Aspects To Evaluate Before You File Bankruptcy

Prior to 2005 filing bankruptcy was considered an easy thing to do. If you got yourself into financial difficulty, the common wisdom was to go file Chapter 7 bankruptcy and erase it all away (with a chapter 13 bankruptcy you are set up on a payment program to pay back your creditors over time but the debts still remain).

However, this generally proves to be the farthest thing from reality. Of course it was simple to file and in 3 months you received a paper in the mail telling you your debts had been eliminated. Then you started to get a lot of letters in the mail for new credit cards and other credit items that would help you to "re-establish your credit". The trouble with that is now you are free and clear from old debt and take on new debt at a much higher rate of interest in most situations. Ultimately this would put you right back where you began with mounds of debt. Not to reference the lingering 10 year blemish on your credit reports.

With the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 it modified the face of bankruptcy. No longer can you just walk into a courthouse and file the paperwork. Currently you have to visit with a credit counselor, get a certificate for verification that you are meeting with one, and make payment arrangements with your creditors for 180 days prior to filing bankruptcy. You essentially have to do your due diligence to get your financial house in order and only employ filing as a last option.

A chapter 7 filing is also harder to get authorized by the courts. There are certain income thresholds that you will have to fall under. Your tax returns, pay stubs, and any other financials will be taken into court and a judge will decide if you can repay your debt inside of the next 5 years. If it is decided that you can repay your debt you will be put on a payment program and will have transitioned into a Chapter 13 bankruptcy. This makes it tougher for individuals who want to pile up debt and then not pay just because. The law has been established for those who actually need it and for protection of you and creditors.

If you are considering filing for bankruptcy you should first collect all your financial information and start getting hold of a local consumer credit agency and receiving a free (in nearly all cases) consultation. They can let you know what your best alternatives are. With people losing their jobs daily and wiping out any and all savings it is understandable that paying a creditor may take a backseat to setting food on the table. You should always try and speak with your creditors. Don't avoid phone calls or leave unread mail laying around the house. A creditor might be prepared to arrange the easiest payment plan with you if you simply communicate. They don't win either by you not paying so they will be willing to help.