The new bankruptcy laws were enacted to protect consumers from predatory financing practices and to prevent consumers from engaging in wasteful spending and having their debts discharged under Chapter 7. However, debtors who require debt relief due to long-term unemployment or insurmountable medical expenses may be hampered by the stringent guidelines.
Before BAPCPA, declaring personal bankruptcy was a straightforward process. Many debtors obtained debt relief through Chapter 7 filings. This chapter of bankruptcy permits debtors to liquidate assets to repay creditors. The remaining debts are canceled and the debtors are given a fresh start.
Debtors must now file Chapter 13 and develop a payment plan. The exception to the norm is when debtors earn less than the median income in their respective states. The'means' test is utilized by BAPCPA to determine the amount of debts that must be repaid. Individuals whose income exceeds the state median income level are required to file Chapter 13, whereas those whose income falls below the median may qualify for Chapter 7.
Generally, Chapter 13 payment plans last between two and three years. The U.S. Trustee, who distributes payments to creditors, must receive payments from debtors. During the duration of the payment plan, debtors are prohibited from incurring new debt without court permission.
Creditors may petition the court for dismissal if Chapter 13 debtors do not adhere to their payment plan. When bankruptcy petitions are denied, debtors fail to obtain court protection and exit bankruptcy. Creditors can initiate collection actions such as foreclosure, property repossession, and wage garnishment.
Prior to bankruptcy certification, debtors are required to submit a certificate of credit counseling to the court. The BAPCPA mandates that debtors receive credit counseling from a U.S. Trustee-approved agency. Prior to submitting their petition, individuals contemplating personal bankruptcy should consider obtaining credit counseling. Frequently, credit counselors can assist debtors in negotiating debt levels or developing an appropriate payment plan, thereby eliminating the need to file for bankruptcy.
It is advisable to seek credit counseling from a U.S. Trustee-approved agency. If debtors are unable to obtain debt relief through counseling, BAPCPA requirements will have been met and they will not be required to repeat the process. Individuals may seek credit counseling up to six months prior to filing for bankruptcy.
Debtors should also investigate alternatives to bankruptcy, including budgeting, debt settlement, and debt consolidation. The alternatives may yield the same outcome without the long-term repercussions of bankruptcy.
In addition to having a negative notation on their credit reports for up to seven years, debtors may also experience a significant decline in their credit scores. This frequently positions debtors in a lower credit category and can prevent them from obtaining credit for years. Those who do qualify for credit lines will be required to pay significantly higher interest rates.
Individuals contemplating bankruptcy should seek the advice of an experienced attorney and balance the advantages and disadvantages thoroughly. The long-term effects can cause debtors years of difficulty. However, if debtors adhere to Chapter 13 payments, Chapter 13 bankruptcy can assist them in reorganizing their debts and retaining valuable assets.""
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