Filing Bankruptcy - New Bankruptcy Laws Create Confusion For Consumers

Many Americans are filing bankruptcy in hopes of eliminating debts or saving their home from foreclosure. While it is true bankruptcy can offer a fresh financial start, undergoing the process is no easy task. New bankruptcy laws, enacted in 2005, have made filing bankruptcy complicated and confusing.

For most people filing bankruptcy requires legal assistance. When possible, it is a good idea to interview three or four bankruptcy lawyers. Most law firms offer complimentary consultations to review financial information and provide advice. Filing bankruptcy can be an emotionally-charged experience, so it is important to work with a lawyer whose personality is complimentary to yours.

Prior to or during the bankruptcy process, debtors are required to undergo credit counseling. The Bankruptcy Abuse Prevention and Consumer Protection Act requires consumers to obtain counseling through a U.S. Trustee Program agency. Credit counseling must take place a maximum of 180 days prior to filing.

Debtors must also undergo the "means" test to determine if they are eligible to file for personal bankruptcy protection. A provision of BAPCPA requires consumers must pay a portion of their debts if possible. The means test is used to determine how much debt will be repaid.

In cases where debtors fall significantly below the median income level of their state, they may be allowed to file Chapter 7 bankruptcy. Chapter 7 involves liquidation of assets and discharge of debts. Otherwise, debtors will be required to file Chapter 13 bankruptcy and repay debts over an extended period of time.

In order to file bankruptcy, debtors must petition the bankruptcy court in the judicial district where they reside. A creditor meeting will be arranged and a repayment plan submitted to the court. BAPCPA requires debtors to pay a substantial amount of disposable income toward repayment of debts. If the debtor is unable to adhere to the repayment plan, they will fail out of bankruptcy and lose protection of the court. Failing out of bankruptcy means creditors can proceed with collection actions including initiating foreclosure.

When homeowners file bankruptcy to stop foreclosure, it is crucial they understand the consequences of failing out of bankruptcy. Mortgage lenders can commence the foreclosure process where it left off when bankruptcy was filed. In many instances, homeowners are only days away from eviction when they file. If they fail out of bankruptcy, the lender can foreclose in a matter of days.

Filing bankruptcy has far-reaching effects and should only be considered when all other debt elimination plans have failed. These might include debt settlement, debt consolidation or credit counseling. Take time to become educated about bankruptcy and fully understand the pros and cons. Look for alternatives that can yield the same results without being as detrimental to your credit.

Simon Volkov is a private investor who offers solutions to people facing bankruptcy and foreclosure. His website offers a comprehensive article library on debt consolidation, credit counseling, bankruptcy alternatives and money management. Learn more by visiting http://www.SimonVolkov.com