Personal Bankruptcy FAQs

What is Personal Bankruptcy?

Personal Bankruptcy is a legal process that enables a debtor to temporarily or permanently avoid paying some or all of their personal debts. The US Congress enacted the current bankruptcy code in 1978, and recently amended it in the spring of 2005.The goal of the legislation is to provide relief and structure to those members of society who have gotten themselves so far into debt they can't possibly make the payments; a fresh start so to speak. Currently their are two forms of bankruptcy that are available to individuals: Chapter 7 and Chapter 13.

If I file will I ever get credit again?

Yes. Banks have become better at working with people who have filed for personal bankruptcy. A new 'secured' credit card can be obtained, where a deposit is made to cover the line the credit. These cards are the beginning of the process of credit restoration. Within as little as two years banks will start to give you credit again. Will my creditors ever stop harassing me? Yes! By law all actions against a debtor must cease when bankruptcy documents have been filed with the government. Telephone calls wage garnishing, and even lawsuits cannot be initiated or continued once you have filed.

Who will know that I filed?

Filing for bankruptcy goes into the public record; however, in practice very few people will know that you have filed for for Bankruptcy. Credit bureaus will keep a record of your filing for 10 years.

Will filing bankruptcy effect my spouse?

In non community property states, your spouse will not be affected by the bankruptcy filing unless they signed to secure any of the debts affected by the bankruptcy. In community property states, either spouse can sign for debt that is then the responsibility of both parties. Unfortunately, this can present a problem in some cases.

What changes were recently made to the bankruptcy laws?

The "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" was passed by congress in Spring of 2005 and will take effect on October 17th, 2005. The intent of the act was to force people who can afford to make some of the payments on their debt make those payments rather than avoid the debt all together. The major changes are:

• Means Test: Tests are performed to identify the ability of the debtor to pay their debts. The tests are: Is the family earning above the average income for their state? If yes, does the family have enough excess income to pay some or all of their debts.
• Proof of Income: Debtors wishing to filing for bankruptcy must provide the government with their most recent tax return.
• State Exemptions: A minimum 2 year residency is required to take advantage of state exceptions.
• Counseling: Debtors must have completed a federally approved credit counseling program within the six months prior to filing.
• Child Support and Alimony: Child support and Alimony payments were moved to first priority when dividing excess income.