Filing Bankruptcy?

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Filing Bankruptcy?

Filing Bankruptcy? Better hurry to beat the new bankruptcy law! In a few weeks, the new law will get tough on individuals and businesses. The rush to beat the deadline on October 17, 2006 has led to a surge in personal bankruptcy filings.

The new bankruptcy law will make it harder to file what's known as a Chapter 7. In a Chapter 7 filing, the bankruptcy is basically over in a period of 120 days with the elimination of debt. Soon, however, those petitioners will have to meet income limits and go through credit counseling.

What this means is that more people are going to be forced into what's known as a Chapter 13 plan, where they have to make payments to satisfy debts over a period of time.

Personal Bankruptcy filings have skyrocketed since 2001. This year, July and August have each shown about a 20% increase month to month in filings and many lawyers say September has been the busiest month yet.

Lawyers say you can expect fees for filing bankruptcy to go up next year as the new IRS changes will require more work of law firms.

Below is a review explaining briefly Chapter 7 and Chapter 13 Bankruptcy:

What is a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy cancels most of your debts, however, you may have to surrender some of your property depending on your state's Property Exemption Laws for Bankruptcy.

Filing takes about 4-6 months, and costs around $200 in administration fees with an attorney. To file for bankruptcy, you have to fill out a two-page petition and other forms which you lodge with the bankruptcy court in your area.

The forms will ask you to describe:

Your property
Income
Expenses
Debts
Property you sold or gave away during the previous two years

Filing Chapter 7 bankruptcy stops your creditors trying to collect what you owe them. Effectively, the courts assume legal control of your property and the debts you owe, and nothing can be sold or paid without the court's consent.

A "trustee" is appointed by the court to oversee payment of creditors from non-exempt assets. In short, the Trustee recovers assets for your creditors. If after filing bankruptcy you change your mind, you can ask the court to dismiss your case. Under Chapter 7, the court will dismiss as long as dismissal doesn't harm your creditors.

At the end of a Chapter 7 bankruptcy, most of your debts are wiped out (discharged) by the court, and you no longer owe your creditors.

What is a Chapter 13 Bankruptcy?

In a Chapter 13 bankruptcy, you keep your property, however, you have to satisfy your debts over 3-5 years. You cannot, however, file for Chapter 13 Bankruptcy if you have unsecured debts over $269,250 or secured debts over $807,750. In addition, you will be required to demonstrate how you will repay your debts, in full. If accepted, you will make payments direct to the bankruptcy "trustee".

At the end of the 3-5 year plan, the remaining balance on your dischargeable debts is wiped out. Should you be unable to finish your plan due to unforeseen circumstances - such as losing your job - the bankruptcy trustee may modify the plan. If, however, the court will not modify the plan, you may be able to convert to Chapter 7, or you may have your Chapter 13 bankruptcy dismissed.

In conclusion, there has been wide speculation that the new bankruptcy law changes have been fueled by the credit card companies who cite abuse of the bankruptcy code.

When it comes to personal bankruptcy, "Try not to go there," advises Deena Katz, president of Evensky & Katz Wealth Management, in Coral Gables, Fla. Bankruptcy stays on your record for up to ten years, which would make it tough to get credit just when you're ready to get married, buy a house or start a family.