Money Advice Guide

First, understand that filing bankruptcy should be a last resort if you have borrowed money and have absolutely no way or repaying it. Filing for bankruptcy will have a negative effect on your credit history for 10 years or longer and may also adversely impacts your quality of life.

If you do declare bankruptcy, here are some things to expect.
First, you will need to be prepared to explain to a bankruptcy judge or trustee how you got yourself into such a financial pickle. You will be asked some very tough questions and need to be ready with good answers. It will not be an easy or fun task.

The only credit cards you will probably be allowed to keep are those that were completely paid off before you declared bankruptcy. You will most likely lose all others.

Once you file for bankruptcy, you will have trouble getting a mortgage, a loan, new credit cards, life insurance and even some jobs. This is because there are employers who are skittish about hiring people who have filed for bankruptcy as they feel it demonstrates a lack of restraint or self-discipline.

Some of your debts will not be discharged. This includes child support, student loans and back taxes. So if you think filing for bankruptcy will relieve you of that $12,000 you owe Uncle Sam, think again.

Keep in mind that a bankruptcy will stay on your credit report for at least 10 years. This means that if you’re 35, you’ll be 45 before you can apply for a credit card, a mortgage, a loan or a job without the potential lender or employer seeing that you were once bankrupt.

The good news

Despite what you may have been told, it is possible to get a loan after filing for bankruptcy. It is called a bankruptcy loan and its purpose is to help you get back on your feet and reestablish your finances.

A bankruptcy loan is usually available only after your creditors have been paid and your bankruptcy dismissed. If you filed a Chapter 13 (reorganization) bankruptcy, your creditors must be paid in full before you apply for a large loan. And if you filed a Chapter 7 bankruptcy, you must wait at least two years after the bankruptcy to apply.

The best way is to prove to potential creditors that you are no longer a bad risk is by paying all your bills on time, and showing that you can now handle a credit card. Once you have a track record for paying your bills on time, and have successfully maintained a credit card, you can ask your creditors for reference letters to prove to potential lenders that you have become credit worthy.

You should also know that there are lenders out there who will offer you a loan while you are still in bankruptcy as a way of paying off your creditors. Don’t be lured into this. It usually just paves the way for further disaster as you are simply adding debt to debt. As a wise man once said, you just can’t borrow your way out of debt.

Going through bankruptcy can be a painful and embarrassing experience. Be sure you consider all possible alternatives before filing. You might find that bankruptcy is easy to get into but very, very difficult to get out of.

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Douglas Hanna has lived in the Denver area for nearly 35 years and is an expert on both Denver and Colorado. He is also the author of more than 120 articles on Denver and Internet marketing.

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On April 20 of this year, President Bush signed a bankruptcy reform law. When this law went into effect in October it made it much more difficult for Americans to use Chapter 7 bankruptcy to get a fresh start on their financial lives.

Under the old law, you could choose to file either a Chapter 7 or Chapter 13 Bankruptcy. In a Chapter 7 proceeding, you are allowed to keep your exempt property, such as much of the equity in your home. Most of your other debts, such as money owed on credit cards, are discharged.

In comparison, a Chapter 13 Bankruptcy is a reorganization bankruptcy. In this type of proceeding you agree to pay off your debts over a period of three to five years.

The result of the new law is that fewer people will be able to file for Chapter 7 Bankruptcies and will be forced to file for Chapter 13 Bankruptcies, instead.

Major Changes

Possibly the biggest change to bankruptcy law is that there will now be a qualifying test. Under this two-part test, you will first be required to apply a formula that exempts certain expenses such as food, rent, etc., to see if you can afford to pay 25 percent of your “non-priority unsecured debt” (credit cards, medical bills and the like). Second, your income will be compared to your state’s median income.

If your income is above your state’s median income, and if you can afford to pay 25 percent of your unsecured debt, you will not be allowed to file for a Chapter 7 Bankruptcy.

You may be able to file for a Chapter 7 Bankruptcy if your income falls below your state’s median income but you can pay 25 percent of your unsecured debt. However, if the court believes you would be abusing the system by filing a Chapter 7, you can be required to file for a Chapter 13 Bankruptcy, instead.

More differences

If you filed a Chapter 7 Bankruptcy under the old law, the court would determine what you can afford to pay based on what you and the court determines are reasonable and necessary living expenses.

Under the new law, the court is required to apply living standards that are derived by the Internal Revenue Service to determine what is reasonable to pay for rent, food, etc., and how much you should then have left over to pay your debts. The IRS regulations are more stringent and if you want to contest them, you will need to ask for a hearing in front of the bankruptcy judge. This can easily mean more time and expense.

Tougher exemptions

When you declared bankruptcy under the old law, your state might have allowed you to keep all or much of the equity you have in your home. However, the new law places tougher restrictions on this exemption. So before you file, be sure to discuss this with a knowledgeable bankruptcy attorney so that you will know exactly how much of your home’s equity you can expect to protect.

Credit counseling

Here’s another tough restriction. Under the new bankruptcy law, you must meet with a credit counselor in the six months before you apply for bankruptcy. However, from what I have read, many of the “certified” counselors are totally backed up and cannot handle any new cases.

You must also attend money management courses - at your expense - before your debts are discharged.

Before you do anything, make sure you talk to a good bankruptcy attorney.

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Tags: bankrupt, bankruptcy, bankruptcy information, file bankruptcy, filing bankruptcy, personal bankruptcybankrupt, bankruptcy, bankruptcy information, file bankruptcy, filing bankruptcy, personal bankruptcy

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