Voluntary Bankruptcy Filing and New Bankruptcy Laws

Voluntary bankruptcy filing is not a decision most people make lightly. However, when debts become unmanageable, bankruptcy filing may be the best course of action.

 

Voluntary bankruptcy filing is overseen by the Bankruptcy Court, a federal court operating in every state. Bankruptcy Court judges determine if a person can file bankruptcy records and adjudicates disputes between debtors and creditors.

Voluntary bankruptcy isn't uncommon. In 2006, 597,965 bankruptcy records were filed in the United States.

People who file bankruptcy papers have an average age of 38 and tend to be somewhat better educated than the general population. Couples account for 44 percent of bankruptcy filings, while single women account for 30 percent, and single men account for 26 percent.

Two-thirds of bankruptcy filers lose jobs prior to submitting bankruptcy records, and 50 percent suffer from a serious health problem. Only 9 percent of individuals who file bankruptcy records have not suffered a serious medical condition, lost a job or gone through a divorce.

Bankruptcy filing is a complex procedure. While it provides some financial relief, it does not wipe all debts clean.

Upon successfully filing for bankruptcy, an automatic stay is placed on all debts by the Bankruptcy Court. This prevents further action by creditors and is effective immediately. The automatic stay will not affect any future credit you acquire.

This may seem like a quick way to get out of debt, but there are some limitations. If the debtor has secured loans (mortgages, car loans, etc.), creditors can apply to Bankruptcy Court for a relief from stay order, which allows the creditor to continue to attempt to enforce payment, repossess or foreclose.

Bankruptcy records also affect your credit standing for 10 years. For a decade after you file bankruptcy, any credit application will be affected by your bankruptcy records.

It is important to note, however, that while bankruptcy records will not affect your credit after 10 years, credit-reporting bureaus don't automatically remove such information. Ten years after bankruptcy filing, contact the three major credit bureaus (Experian, TransUnion and Equifax) and ask them to remove any records of your bankruptcy.

Bankruptcy may require that the debtor's assets be liquidized and divided up among creditors. Some assets are exempt from this requirement. For instance, it is often possible to retain you house and household items.

When you file bankruptcy records, the court requires a significant amount of information. It's advisable to be prepared with the proper documentation. You will need:

You may also need to provideadditional financial information.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2004 altered bankruptcy filings. The new bankruptcy law introduced a so-called means test to determine who is allowed to file for Chapter 7 bankruptcy.

Under the new bankruptcy law, a debtor's income is compared to the average income in his state. If income is lower than the state average, the debtor applies for Chapter 7 bankruptcy and all debts are erased after assets are liquidated.

Should the debtor have a higher than average income and can pay at least $6,000 back to creditors over five years, bankruptcy filing takes a different path. The debtor applies for Chapter 13 bankruptcy and the Bankruptcy Court judge determines a repayment plan for outstanding debt.

In addition, the new bankruptcy law requires all people who file for bankruptcy to pay for credit counseling. The debtor's lawyer must personally verify that the bankruptcy is valid and must sign all petitions and documentation. This increases the cost of bankruptcy, as the debtor must pay legal fees.

Filing bankruptcy online is an option. Several professional companies offer resources that make filing bankruptcy online easy. Filing bankruptcy online allows debtors to avoid many of the legal costs associated with bankruptcy.

You cannot completely file bankruptcy records online, however. After filling out all the necessary forms online, it remains necessary to take them to the Bankruptcy Court in person.

Resources

Bankruptcy Action (n.d.). Chapter 7 Bankruptcies Level off in the Quarter ending September 30, 2007. Retrieved December 19, 2007, from the Bankruptcy Action Web site: www.bankruptcyaction.com/USbankstats.htm.

ChristiaNet (n.d.). Filing Bankruptcy Online. Retrieved December 20, 2007, from the ChristiaNet Web site: www.christianet.com/bankruptcy/filebankruptcyonline.htm.

Free Advice (n.d.). Alternatives to Bankruptcy. Retrieved December 19, 2007, from the Free Advice Web site: bankruptcy-law.freeadvice.com/consumer_bankruptcy/
should_file.htm.

Harelik, J. (January 17, 2007). Clearing Bankruptcy from Credit Record. Retrieved December 20, 2007, from the Bankrate Web site: www.bankrate.com/brm/news/bankruptcy/20070116_clearing-bankruptcy-credit-record_a1.asp.

Lawdog (n.d.). Voluntary and Involuntary Bankruptcy. Retrieved December 19, 2007, from the Lawdog Web site: www.lawdog.com/bkrcy/lib2a1.htm.