Bankruptcy Facts
Bankruptcy is a federal court process that places you under the protection of the bankruptcy court while you try to repay your debts (Chapter 13) or removes the debts altogether (Chapter 7). When you file for bankruptcy, an automatic stay goes into effect; the stay prohibits your creditors from attempting to collect the debt without the approval of the court, even if the bank is in the process of foreclosing on your house.
Bankruptcy should not be entered into lightly. It has far-reaching effects on your ability to obtain credit, buy a house, buy life insurance, and sometimes even get a job. There are other factors that might make one type of bankruptcy better for you than another. Consult a good bankruptcy lawyer and provide all the details of your financial situation so he or she can counsel you concerning the option that best suits your needs.
The Bankruptcy Abuse Prevention and Consumer Protection Act signed by President Bush in April 2005 makes filing for bankruptcy more difficult. Under the new law, those who have the ability to pay will be required to pay back at least a portion of their debts. This applies to anyone whose income is higher than the median for the state they file in, as determined by the IRS and Bureau of Labor Statistics. Those who fall behind their state's median income will not be required to pay back their debts.
People who plan to file for bankruptcy must now get credit counseling from a government approved organization within six months before they file.
What Bankruptcy Can Do
1. Bankruptcy is good for wiping out credit card debt.
2. It can stop creditors from harassing you.
3. Bankruptcy can stop
collection activities.
4. Stop wage garnishment.
What Bankruptcy Cannot Do
1.
It cannot discharge debts such as child support, alimony, student loans, criminal fines, and some taxes.
2. Protect cosigners. The cosigner may still be obligated to repay the loan.
3. It does not eliminate liens.
4. Bankruptcy does not eliminate debts owed for personal injury or death caused by your intoxicated driving.
Preventing Bankruptcies
Many bankruptcies can be avoided by practicing good money management:
- Avoid impulse spending.
- Don't use a credit card unless you have the cash to pay it off.
- Tear up credit card offers you receive in the mail.
- Stick to a realistic budget.
- Don't buy more house or car than you can comfortably afford.
- Protect yourself against loss by having adequate medical, homeowner's and auto insurance.
- Don't make speculative or high-risk investments.
- If you
find yourself falling behind on your bills, call your creditors immediately.
