There Is a New Law in Town

Few things feel worse than being against the wall financially.  There is a certain point where there seems to be no way out but to declare bankruptcy and wipe the slate clean.  Declaring bankruptcy, especially Chapter 7, is now more difficult than it used to be.  There is a new law governing bankruptcy application.  S.256, also known as the Bankruptcy Reform Bill, went into effect in October 2005.  The law made bankruptcy counseling mandatory before anyone may file for bankruptcy.  The intent of bankruptcy counseling is to help people see the big picture and to make sure bankruptcy is truly the last resort.  Without bankruptcy counseling, people in the past rushed into this process largely unaware of the implications and the future damage to their credit.  Bankruptcy counseling gives people the chance to proceed armed with knowledge.

 

Bankruptcy counseling educates potential filers of the options that may be tried before taking the drastic step of declaring bankruptcy.  Bankruptcy counseling goes through the differences between the two major types of personal bankruptcies, Chapter 13, which involves a reorganization plan, and Chapter 7, which wipes out debt.  Chapter 13 allows you to  repay all, some or none of your debts, often through the service of a trustee who deals with your creditors.  With a Chapter 7, your assets are liquidated and sold, with the proceeds going to those you owe.  The new bankruptcy law makes it tougher to file chapter 7.  If you can make payments, you must now file Chapter 13. 

 

Bankruptcy counseling goes over the harsh realities of having a bankruptcy on a credit report.  A Chapter 13 bankruptcy stays on a credit report for seven long years; a Chapter 7 remains on for an entire decade.  Ten years is a huge percentage of a person’s life span.  To be carrying the stigma of a bankruptcy that long is damaging financially and emotionally. 

 

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