Truth About Bankruptcy

• "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!"

If you accept such ads you will most often discover later that such phrases often involve bankruptcy proceedings, which can hurt your credit and cost you attorneys' fees. But long before any talk of bankruptcy you should be talking to your creditors to see if any arrangements can be made to lower interest, extend payments, skip a payment, or many other options. You should also be considering a credit or debt counselor. In fact, the new bankruptcy law requires scheduling counseling before filing. [At present the New Bankruptcy Law is in the Senate for fine tuning but once signed, it will become effective in 180 days.]

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. The current filing fees are currently $160. Attorney fees are additional and can vary widely. The consequences of bankruptcy are significant and require careful consideration.

Chapter 13 allows you, if you have a regular income and limited debt, to keep property, such as a mortgaged house or car, that you otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to pay off a default during a period of three to five years, rather than surrender any property.

Chapter 7, known as straight bankruptcy, involves liquidating all assets that are not exempt. Exempt property may include cars, work-related tools and basic household furnishings. Some property may be sold by a court-appointed official-a trustee-or turned over to creditors. You can receive a discharge of your debts under Chapter 7 only once every six years. Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities.

Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.

You should be aware that any co-signor automatically becomes liable for the full amount of a co-signed debt. If this is not what you intend, you should not file or you should make arrangements with the court for repayment. But even debts you do not want included (such as a loan from a friend) must be included since the court does not accept any partiality.

You cannot claim any credit debts recently incurred. Visa states that at least 30-40& of its losses due to bankruptcy are fraudulent and will not hesitate to yell fraud to the court. Therefore, if you plan a trip around the world and then declare bankruptcy, think again. You should also be aware that bankruptcy will remain on your credit report for 10 years and when seen by a potential creditor will lower your credit score thereby increasing the chance of higher interest rate.