The term Bankruptcy is derived from the Italian word banca rotta, meaning broken bench. It is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. However, there are specialized units for bankruptcy in each federal district court. Under the Federal Bankruptcy Act, these district courts take care of the bankruptcy filings and other functional procedures.
Factors Influencing Bankruptcy:
The following factors seem to influence bankruptcy, in general. But a combination of all these factors is however found to have greater impact on Bankruptcy.
1. Rising Unemployment: Unemployment or sudden loss of job is a key factor influencing bankruptcy. In order to maintain an optimum standard of living, unemployed people are more prone to taking debt without the ability to pay back. Thus accumulated debt level rapidly increases resulting into Bankruptcy.
2. Broken Marriage: Rising divorce rates are seen to have influenced the number of bankruptcy filings. This is because in most cases one or both the parties suffer financially due to legal separation. Divorce rates are almost 50% now, thus, if divorce is being considered, take note of this fact!
3. Credit Card Usage: The more the number of cards, the more will be the amount of debt. With the increase in the number of accounts used by each adult, the rate of filing bankruptcy also increases. Research shows that the most number of people who are in debt are young adults between the age range of 25 to 30. This is the age of ‘Credit Card Spending’, which is spending more than their income. Before 30 years old, they are already in debt.
4. Debt Income Ratio: Debt :. With the rise in debt-income ratio, rate of filing bankruptcy also increases.
Your Outstanding Debts
A bankruptcy may not necessarily dissolve all of your debts. Some types of debts may be exempt from bankruptcy like alimony, maintenance, child support, educational loans, taxes, including income, property, withholding, and employment taxes, fines, penalties, or forfeitures payable to the government, some punitive damages, and debts based on fraud.
How to Overcome Bankruptcy?
After knowing the main factors influencing bankruptcy, you must try your very best in avoiding these mine traps. You must, at all cost, avoid bankruptcy as it does more damage to you than you can imagine! One main problem most people encounter after declaring bankruptcy is difficulty in getting new employment. Regardless of what the law says about discrimination against personal bankruptcy, but in real life, these people do face many challenges and discriminations.
If you have financial difficulties now, take the next step in solve them but getting a debt consultant. Debt consultants are experts in debt reductions and can certainly help you regain a stable financial footing.
As applying for loans, credit cards and other forms of credit are easier to come by, so are the bankruptcy rates in the United States. In a ten year period, between 1994 and 2004, bankruptcy rates in the United States nearly doubled. The governments reaction was to take a closer look at reasons parties were filing for bankruptcy, new laws were instated to ensure that individuals and businesses had valid reasons for applying for bankruptcy.
One of the primary laws regarding bankruptcy that was passed in the United States in 2004 is the Bankruptcy Abuse Prevention and Consumer Protection Act. This law just went into effect in October 2005, but has already caused quite a stir in the financial and bankruptcy law arenas. Besides making it more difficult to qualify for Chapter 7 bankruptcy, or complete bankruptcy, the law imposes stricter rules and budgets on Chapter 13 debtors.
A major change the law makes throughout the United States is the need for debtors to have filed tax returns for four years in a row before qualifying for bankruptcy. As well, dischargeable debts, or those debts where personal liability is taken away by the court system, is more difficult to come by. The Act requires that debtors prove good reason for dischargeable debt and is even requiring more debtors to take responsibility with non-dischargeable debt budgets.
As far as the two major types of bankruptcy laws are concerned, Chapter 13 bankruptcy is that which allows the debtor to keep some assets upon proving only limited debt and a steady income. This bankruptcy is excellent for those debtors who have gotten themselves into major financial difficulty but still have means of paying for some assets. The court will set up a repayment schedule and budget that allows for full repayment of mortgages or cars within three to five years.
If repayment is simply not an option, the bankruptcy law requires that a debtor will file for Chapter 7 bankruptcy. This is often referred to as complete liquidation of assets, except for exempt items. Exempt items in a bankruptcy hearing are determined by the court and are usually items that are a necessity, such as a car or work related items. As well, the courts will distribute debts into two categories: non-dischargeable and dischargeable debt.
Non-dischargeable debts also fall into two categories: non-dischargeable due to wrongful conduct on the debtor and non-dischargeable due to public policy. Wrongful misconduct by the debtor could mean theft or laundering money while public policy could include child support payment or court related judgments.
Keep in mind that in either type of bankruptcy, an individual is almost always required to still pay for taxes, student loans, alimony, child support or court related fees. This is the place where many bankrupt parties are misled in the Chapter 7 bankruptcy, as it is often referred to as “a fresh start”. While the court can set up payment plans to help the debtor repay public policy debts, even Chapter 7 debtors will still be required to make payments.
Another major point regarding bankruptcy law is that a bankruptcy will stay on a credit report for approximately ten years. This will make it extremely difficult to become eligible for any type of credit, even a credit card, but especially for a car loan or a house mortgage. While some creditors will still offer limited credit to bankrupt individuals, the interest rates and finance charges are usually through the roof. This makes it even more difficult for debtors to get back on their feet.
