Last year over 1 million Americans filed for personal bankruptcy. Due to the revised Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, you must attend counseling sessions prior to your bankruptcy being approved. Bankruptcy filers must show proof that there is no other alternative but to file for bankruptcy. The filer's income is compared to the median income in the filer's state of residence. If the filer's income is above the median and is able to pay at least a minimal amount per month to creditors, the filer cannot file for bankruptcy.
The filer's personal finances are also reviewed including living expenses. The Act only allows filing of Chapter 13 bankruptcy once every two years and filing of Chapter 7 bankruptcy once every eight years. The filer must live in their state for 720 days prior to filing for bankruptcy.
The disadvantages of filing for bankruptcy are:
1. You no longer have control over your finances – a trustee is appointed to oversee your finances
2. You now have bad credit
3. If will be difficult to get approved for a loan or credit card
4. If you own a house or are paying off a house, your title may be transferred your trustee and the property may be sold to pay your creditors
5. It will be harder to rent an apartment, house, etc.
6. You must get the permission of the Federal Court or your assigned trustee to travel overseas
7. If may be harder to get hired for a job
8. Chapter 7 bankruptcy stays on your credit report for 10 years
9. Chapter 13 bankruptcy stays on your credit report for 7 years
Bankruptcy should be a last resort. Contact a professional credit counseling agency or certified financial planner to help you develop a plan to pay off your debt to prevent filing for bankruptcy.
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