About Bankruptcy

Basics and Alternatives

The declaration of bankruptcy is a major undertaking that can help relieve you of overwhelming debt but also carries a stigma and other consequences that can persist for years. Thus, bankruptcy should be viewed as a last choice by those in profound financial trouble - and other alternatives should be carefully considered.

Bankruptcy proceedings are intricate legal matters and an attorney who specializes in the field should be consulted by anyone tempted to follow that path. That said, here are some basic facts and tips:

Bankruptcy is a proceeding that allows a debtor to resolve overwhelming debts by dividing his or her assets among all or most creditors. Any debt that remains after that process may be "discharged," or wiped clean, giving you a fresh start.
A law passed in 2005 requires all individual debtors who file bankruptcy to undergo credit counseling within six months before filing for relief and to complete a financial management instructional course after filing bankruptcy.
Under the U.S. Constitution, all bankruptcy filings are federal matters and are supervised by the U.S. Bankruptcy Court. States may not regulate bankruptcy, but they can pass laws that otherwise affect the relationship between debtors and creditors.
Bankruptcy filings can be voluntary (made by the debtor) or involuntary (made by one or more creditors).
Once a bankruptcy filing is made, most personal property is included in the debtor's "estate." Elements of that estate are sold by an appointed trustee, who then divides the proceeds between the creditors. Some property is exempt and can remain with you. In general, this includes your house.
Bankruptcy filings are public records. Credit bureaus will record the bankruptcy, which can remain on your credit report for as long as 10 years. This can complicate efforts to qualify for a mortgage or other loan, obtain a credit card at prevailing rates, or even rent an apartment.
Some of the most common reasons for filing bankruptcy are: persistent unemployment, crushing medical expenses, overextended credit-card debt, and profound marital problems.
Some debts are not erased by the most common forms of bankruptcy, known as Chapter 7 or Chapter 13 filings. These include money owed for child support or alimony, fines and most taxes, debts not listed on your bankruptcy petition, loans procured through false information given to creditors, most student loans, and legal judgments rendered in response to personal injury or death caused by DUI convictions.

Here are three alternatives to filing for bankruptcy:

Debt counseling. Professional services can help you work out a debt repayment plan under which you deposit money each month into an account. Your deposits are used to pay your creditors according to a payment schedule developed by a counselor. You must agree not to apply for or use any additional credit while in the program. Normally, within 48 months of regular payments, your debt will be wiped out. Some credit counseling services charge little or nothing for managing the plan because they are partly funded by creditors. Others charge a significant fee, so be sure to inquire.
Debt consolidation. There are basically two types of debt consolidation loans - secured and unsecured. With unsecured debt consolidation, you make one payment monthly to the consolidation company and it makes debt payments to your creditors. The other type involves using your home to secure a loan through a second mortgage or a home equity line of financing. The interest rate with a secured loan may be much more attractive with lower overall payments, but the risk is more substantial - if you can't make the payments, you could lose your home.
Debt settlement. Debt settlement or out-of-court settlements are not consolidation loans but are payment plans to help you lower your debt and pay it off, often reducing outstanding balances by 50 to 75 percent. Settlements are negotiated with creditors with the assistance of an attorney or debt reduction service.

More information is available at:
www.floridabankruptcylaws.com
www.bankruptcyinformation.com

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