A few years ago, when I realized that I couldn't pay my mortgage anymore, I knew that I needed to do something to correct my finances. It seemed like I just couldn't catch a break, and after losing my job, I knew that I was in trouble. I started looking for new work, but I knew that I needed to fix my credit somehow. I was at the end of my rope, until a friend talked with me about the possibility of declaring bankruptcy. She explained that it helped her to start over. I met with a bankruptcy attorney who was incredible to work with, and I was amazed at how much it helped my situation. Check out this blog to learn how working with a bankruptcy professional could help you.
Prior to 2005, debtors could consistently take advantage of the bankruptcy laws and file multiple bankruptcies within several decades. This meant that many creditors would extend credit to these individuals, only to have them abuse the legal system to eliminate the debt. The bankruptcy law changes in 2005 did not change the way people file for bankruptcy, only how they could file and the types of bankruptcy that could help them out of debt. As the following will show, the changes to the laws restructured personal and business debt and debt settlements so that repeatedly filing for bankruptcy every time new debt loads were created became a thing of the past.
Types of Debt That Were Never Excused and Still Are Not
School loans and child support are two types of personal debt that were never allowed to be discharged via bankruptcy. They still are not allowed because school loans are often owed to the federal government or banking institutions backed by the federal government, and child support is mandatory support given to help care for and raise a couple's children and is often paid via a state government agency. Essentially any debt tied to a government agency is inexcusable, but all other forms of debt may be included on your bankruptcy paperwork.
Liquidation of Assets, Then and Now
While you almost never had to liquidate your assets to pay your creditors before, after the changes to the laws in 2005 everyone (who has the means) has to liquidate assets under a Chapter 13 bankruptcy. The liquidated assets pay some portion of what they owe to creditors. If you have absolutely no assets (e.g., no extra cars, boats, jet skis, planes, extra houses, extra land, investments, etc.), then you can file a straight Chapter 7 bankruptcy which will eliminate your debts without loss of property or cash. Because you have nothing, the new laws state that creditors cannot take what you do not have. Before these laws went into effect, most people would just file a Chapter 7 bankruptcy, get rid of their debts, rack up debt again, wait for the next eligible filing period and repeat, at the expense of creditors' companies and taxpayers.
Reductions of Debt and Debt Payments
If you find that you have to file a Chapter 13 now, your debts may still be reduced to a fraction of what they were. You may also be required to pay smaller payments over a much longer period of time to meet the demands of a Chapter 13. This is different from pre-2005, when you still had to pay a debt in full and/or pay it in larger chunks over a specified time frame. The new laws made it easier to pay back at least some of what the bankruptcy filers owed at a reasonable interest rate (if any interest rate at all) and over a period of time that was manageable for people who really wanted to pay off their debts. For more information on bankruptcy law, contact a professional like Arthur M Richard.
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