Last but not least, keep in mind that bankruptcy law will require any co-signers to be responsible for debt payments. If mom or dad signed for a car loan when you were young and you still owe on that car, they are liable for payments. These friends or family members who were once doing you a favor may be brought into the bankruptcy law court proceedings, which can put a strain on friendships and family relations.
For specific bankruptcy law questions it is best to contact a bankruptcy attorney or legal aide in your county or state. Bankruptcy laws and proceedings may vary slightly from state to state, so be sure to make contacts in the state where you plan to file for bankruptcy.
Consumer debt is at an all-time high. What’s more, a record number of consumers, more than 1.5 million in 2004, are filing for bankruptcy. Whether your debt dilemma is the result of an illness, unemployment, or overspending, it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes. And read between the lines when faced with ads in newspapers, magazines, or even telephone directories that say:
“Consolidate your bills into one monthly payment without borrowing”
“STOP credit harassment, foreclosures, repossessions, tax levies and garnishments”
“Keep Your Property”
“Wipe out your debts! Consolidate your bills! How?
By using the protection and assistance provided by federal law. For once, let the law work for you!”
While the ads pitch the promise of debt relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it’s generally considered the option of last resort. The reason: it has a long-term negative impact on your creditworthiness. A bankruptcy stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live. What’s more, it can cost you attorneys’ fees.
Advance-Fee Loan Scams
These scams often target consumers with bad credit problems or those with no credit. In exchange for an up-front fee, these companies “guarantee” that applicants will get the credit they want usually a credit card or a personal loan.
The up-front fee may be as high as several hundred dollars. Resist the temptation to follow up on advance-fee loan guarantees. They may be illegal. Many legitimate creditors offer extensions of credit, such as credit cards, loans, and mortgages through telemarketing, and require an application fee or appraisal fee in advance. But legitimate creditors never guarantee in advance that you’ll get the loan. Under the federal Telemarketing Sales Rule, a seller or telemarketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or receive payment until you’ve received the loan.
Recognizing an Advance-Fee Loan Scam
Ads for advance-fee loans often appear in the classified ad section of local and national newspapers and magazines. They also may appear in mailings, radio spots, and on local cable stations. Often, these ads feature “900″ numbers, which result in charges on your phone bill. In addition, these companies often use delivery systems other than the U.S. Postal Service, such as overnight or courier services, to avoid detection and prosecution by postal authorities.
It’s not hard to confuse a legitimate credit offer with an advance-fee loan scam. An offer for credit from a bank, savings and loan, or mortgage broker generally requires your verbal or written acceptance of the loan or credit offer. The offer usually is subject to a check of your credit report after you apply to make sure you meet their credit standards. Usually, you are not required to pay a fee to get the credit.
Hang up on anyone who calls you on the phone and says they can guarantee you will get a loan if you pay in advance. It’s against the law.
Protect Yourself
Here are some tips to keep in mind before you respond to ads that promise easy credit, regardless of your credit history:
* Most legitimate lenders will not “guarantee” that you will get a loan or a credit card before you apply, especially if you have bad credit, or a bankruptcy.
* It is an accepted and common practice for reputable lenders to require payment for a credit report or appraisal. You also may have to pay a processing or application fee.
* Never give your credit card account number, bank account information, or Social Security number out over the telephone unless you are familiar with the company and know why the information is necessary.
The field of bankruptcy law has exploded in recent years, even though the process of filing for bankruptcy really only involves filling out a few forms. Misconceptions, frightening news articles, and misleading advertisements put out by many of the firms now specializing solely in bankruptcy law have convinced the average consumer that they absolutely must hire an expensive attorney in order to get rid of the money they owe.
Even if the client has an above-average number of questions or a combination of income, debt, and assets that are more complicated than most, an experienced lawyer should be able to handle a bankruptcy claim from start to finish in a matter of hours. Some honest legal professionals only bill their clients for this small amount of work, but the majority charges a minimum of $2,000 for a basic filing. In fact, in some areas, rates can skyrocket as high as $10,000 for a single case!
These inflated prices have actually driven many of the honest attorneys out of bankruptcy altogether, because once a client has been convinced that bankruptcy should cost them thousands of dollars, they are naturally wary of hiring anyone who charges much less.
Filling out bankruptcy paperwork is so simple in many cases that attorneys have their secretaries fill it out. Yet the field has created so much money for certain greedy lawyers that instead of letting their clients know this, they instead pocket the cash and stand back and watch while bankruptcy filings needlessly get out of control.
No matter what circumstances brought you into your current financial situation, declaring bankruptcy should never be a first choice when trying to deal with high levels of debt. Especially after taking into account high attorney fees and new credit-card-friendly laws, it would be much better for you in both the short-and long-term if your financial difficulties are handled out of court.