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  WINDY CITY TIMES

Bankruptcy can be a new beginning
Special to the online edition of Windy City Times
by Roger McCaffrey
2012-10-30

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With the current economic meltdown, the enormous loss of jobs and the upcoming strain of holiday gift giving and spending, financial budgets are being devastated with more and more couples and individuals seeking the advice of credit counselors. Faced with the possible loss of the car and house and an ever rising mountain of bills, consumers have to consider the advantages and drawbacks of declaring bankruptcy if credit counseling can't resolve the financial problems.

The Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect in 2005, increased restrictions for Chapter 7 bankruptcy filings by applying a "means test" which would disqualify many consumers with higher incomes from discharging their debts. The current income limit for individuals is $46,983, however, those with higher incomes may still qualify for a Chapter 7 bankruptcy if they have other kinds of debt - it's a case by case determination.

Satisfying the means test can be a difficult process, plus filers are also required to seek mandatory credit counseling and provide proof. All the additional paperwork has further complicated the filing process.

A Chapter 7 bankruptcy petition is referred to as a "straight" bankruptcy and is the most common form of bankruptcy. It is sometimes called a "liquidation" because a debtor loses nonexempt property or its value. In a Chapter 7 bankruptcy, your assets, minus those exempted by your state, are liquidated and given to creditors, and many of your remaining debts are cancelled. Since many Chapter 7 filers don't have assets that qualify for liquidation, credit card companies and other creditors can get nothing.

The new bankruptcy act aimed to push more debtors toward Chapter 13 filings, which require them to repay at least some of their debts within five years. A Chapter 13 bankruptcy or "wage earner plan" is different from a Chapter 7 bankruptcy in that debtors under a Chapter 13 plan pay back all or most of their debts over a specified period of time.

The advantage of a Chapter 13 plan is that it permits debtors with substantial property to keep their assets provided they make the payments under the repayment plan.

For those considering it, bankruptcy should always be a last resort, since it can damage your credit for many years, it can show on your credit report for 10 years.


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