There are people who find that they are in a financial position where filing for bankruptcy seems like their only option. However, the decision to file for bankruptcy should be made with a great deal of thought. It should never be entered into lightly as the cost of bankruptcy is a great deal higher than people may think.
Chapter seven and chapter thirteen are the choices that individuals will have when deciding to declare bankruptcy. In a chapter seven bankruptcy, all debt is liquidated as well as any of the assets that go along with it. With a chapter thirteen bankruptcy, a repayment plan will be arranged. This will allow the individual to pay off debts over a longer period of time. In some cases, individuals can be granted up to five years to pay off the debt.
Among the most significant costs involved in declaring bankruptcy is the damage to your credit. Although this is not literally a financial cost, it will greatly affect your finances for at least ten years after you declare bankruptcy. Every time you apply for credit, the fact that you have previously declared bankruptcy will come up on the report. This will happen both with a chapter seven and a chapter thirteen bankruptcy.
There are some people who believe that filing for bankruptcy is an easy way to get themselves out of debt and, as a result of this belief, many abuse it. There have been cases wherein people file multiple chapter seven bankruptcies even when they can afford to pay those debts off. There are even those who purchase large and expensive items such as cars and houses right before filing for bankruptcy. They ended up keeping those things without having to pay off their creditors.
Because of the number of incidences of people abusing the system, there have been significant changes made to the bankruptcy laws. Now, when the courts are deciding on a bankruptcy case, they have specific requirements. These requirements include a number of documents and there are income requirements as well. The current requirement is that those filing for bankruptcy should not have at least 20% of their debts. If they do have that amount, they will not be eligible to file for chapter seven bankruptcy.
These changes have been quite effective in keeping people from filing for bankruptcy just to escape their debts. It has also encouraged people to file for chapter thirteen instead. When a court is deciding on a chapter thirteen bankruptcy case, how much the person is capable of paying back will be determined while taking into consideration the individual’s costs for rent, utilities, and the like.
When considering filing for bankruptcy, it might be best to consult a bankruptcy lawyer. Although you will find that the cost of hiring a lawyer has grown higher than it had been in previous years, it may prove to be worth it. This has also caused people to think about bankruptcy more seriously before they file. You can also find credit counselors who can help you in avoiding bankruptcy declaration.
Filing for bankruptcy is a process that has become more difficult over the years. However, the changes made are appropriate so as to discourage people from abusing at and encourage them to think that it should really be the last resort when trying to solve their financial difficulties.