Cons And Pros Of Declaring Bankruptcy

Cons And Pros Of Declaring Bankruptcy

There may be cons and pros of declaring bankruptcy; but, there seems to be no abating the rise of bankruptcy filings despite the 2005 changes in the federal bankruptcy code which was supposed to put a damper on them. Filings for bankruptcy rose by almost a third in 2009 from 2008 according to the compilation of data by the National Bankruptcy Center. More of these filings were for Chapter 7 even though in 2005 the legal changes were aimed to encourage Chapter 13 filings that required debt-repayment plans. The changes were intended to make it more difficult for a Chapter 7 application. A means test was required thereafter to separate those who could repay debt from those unable to do so. Chapter 7 was not to be a recourse, if the test revealed that payment of some portion of the debt is possible after restructuring. Yet, Chapter 7 filings were up over 42 percent by November 2009; and by contrast Chapter 13 filings made up less than a third of the total filings in the same period and rose by only 12 percent.

The advantages and disadvantages of bankruptcy

The disadvantages of bankruptcy include the fact that most tax debt is not-dischargeable and neither is student loan debt. Your credit will be affected for years. It will remain on your credit report for up to ten years. You will lose your credit cards and some of your possessions. You will lose property that you own that is not exempt from sale by the bankruptcy trustee. It will be harder to file later on, if something even worse financially comes along. For instance, if you complete the bankruptcy process under Chapter 7, you cannot file for another Chapter 7 bankruptcy for six years. The six year period is counted from the date you last filed for bankruptcy. Another consideration to provide some pause is that a filing will limit the techniques you can use to get out of the financial ditch.

Amongst the benefits that come from bankruptcy there is the fact that old tax liabilities, these being those older than three years are removed. Bankruptcy will also keep your lenders from pursuing aggressive collection actions. Missed payments, repossessions and lawsuits will also hurt your credit like a filing will. It may be possible to salvage one or two credit cards, in some cases. Most state exemptions permit you to keep possessions as exempt from bankruptcy that you might consider you need. You will keep the salary you earn and the property you buy after you file. Bankruptcy helps you get a fresh start, so you can get started on rebuilding your credit. You may file for Chapter 13, if you need to seek bankruptcy again before you are entitled to file for Chapter 7. You may file for Chapter 13 repeatedly, although each filing will appear on your credit record.

Chapter 7 or Chapter 13?

Chapter 7 is more popular as it does not require repayment of a portion of their debts as wipes out many debts entirely. A Chapter 7 filing will, however, wipe out only your personal obligations. Liens recorded before the filing are not affected. After your bankruptcy, the IRS can seize property owned at the time of the filing. After-bankruptcy, the IRS tends to seize real estate and retirement accounts or pensions; and generally only when a taxpayer has made no efforts to otherwise resolve the problem.

In some situations, however, Chapter 13 is the superior alternative. Also, certain debtors cannot file for Chapter 7; but, may file for Chapter 13. Under the 2005 changes you are ineligible to file for Chapter 7 if you cannot meet new requirements under what is termed the means test. Chapter 7 is off limits if in your state of residence your current monthly income over the six months prior to your filing date is more than the median income for a household of your size. In addition, if your disposable income after the subtraction of certain expenses and monthly payments for debts you would have to repay exceeds limits set by law. In sum, if you have the means to repay some of your debt through a Chapter 13 repayment plan, you are ineligible for a Chapter 7 bankruptcy filing. The means test can get complex, so professional advice is important. You are also prohibited, if you received a Chapter 7 bankruptcy discharge within the last eight years, or if you received a Chapter 13 discharge within the last six years.

You may opt for Chapter 13 if you are behind on mortgage or car loans and seek to make up the missed payments over time. Only Chapter 13 permits making up your missed payments. If you have a tax obligation, student loan, or other debt that cannot be discharged in Chapter 7, you can under a Chapter 13 plan pay them off over time. If you have nonexempt property that you want to keep, Chapter 13 is preferable. Under Chapter 7, only exempt property is allowed to be retained. Exempt property is property protected from creditors under state or federal law. Your nonexempt property will be disposed off by a bankruptcy trustee to distribute proceeds to your creditors. In Chapter 13, you do not have to give up any property and can repay your debts out of your income. Should you have a codebtor on a personal debt, the co debtor will be left alone under a Chapter 13 filing so long as you keep up with your payments; but, under Chapter 7 your codebtor will still be liable.

If saving your home is a reason for filing for bankruptcy under Chapter 13, you might want to know that a study has found that this will be of little help in saving homes. The authors of the study found that for one-third of the filers, the money freed up is insufficient to save their homes, and many others have enough income to save their homes without choosing this drastic measure. You should seek a qualified attorney in your area that knows the bankruptcy laws and exemptions in your state to advise you and help you decide whether you should take the serious step of filing for bankruptcy. Bankruptcy should be the last recourse. A declaration of bankruptcy affects your future credit and your reputation. On the other hand, those who choose this path do it because they see this as the best alternative among poor options.

