What to do when debts get out of control.

Just the word “bankruptcy” can conger up all sorts of negative euphemisms. However, sometimes we have no other choice. Because so many individuals and families have been using this type of debt eradication over the past years though, the courts have made bankruptcy a significantly more difficult process. The stigma still applies, unfortunately, but if you have no other option and are certain you are totally unable to repay your debts, bankruptcy might be the only way to go.

Because bankruptcy has exponentially increased in numbers in the past ten years, new and more stringent laws were enacted in October 2005 making it much more difficult to file for any type of bankruptcy at all. What does this mean to you? It means you no longer are the sole decision maker in what type of bankruptcy protection you file for, and you most likely will need to repay a good portion of your debt no matter what.

When thinking about bankruptcy, you do have control over what debts you would like to have considered on the petition. Bankruptcy doesn’t mean you are looking to discharge or include every debt you have. For instance, you may decide that you will continue to pay for your car each month. This will show as a regular account in good standing on your credit report (although the ultimate bankruptcy will still show), and you will not be in danger of losing the car through repossession. You might also decide to keep one particular credit card. Again, this will be reported as an account in good standing as long as you keep paying it (because it’s not involved in the bankruptcy petition you can use it like you always have).

Long gone are the days when you decide you can no longer pay your bills and then hire an attorney to help you get these debts discharged. Nowadays you must first find an attorney to even represent you. Their fees have increased because they now are required to do much more than prior to October 2005. Previous to this, they simply showed you how to fill out a multitude of forms and then arranged a court date where you would sit for a few minutes with a court appointed bankruptcy advisor who asks you a few simple questions and then signs off on the petition. You would then get your final discharge in the mail a few weeks later.

The new law dictates that your petition depends on your income. People with “high incomes” – determined by the “mean” figure in your actual city – will indeed be forced to pay back a large portion of their debts under Chapter 13. The amount is determined by the court. Not only does the court dictate how much and how soon, your actual income is now managed by the court in a way. Before, if you willingly filed under Chapter 13, you paid your normal expenses (rent, car, insurance, food, etc.) and then what was left over went to your debtors.

Post October 2005, this no longer works. You now must work under a plan where your “expenses” are dictated by IRS code. You may have an expense such as repaying a loan to your brother in law, but since this isn’t a recognized expense by the IRS, this amount will not be calculated in your debt repayments. Not only that, but the money you were paying your brother in law for the loan will now be used for approved expenses and creditor payments.

There are certain situations where the court will agree to a Chapter 7 filing. In situations that involve permanent disability which leaves high debts, or what appears to be a permanent loss of income such as the death of a spouse, the courts might be more lenient in how to pay off or discharge your debts.

It is a known fact that courts are quite strict when it comes to dealing with bank defaulters and Chapter 7 is out of the question in precarious situations but still there is the underlining fact that you don’t have to reach the level of being bankrupt if you are more careful with your expenses and make a lot of savings. If not then you won’t have a choice than to wait for someone to ask you whether you need a San Diego bankruptcy lawyer? for yourself to help you out of this mess.

Any bankruptcy will remain on your credit report for ten years. Before making this drastic decision, check with a credit counseling firm to see if they help consolidate payments, reduce interest rates, and somehow devise a plan you can work with. In the end, it could be identical to the payment plan a court mandates from you, and you will have control over your income and expenses as opposed to the court order you would end up with in a bankruptcy.