Be sure you retain a bankruptcy lawyer. These lawyers know the ins and outs of bankruptcy laws in your state and will be able to guide you through the fine points of bankruptcy laws far beyond the basic overview of this article, file all the correct paperwork, and most of all work with your creditors and the bankruptcy judge.
Your bankruptcy lawyer will be the one point of contact for your creditors. Once you file for bankruptcy through your lawyer, he or she sends a cease and desist order to your creditors. Bankruptcy laws require that once these papers are filed, your creditors deal solely with your lawyers and quit calling you.
Another consumer-friendly aspect of current bankruptcy laws is the option in chapter 7 to liquidate or reaffirm your debts. When you reaffirm, it gives you the chance to keep your house, car or other collateral. If your lawyer draws up a reaffirmation agreement for a collateralized loan that says you will continue to pay on the note, and you sign it, the loan will continue under current bankruptcy laws as though nothing happened. The creditor will not repossess the collateral.
Bankruptcy laws also provide a “stay” for consumers in chapter 7. In most states’ bankruptcy laws, this means the creditor cannot repossess the collateral on the loan for 30 to 45 days. This gives you a little breathing room to decide whether you will reaffirm the loan or liquidate. Bankruptcy laws give the creditor the option to apply for a lifting of the stay if they believe the collateral will be worthless after the stay time. (For example, a consumer maliciously decides to total a car before it can be collected.)
Consumers also benefit from bankruptcy laws in chapter 13 with the “cram down.” In this instance, if you have a $10,000 loan out on a vehicle that only has a $6,000 blue book value, the bankruptcy judge may decide to cut the amount you owe your creditor to $6,000.
Bankruptcy judges can also offer you the option of a payment plan under chapter 13 bankruptcy laws. The judges can lower your principle and/or interest rates, which is a big benefit to you, the consumer.
With current bankruptcy laws, most unsecured loans (loans without collateral, such as credit card debt, personal loans, medical bills, etc.) will be “charged off.” Bankruptcy laws will not require you to pay these debts if your creditors charge off your account.
Another way bankruptcy laws work in your favor is a loophole in the filing process. You are only allowed to file for bankruptcy once every seven years, but if you first file for chapter 13 and try to pay off your creditors and absolutely cannot, bankruptcy laws allow you to re-file for chapter 7 before the seven year time span is up.
It is up to each separate creditor to look at bankruptcy on your file and make a decision when you apply for credit later in your life. It will stay on your credit report for at least 10 years. Because you can only file for bankruptcy every seven years, theoretically, if you filed for bankruptcy two years ago and apply for a three-year loan and have “kept your nose clean,” a creditor may be willing to extend credit to you because you would not be a bankruptcy threat for at least another five years.
On the whole, bankruptcy laws are becoming more consumer-friendly and less creditor-friendly. Although this is happening, be extremely cautious in deciding whether to file for bankruptcy or not. Bankruptcy has heavy ramifications on you, your family, your financial standing, your credit and your creditors. Consult a bankruptcy lawyer and be sure you are fully aware of all your options. You have other avenues, such as consumer credit counseling services. Be sure you exhaust every other alternative before deciding to file for bankruptcy.
By D. Blair Thompson