Believe it or not, the bankruptcy laws are there for your protection. The old days of companies, particularly credit card companies, rewarding people for loyalty have long gone and in the current economic climate financial institutions generally have only one interest - their bottom line. Declaring yourself bankrupt offers a way out.
However, before declaring yourself bankrupt, you should examine every possible alternative avenue. Bankruptcy stays on your credit report for up to ten years, and under the Bankruptcy Abuse Prevention and Consumer Protection Act, 2005 ("BAPCPA") it is now law that anyone filing for bankruptcy must, within 180 days of filing, attend US Trustee approved consumer credit counselling to ensure that all alternatives are explored.
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If, after counselling, it is decided that bankruptcy is the only way forward, certain decisions have to be made.
Firstly, you have to decide which type of bankruptcy you are going to file under, the two most common being chapter 7 and chapter 13. Chapter 7 is often seen as the preferred option, but under the new BAPCPA rules, all applicants for bankruptcy have to undergo a means test, the result of which often forces individuals into chapter 13.
Secondly, by definition an individual filing for bankruptcy is going to be short of funds. However, it is very important that a lawyer is hired, preferably from a smaller firm so contact is direct and a relationship can be built up. They will also help with the BAPCPA means test, which can be complex.
Thirdly, once you have decided to file, do not use your credit cards. This is because your case could be revoked if you have willingly taken on debt that you know you cannot afford to repay.
Once your case has been filed, you are protected by what is called "automatic stay". This means that no creditor may contact you regarding any debt. They may only approach your lawyer which means you will be left in peace.
A meeting of creditors, which you have to attend, will be called shortly after filing for bankruptcy. This last about ten minutes and you are questioned, under oath so that the truth of your financial statement can be proved. Beforehand you will have submitted a list of creditors and your personal assets.
In a chapter 7 filing, the trustee will determine which assets are to be sold and the proceeds used to pay your creditors. Any outstanding debt remaining after liquidation will be written off and you will no longer owe anyone anything. Shortly after the 60th day following filing, a notice of discharge will be received by the individual.
In a chapter 13 case, a repayment plan is implemented over a 3 - 5 year period in accordance with the findings of the means test. There are no assets sold. Notice of discharge is usually received 30 - 60 days after the last payment has been made.
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