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Debt got you down? You're not alone.
Consumer debt is at an all-time high. What's more,
record numbers of consumers are filing for bank-
ruptcy. Whether your debt dilemma is the result of
an illness, unemployment, or simply situations that
were completely out of your control, it can seem
overwhelming. And, although bankruptcy is one
option - it's generally considered "the option of last
resort." The decision to file bankruptcy is one that
should be thought out very carefully. The reason:
it has a long-term negative impact on your credit
worthiness. A bankruptcy stays on your credit report
for as long 10 years, and can hinder your ability to
get credit, a job, insurance, or even a place to
live. Unfortunately, many people learn only after
filing for bankruptcy thatthere are associated pit-
falls and long-lasting negative effects. There are
different types of bankruptcy, each having its own
guidelines and limitations. Financial circumstances
often prohibit consumers from instantaneously
eliminating all of their debt.
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The Process of filing Bankruptcy
Title 11 of the U.S. Code governs bankruptcy proceedings and if you choose to file
for bankruptcy this information will be made available through public records. In
a bankruptcy proceeding, you must file a bankruptcy petition, complete schedules
of assets and liabilities, and prepare a statement of financial affairs. These forms
require you to list your property and account for recent sales of personal property.
They also require you to list your income and all debts owed, and to account for
any money that you spent during the two-year period prior to filing. Court costs
are in addition to your attorneys fees and are approximately $175.
The Lingering Effects of Bankruptcy
Though bankruptcy may be a very good solution to a severe financial problem,
filing carries negative effects that follow the debtor. For example: the debtor may
lose property that is non-exempt (unprotected). In addition, the bankruptcy will
appear on your credit report for no less than seven years depending on which type
of bankruptcy is filed. Chapter 7 will normally be reported for 10 years because it
does not involve any form of repayment program to creditors and debts are
completely discharged. Chapter 13 on the other hand, implements a payment
plan and although it carries less of a stigma, it will remain within your credit report
file for 7 years. Filing bankruptcy carries a negative stigma because it suggests that
an individual does not know how to manage their funds or live up to their
financial obligations. However, bankruptcy gives the debtor the ability to "wipe
the slate clean" and get a fresh start. The after-effects of bankruptcy are severe,
and require re-establishment of creditor confidence, which often takes time to
establish. Overall, bankruptcy may be a relatively quick and easy solution to
financial woes, but it is also a quick way to severely damage credit. Repairing
credit often requires a considerable amount of time and there is no simple
solution to damaged credit.
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In Chapter 7 cases, the debtor is required to attend at least one meeting of
creditors, during which the debtor may be required to give sworn testimony about
their finances by the bankruptcy trustee and the creditors. In Chapter 13 cases, the
debtor may be required to attend multiple meetings with the creditors to work out
a repayment program in detail. Also, if creditors are in disagreement with the
debtor’s listed assets, a valuation hearing may be required.
During a bankruptcy proceeding, if a creditor suspects that a consumer is
withholding information, or that assets have been hidden or transferred to other
individuals, the creditor is entitled to question the debtor at the meeting(s) of
creditors. The creditor also reserves the right to file an adversary proceeding if they
feel that a claim is non-dischargeable. Typically, a creditor will file an adversary
proceeding against claims involving criminal misconduct, such as debts incurred on
the basis of fraud, larceny, breach of trust, or embezzlement. Debts from willful or
malicious injury to another person or their property may also be non-dischargeable.
The creditor may also file an adversary proceeding against damages arising from
drunk driving obligations. The trustee will be particularly interested in determining if
the debtor/filer is attempting to abuse the bankruptcy system and will be
examining the following:
If a debtor is found guilty of misconduct, their debts will not be discharged.
Additionally, the trustee may attempt to recover any assets that were transferred
out of the debtor’s name and may continue the liquidation of assets for the
benefit of the creditors.
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