Considering Cons And Pros Of Declaring Bankruptcy

Cons And Pros Of Declaring Bankruptcy

When considering the cons and pros of declaring bankruptcy; be aware that bankruptcy filings have been rising in spite of the revisions in the federal bankruptcy code in 2005 intended to inhibit them. Majority of the filings were Chapter 7 even though 2005 revisions were to discourage them in favor of Chapter 13 filings. This is because Chapter 13 filings require debt-repayment.

Advantages and disadvantages of seeking bankruptcy

One disadvantage is that most tax debt may not be-discharged. Student loan debt may also not be discharged. Your credit is affected for years. Your bankruptcy will be on the credit report for up to a decade. Credit cards and some of possessions will be taken. It will be harder to file in future, within the prohibited period for Chapter 7 filings. There will be less flexibility in the means you can use to improve your financial condition.

A benefit is that tax liabilities more than three years old can be removed. Bankruptcy will stave off the wolves at your door. Generally, state exemptions allow possessions you think necessary to be retained. You can keep your earnings and any property purchased after a filing. You get the opportunity to get a new start to get on the route to better management of your finances. A Chapter 13 filing option remains open for those not eligible for Chapter 7. There is no prohibition on filings for Chapter 13, even if each filing appears on the credit report.

Will you choose Chapter 7 or Chapter 13?

More people choose Chapter 7 because debts can be wiped out in their entirety. This applies only to personal obligations. Any liens recorded remain. The IRS can still seize property after a bankruptcy; although it generally only takes this action after a taxpayer has made no effort to otherwise resolve the problem.

In some cases, Chapter 13 is the smarter choice. Of course, it is also an avenue for those who cannot file for Chapter 7 due to the structures of the 2005 restrictions. Those who have gone through Chapter 7 within the last eight years, or a Chapter 13 process within the last six years are also prohibited from a Chapter 7 filing.

Chapter 13 is the path to make up for missed debt payments. If you have debts that remain in Chapter 7, Chapter 13 enables you to adjust their payments to make them more manageable. If you have property that would not be exempt, Chapter 13 will save you losing that property. You can shield your codebtor, which you cannot do in a Chapter 7 application.

Keep in mind that Chapter 13 might not be much assistance in saving your home from foreclosure. The funds freed up could be insufficient to save the property. A qualified attorney should be sought if you are seriously considering the bankruptcy option.

The Cons And Pros Of Declaring Bankruptcy

The cons and pros of declaring bankruptcy seem to be considered by a rising number of people, if the rising filings is any indication. And, bankruptcy application have risen even though changes were implemented in the federal bankruptcy law to act as a breaker. Data has revealed that most filings were for Chapter 7. Yet, 2005 revisions were specifically supposed to discourage this.

Some advantages and disadvantages

A disadvantage is that tax debt discharge may not be an option. Student loan debt is also off the table. The fact that credit is impacted for years after can be off putting. Your credit report will reflect your bankruptcy for 10 years. Your credit cards will become history and some of your possessions can be disposed off to pay off your creditors. Filing in future could be a problem. There will be less flexibility in means available to you to improve your financial condition thereafter.

Tax liabilities that exceed three years may be removed. Harassing creditors will be kept at bay. You may not be required to dispose off your possession, should state exemptions cover them. Your income and any property purchased post filing is retained. You may really need the fresh start bankruptcy affords you. The Chapter 13 recourse is open to those not eligible for Chapter 7.

Deciding between Chapter 7 and Chapter 13

The more common choice is Chapter 7 as debts are wiped out in this process. Bear in mind, only personal obligations are removed. Recorded liens are not discharged. The IRS may still take property following bankruptcy; although generally only if a taxpayer has made no real effort to resolve the problem.

Chapter 13 is the better alternative sometimes. Needless to say, it is also only route for those ineligible for Chapter 7. Debtors who have already gone through Chapter 7 in the last eight years, or Chapter 13 in the last six years are ineligible for a Chapter 7 filing.

If you seek to pay missed debt payments, Chapter 13 is the choice for you. If your debts cannot be discharged under Chapter 7, Chapter 13 will allow you to adjust your payments and make them more manageable for you. Property not subject to exemption you wish to retain requires a Chapter 13 recourse. Should there be a codebtor you seek to protect, you will not be able to do this under Chapter 7.

Bear in mind Chapter 13 might not serve as an adequate aid in saving you from foreclosure. Funds freed in this process may not be sufficient in some cases to save the property. Please seek a qualified attorney for any serious consideration of bankruptcy.