation.
3. The court system will control your income with a Chapter 13 Proceeding!
Prior to the new law being passed in 2005 many debtors that would be able to claim Chapter 7, were now forced to go Chapter 13 instead. Chapter 13 requires that you go over with the judge and show to them all of your finances. You must show all sources of income and assets. The court will look at your expenses compared to your income and then figure out how much money you will have to dish out each month. You do not have much of any say in this process. If you have liquid assets available they can make you sell them, within State law, to pay down your debt. There are timed hearings every year and if your income increases you must report this to the judge, this could bump up the amount you pay back. If you have two family vehicles you might have to sell one to help pay off your debts. They basically tell you what you can do with your income. If you have the higher costing cable you will need to cut back to basic cable, if you consume steaks every day you will need to cut back to cheeseburgers. This could be a extremely painful and embarrassing proceeding.
These are all very negative proceedings that someone must be made aware of prior to meeting with a bankruptcy lawyer. Many attorneys will down play these bad aspects of bankruptcy. Bankruptcy is available for a reason and for some individuals they have no other method accessible to them and must file bankruptcy, however a lot individuals go into bankruptcy when it could have been avoided. A very attractive substitute option to bankruptcy is credit card debt settlement. With debt settlement in most cases you will save tremendously more money than you could have with a Chapter 13, plus you will get out of debt much quicker, and not experience the many negative consequences of a bankruptcy proceeding.
Steve Bis is a credit card debt analyst with the US Consumer Advocate, which practices in credit card debt reduction.
Published December 10th, 2007
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