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Insolvency - The Closing Chapters

Insolvency - The Closing Chapters
"Too many debtors wait until it's too late to investigate the bankruptcy option, despite its far-reaching consequences, which include social stigma, a drop in FICO scores, and damaging notations on credit reports for up to ten years. As important as it is to avoid bankruptcy if another option, such as debt settlement, is available, anyone with credit-card or mortgage payments - or anyone facing potential medical bills or sudden unemployment, or anyone, really - should understand what bankruptcy entails and the alternatives available.

For our purposes, Chapter 9 (a form of municipal reorganization; it's generally for governmental utilities, though Orange County, California was forced to declare Chapter 9 in 1994 to adjust debt-load), Chapter 11 (a corporate plan that allows business owners to maintain control of the company while re-structuring debts and promising to re-pay bills through future earnings), and Chapter 12 (similar to Chapter 11 but only pertaining to the re-organization of tax-exempt organizations) are the relevant chapters. Despite the fact that only a small percentage of individuals file Chapter 11, the overwhelming majority are attracted to only two aspects of bankruptcy protection.

With a few notable exceptions, Chapter 7, which most people simply refer to as bankruptcy, eliminates all unsecured debts (with the exception of mortgages and auto loans, assuming the value of the assets is below a certain threshold minus the debt balance; this varies by state). Income taxes owed for more than three years, child and spousal support, virtually all types of student loans, and court-ordered restitution for criminal proceedings - all of these are deemed non-dischargable by the government, and if they constitute a significant portion of the consumer's debt, they will likely not qualify for Chapter 7 protection. However, even in the best-case scenario, the court trustee is authorized to sell the majority of the filer's personal property to repay creditors, and the bankruptcy will be recorded on the debtor's credit report for up to ten years, which is often calamitous. Numerous employers inquire as to whether an applicant has ever declared bankruptcy.

Chapter 7 bankruptcies, despite their disadvantages (the debtor faces the loss of a lifetime's possessions and future credit problems as a result of the bankruptcy designation), are by far the preferred option for those who are compelled to file. Despite the long-term devastation, the majority of unsecured debts would be eliminated. Unfortunately, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has made it much more difficult for borrowers to qualify for Chapter 7 protection. With the new'means test' requiring filers to earn less than arbitrarily-calculated living expenses after the repayment of debts (and potential sanctions, including fees to reimburse court costs) for attempting to file for Chapter 7 bankruptcy, many debtors avoid the option entirely if they are unsure of their income or fear losing their property.

Chapter 13 bankruptcies differ significantly from Chapter 7 bankruptcies. They are intended to be less of a debt liquidation and more of a court-ordered restructuring of debt burdens resembling corporate reorganizations. Instead of eliminating debt balances, the trustee presents creditors with a three- to five-year payment plan in which at least half of the debts are still repaid. Depending on the specifics of each debtor's finances, the courts may determine that the borrower is responsible for the totality of his debts while still experiencing the negative effects of bankruptcy on his credit report and FICO score!

It has never been as simple to declare bankruptcy as the media would have you believe, but many debtors today will do anything to avoid Chapter 7 or Chapter 13 bankruptcy protection. Considering the lingering negative credit repercussions and potential loss of property, Chapter 7 can have traumatic effects on even those 'lucky' enough to qualify, whereas Chapter 13 no longer provides a guarantee of debt liquidation, despite the fact that debtors are still required to adhere to a court-ordered budget. For these reasons, an increasing number of Americans are investigating debt settlement as a method for avoiding the hazards of bankruptcy. Up to half of consumer debts are still liquidated, but without the stigma of bankruptcy or the danger of government seizure of property. Certainly, it is something that everyone with a debt burden that is spiraling should consider as an ever-more-realistic alternative - another chapter, really - in the fight against debt.""

" - https://www.affordablecebu.com/
 

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"Insolvency - The Closing Chapters" was written by Mary under the Finance / Wealth category. It has been read 203 times and generated 1 comments. The article was created on and updated on 03 June 2023.
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