When should someone declare bankruptcy? What type of bankruptcy am I eligible for? These are very common questions. Unfortunately, there often are no direct answer as "it all depends." For some, individuals, a BK may be the only option to be able to get out from under overwhelming debt. In some cases, it may be the only way to save your home, your car and other assets. New legislation has made it more difficult to obtain a full bankruptcy where all debt is eliminated with no effects other than a negative reporting on your credit report. In fact the new regulations stipulate the types and kinds of debt, which can be discharged, and in some cases the reasons.
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There some things, which are not considered to be bankruptcy debt, these are usually federally issued or managed loans such as student loans. These are not cleared under bankruptcy laws and cannot be applied for when applying to have debt liquidated under chapter 7 or placed on a repayment plan such as available through chapter 13. The new requirements for both chapter 7 and chapter 13 bankruptcy filings make it more difficult to obtain a chapter 7 which is total liquidation of debt and it makes it harder for bankruptcy attorneys to file for clients. This in turn makes it more expensive and a much lengthier process to file for bankruptcy now than in previous years.
In order to be eligible to file chapter 7 bankruptcy you must meet a certain set of guidelines. These guidelines are that you attend credit counseling as well as personal finance and budgeting classes. These have to be from a registered provider and there must be documentation that you attended and made yourself available to the services they provide. It is also necessary that you meet income guidelines. This means that after allowable expenses are removed you do not have enough disposable income to make payments on a repayment plan. The key word in this is allowable. The government has set regulations on expenses. These regulations allow only so much of each type of expense to be deducted and it stipulates the types of expenses, which are allowable.
Chapter 7, which is total liquidation of debt, is much harder to qualify for and obtain than a chapter 13. After you have obtained credit counseling and it has been documented that you do not have the income necessary to pay off your debt. There are a few things that occur. You must present your case in court where creditors often send representatives to argue for a dismissal of a chapter 7 or to remove their debt from the list of accepted debts that were to be liquidated. It is possible for some bankruptcy debt to be presented and not be ultimately included in the decision of the court regarding your bankruptcy.
Chapter 13 bankruptcy is based on a repayment plan. This plan is usually set up by the credit counseling service and courses that you are required to take when filing any form of bankruptcy. This is the type of bankruptcy, which does not remove debt but requires creditors to adhere to a repayment plan and in some cases reduction in debt.
This is done for individuals who have, after consideration, enough disposable income to pay off a portion if not all of the debt in a reasonable amount of time without causing an issue with their home, transportation or other necessary expenses. It is important to remember that the expenses that are deducted from your incoming cash flow are determined by governmental guidelines and are determined in part by family size. Even if you are filing for chapter 7 bankruptcy you may not with these guideline actually qualify.
There are recourses if your actual expenses are indeed more than the allowable by government guidelines however these require additional time and may require additional costs when it comes to court fees, legal fees and rising debt. How you handle credit and budgeting after bankruptcy is important. The number of times you can file is limited and in many cases one time is all that is allowable. Repairing your credit after either a chapter 13 or chapter 7 bankruptcies can be difficult.
This is why bankruptcy credit card options exist. They are designed to provide you with the ability to be able to help repair your credit after you have filed bankruptcy and discharged your bankruptcy debt. There are a few earmarks of the type of credit card that can be classified as a bankruptcy credit card.
One of the biggest is that it is a secured card. This means that your credit limit on the card is limited to the amount of money you place on the card. If you place $50 on the card then your credit limit is $50. Every time however you pay that back to the card and renew the total amount a positive report is sent to the credit reporting agencies indicating that you paid the card. This in turn improves your credit rating in regards to revolving credit. Revolving credit is characterized by having a renewable source of credit such as a credit card or line of credit style loan.
Other things, which may characterize the type of credit card available, as a bankruptcy credit card is a credit card with a low balance and high interest rate that you are allowed to keep regular payments of this card have the same effect as a secured credit card. It is important with these cards is that you purchase no more than you can afford to pay off by the time the bill is due. This creates an even greater impact because you are paying the debt off in full at the turn of each billing cycle.
Filing for bankruptcy may be a way to release you from overwhelming debt legally but it is not a decision to be made lightly and should be used as a final resort. It remains one of the biggest marks, which can negatively affect credit scores and ratings. The new legislation also makes it difficult to obtain a full liquidation leaving you not only with the debt to repay but also with the negative effects of a bankruptcy.
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