Lake Oswego, OR – May 21, 2009 – Those overwhelmed with debt may turn towards bankruptcy for relief. Although the process is complicated, many financially troubled business owners and individuals utilize this legal solution. Since the book of bankruptcy is filled with chapters, your BBB offers consumers the following notes to help decide whether bankruptcy is a viable option.
Individuals usually file or voluntarily petition one of two types of bankruptcy, Chapter 7 or Chapter 13, which can stop collection actions and also prevent almost all civil lawsuits.
Chapter 7 entails asset liquidation, where the debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. This type of bankruptcy can help eliminate most or all debt, including credit cards, loans, and other bills in arrears. This option is most beneficial to those with assets, but little income and a lot of unpaid debt.
Chapter 13 allows debtors to file for a repayment plan with the bankruptcy court to pay back all or a portion of the debts over time—usually a period of three to five years—the amount that needs to be repaid depends on how much is earned, the amount and types of debt owed, and how much property is owned. Payments may be collected by an appointed trustee to ensure that all creditors are paid off. This solution benefits individuals with a continuous income who are juggling multiple past due expenses.
Debtors must meet certain criteria to determine which type of bankruptcy they should file for and extensive financial records will need to be submitted, outlining income, outstanding credit, debt, and property or assets. BBB encourages consumers to face the facts before filing for bankruptcy:
Consider Alternatives:
Don’t be lured in by offers for an “easy fix.” Before filing for bankruptcy, try some alternatives:
- Develop a budget plan
- Reduce your expenses
- Get a second job
- Renegotiate your debt
- Obtain a debt consolidation loan
Credit Report:
Bankruptcy becomes a matter of public record and it can hinder your ability to obtain credit, rent an apartment, secure a job or purchase insurance. Under the Fair Credit Reporting Act, Chapter 7 bankruptcy remains on the filer’s credit report for no longer than 10 years. As an incentive to file under Chapter 13, the credit report retains bankruptcy information for only 7 years, according to the Consumer Data Industry Association.
Non-discharged Debt:
Bankruptcy may wipe out debt, allowing a ‘fresh start,’ however; some financial obligations will not be discharged in bankruptcy:
- Debts which are not properly listed in your bankruptcy papers
- Criminal fines and restitution obligations
- Debts for acts that caused death or personal injury
- Domestic support obligations: Child support and alimony
- Long term secured obligations: Student loans
- Certain taxes: Income tax debt
- Any debts incurred after you file bankruptcy
Credit Counseling:
Bankruptcy law now mandates financial counseling from a not-for-profit credit counseling agency (six months prior to filing), and completion of debtor education classes before debts can be discharged. Choose agencies and providers approved by the United States Trustee. In some cases, courses can be conducted by telephone or on the Internet. Some charge fees for counseling sessions, and upon completion, the agency will issue a certificate that permits you to file bankruptcy. For a list of approved agencies, visit www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm.
The National Foundation for Credit Counseling, www.nfcc.org, and the Association of Independent Consumer Credit Counseling Agencies, www.aiccca.org, also offer helpful tips to find a reliable credit counseling agency.
Legal Consultation:
