Why Are So Many Consumers Filing Bankruptcy?
Many Americans with excess debt have acquired their debts over long periods of time. While they intend to repay the debts, they may find themselves unable to do so because of unanticipated changes in circumstances such as medical emergencies, job losses or failed businesses, disability, divorce or loss of spouse. Any of these circumstances, combined with late fees, over limit fees and the extraordinarily high interest rates that creditors now charge can result in insurmountable debt.
What Alternative Courses of Action Are There to Filing Bankruptcy When Facing Overwhelming Debt?
Short of bankruptcy, a debtor may attempt to mediate with creditors or negotiate workout agreements to extend due dates, lower interest rates, partially forgive debt or alter other terms. A debtor may execute an assignment of property for the benefit of creditors (ABC), wherein the debtor puts assets in the trust of a neutral third party to pay creditors. Other creative options to bankruptcy exist. Many debtors, however, find that their creditors are unwilling to agree to reasonable terms or are completely unwilling to negotiate.
What Types of Bankruptcy Are There?
Consumers usually file Chapter 7 “liquidation” or Chapter 13 “reorganization” bankruptcies. In practice, most persons considering Chapter 7 only own property exempt from liquidation under the law and most of their debt is canceled (discharged) without actually losing any of their property. Under Chapter 13 bankruptcy, the debtor repays certain debts over time (from three to five years).
What Is Chapter 7?
Both individuals and businesses may find themselves with more debts than they can pay when due. In such cases, filing for bankruptcy may provide a solution to what seems an insurmountable problem. Bankruptcy means two basic forms of relief: (1) liquidation and (2) rehabilitation, also known as reorganization. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. Chapter 7 bankruptcies are also called “straight bankruptcies,” are the most common form chosen by individual consumers. In a Chapter 7 consumer bankruptcy, the individual debtor’s estate is theoretically liquidated and the assets are distributed to creditors. However, in practice most people’s properties are eligible for protection under exemptions provided by the federal government and the state. This allows debtors to retain most (and often all) of their property while receiving a discharge of most (and often all) of their debt.
Can Bankruptcy Relieve Student Loans?
In some instances, you can include student loans and taxes in a Chapter 13 repayment plan and pay them off over time. In many cases, this will save debtors money. Also, in rare instances, these debts may be dischargeable.
Are Alimony and Child Support Obligations Dischargeable in Bankruptcy?
Domestic support obligations like spousal maintenance and child support are not dischargeable, nor does the filing of a bankruptcy petition stay in most court proceedings dealing with family law issues. Under Chapter 7, but probably not under chapter 13, other obligations to a spouse or child incurred in a divorce, separation or by court or government order are also not dischargeable, such as property settlement obligations.
Can I Stop Paying My Alimony and Child Support During My Bankruptcy?
A debtor is required to remain current on all domestic support obligations such as alimony/spousal maintenance and child support throughout the duration of the bankruptcy. If a debtor falls behind on his or her domestic support obligations during bankruptcy, the bankruptcy could be dismissed or converted from a Chapter 13 to a Chapter 7 proceeding.
How Long Can Credit Bureaus Include Bankruptcy on a Credit Report?
Consumer credit reports may reveal Chapter 7 bankruptcy cases for 10 years from filing. Chapter 13 information can be included for seven years from discharge or 10 years from filing if there is no discharge. Account information for debts discharged under either chapter may be included in credit reports for seven years after the accounts go inactive. You can take action after receipt of a discharge which will place positive credit on your bureaus, improve your credit rating, allow you to reestablish your credit sooner rather than later, and minimize the negative impact of a filing.
Often a bankruptcy allows a debtor the opportunity to rebuild a credit rating whereas accounts that remain and report as open collection accounts prevent the opportunity to reestablish for extended periods in contrast.
Should I Consult a Lawyer for Legal Advice About Bankruptcy?
Absolutely. If you are contemplating bankruptcy or have questions about bankruptcy, you should contact a bankruptcy attorney immediately. Often people assume the worst or base decisions not to file based on erroneous information relayed by non-professionals. Arm yourself with correct information and make a decision from an educated perspective. Don’t let indecision stall your chance at an opportunity for a fresh start.
