If you’ve been considering bankruptcy, you may need to talk with a bankruptcy attorney now. In an ironic twist, the nation’s economic woes will make it harder for debtors in some (not all) states to wipe out debts in bankruptcy come November 1, 2009. Here’s why:
Bankruptcy law was reformed in 2005, largely as the result of an industry-led effort to make it harder for people to eliminate unsecured debt by filing what’s sometimes referred to as a “straight” Chapter 7 bankruptcy case. The purported goal was to make it harder for people to “abuse” the bankruptcy system and force them into a Chapter 13 repayment plan where they would have to pay back at least some of their debts.
The “means test” was the method devised to achieve this goal. It is a complicated formula that starts with the state median income for families of a similar size. Unfortunately, because so many people are out of work or earning less, state median incomes have dropped in many places. That means more people may be subjected to the means test. And depending on the results of that calculation, they may find themselves forced into Chapter 13, or just out of luck.
The new income figures go into effect November 1, 2009. If you are curious what’s happened in your state, you can look at the before and after figures.
Warning! Do NOT look at these charts and try to determine for yourself whether you can or cannot file Chapter 7. You need a bankruptcy attorney for that. Some consumers have successfully filed Chapter 7 with incomes that are double the state median figure.
What I DO want you to do is get the help you need. If you’ve been hanging on and avoiding this difficult discussion, talk with an attorney before your problems get worse. The consultation is free and confidential, and the attorney can help you figure out what your options are – whether you decide to file or not.
Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.
Gerri Detweiler Credit.com's Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.comTalk Credit Radio. Reach Gerri at creditexperts@credit.com.
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I was just speaking with my BK attorney consultant he told me exact same thing you mention here in article, thanks for making easier to understand for the general public.
Bankruptcy is usually the last option. It is not the end of the world. Great Article on bankruptcy. I couldn’t agree with your posting more. The average person does not know much about bankruptcy, until they experience it. It is always wise to seek the advice of a lawyer. Better yet, seek out two lawyers. Usually a consultation is free when it comes to bankruptcy.
It’s humiliating to file bankruptcy. But, I was ill in the hospital and when I finally returned home I had been late on several payments. I wasn’t in any shape to manage my affairs at the time either. Fourtunately, I had four siblings who came from out of town to help manage my affairs. Then, I found out that my doctor would not release me to turn to work. I had just bought my home five months earlier.
Immediately, credit card companies had increased by interest rates to 29.9%. I tried to explain the situtaion and told them that I could substantiate that I was in the hospital. I told them that my disability insurance would begin in two months and if they would reinstate my previous interest rates, delete the late payments and not report me to the credit bureaus I could I would get back on track with my payments within two months.
I had two of the accounts for nearly 25 years. You think they would have some loyalty to their customer. They couldn’t meet my terms so, bankrtupcy was my only choice if I wanted to keep my home.
Make sure you do a lot of research before you file for bankrutpcy. Most of it isn’t that difficult. But, here are some tips:
* Make sure that the creditor has sold your debt to another lender. If they have report that lender on your list of creditors, too. Some lenders will sell it again within a month. I had one debt that was sold four time in threee months. I think it’s a way that they avoid be put on the list of creditors.
* I purchased my home with a 80/20 mortage. That means I had a 1st and 2nd mortgage. I told my attorney that I wanted to reaffirm my motgages. However, during the bankruptcy, the 1st mortgage did not get reaffirmred, but the 2nd mortage did.
Thast was a total mistake all the way around. Most attorneys advise you not reaffirm you motgage. Because as long as you are making payments, you can keep your home. But, if you would need to walk away from it, you could because it would have already been discharged in bankruptcy.
I then found out that most bankrutpcy judges do not permit the reaffirmation of the 2nd mortgage. And they should never approve of the reaffirmation of the 2nd without reaffirming the 1st mortgage.
For me it worked out fairly well, because when I recevied back benefits from SSDI, I paid my 2nd mortgage. Now, I have equity in my home and if sometihng should happen, I can still walk away from the house because the debt had been discharged.
Just make sure you talk over the advantagaes and disadvantages of reaffirming your mortgages when going through bankruptcy. And make sure that if you are going to reaffirm the 2nd mortage that you get the 1st one reaffirmed.
There are times when bankrutpcy might not be the option you want, but it’s the best option to take. Believe me, business does it all the time. And sometimes it is the infexiblility of the lender that is part of the cause.
The best thing to do is to keep on top of your finances and avoid getting into the situtation. If something catastrophic occurs such as a loss of a job, an illness in the family or the mortgage crisis, there isn’t much you can do. But, there comes a time when you know that you are throwing good money after bad and your case is hopeless. Don’t wait too long because it jsut keeps getting more difficult. Sometimes that leads to coming out of bankrutpcy in as bad as shape as you went into it.
You should first talk to your attorney, determine your options and plan ahead. In most sceanrios you are allowed to have some cash or a poitive balnace in your checking account when you file without worrying about the courts taking it from you. The court knows that you will continue to have housing expenses, utlitiies, insurance and other needs to meet. When you decide to file bankruptcy, stop paying your on debts that will be included.
Bankruptcy is a law to protect debtors and also creditors.
John – Thanks, this is really good advice for consumers thinking about filing for bankruptcy. And it helps that you’ve been through it. Glad the reaffirmation worked OK for you.
It does seem astonishing that the credit card companies couldn’t find a way to work with you, and instead got stuck with nothing in bankruptcy.