Chapter 13 and 7 New Laws Change Rules Credit Counseling Services
Required How to Choose a Non-Profit Company
May 31st 2006
There are two types of bankruptcy for consumers facing financial
trouble, Chapter 13 and 7. The new bankruptcy laws have made it more
difficult for consumers to file 7, which allow you to start over by
erasing your debts with the exception of back taxes, child support,
alimony, and most student loans.
According to the Financial Planning Association (FPA), the court is
allowed to sell off most of your assets except for certain exempt
assets. The states determine what is exempt, but generally your home or
at least some of its equity, clothing, a car, furnishings, life
insurance (though not necessarily all the cash value), pension assets,
and tools of your trade are exempt.
By making chapter 7 more difficult, more consumers are force into
chapter 13. Consumers looking to file under chapter 7 must meet strict
income means testing and tighter expense and homestead-exemption
standards. Courts will have less discretion about deciding which
Chapter a consumer can file.
There may be some things you should do before you decide to file for
bankruptcy. CERTIFIED FINANCIAL PLANNER professionals recommend that
consumers explore alternatives including cutting expenses. The FPA says
pare down your expenses to the basics: food, housing, car payments,
insurance, and so on. Forget the new digital music player, designer
clothes, dinners out, vacations.
It is recommended you boost income. Maybe sell some of your possessions
and put the money towards the debt. You will likely have to sell the
stuff when filing Chapter 7 anyway.
Check your expenses. Can you save money by switching automobile
insurance companies? Also consider cutting some of the TV channels you
receive from cable or satellite. Start eating at home more.
Stop using the credit cards. You may want to call your credit card
companies to see if they will give you a lower rate. It may help to
talk to the supervisor and maybe even threaten to take your debt
elsewhere as a last resort.
The new bankruptcy laws require credit counseling before filing for
bankruptcy. In some instances this may help prevent a filing. They can
help find ways to reduce your debt and may help with lenders to
consolidate all your loan payments into a single payment. Be careful
though, according to the FPA some counseling services use unscrupulous
practices that actually make matters worse for consumers, according to
Congressional investigations, so be sure you choose a reputable
nonprofit counseling service.