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Bankruptcy

According to the U.S. Supreme Court, in a comment on bankruptcy law regarding Local Loan Co. v. Hunt in 1934: It gives to the honest but unfortunate debtor...a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. However, bankruptcy should be considered a debt management option of last resort because the results are far reaching and long lasting. The record of a bankruptcy can remain on a credit report for up to 10 years from the time it is discharged. This can make it difficult to purchase a home or be approved for credit; it can even make it more difficult to obtain insurance and get a job.

It does not help to see one of the most visible billionaires, Donald Trump, declare bankruptcy on his Atlantic City Casino business... For the third time now. This lends a kind of justification to bankruptcy discharge... "If Donald Trump can do it, so can I." But, this is not a useful way of thinking. As a result of the perception that bankruptcy laws were being abused, they were reformed in 2005. As a result of the changes, people filing Chapter 7 Bankruptcy must now wait 8 years after it is discharged to file again. And, whether filing for Chapter 7 or Chapter 13, the bar has been raised to include hurdles that have to be cleared before filing. Now you must go through a government approved counselor within 6 months before filing, and before filing Chapter 7, you must pass means testing to prove your income does not exceed a certain amount.

All of the regular protections afforded by bankruptcy are sill intact for the time being. Unsecured debt is eliminated, and bankruptcy can stop utility cutoffs, foreclosures, repossessions, and garnishments. Liquidation of certain assets will be required, varying by state, and certain types of debt can not be discharged. Child support payments, taxes, fines, and some student loans are exempt from bankruptcy. And, Chapter 13 usually does not allow you to keep a home that has mortgage liens on it.

The bankruptcy laws have certain definite advantages, but given the financial turmoil it can cause, it is best to employ other methods to regain financial stability. In fact, with the 2005 amendments to the bankruptcy laws, you will have to explore those other options with a government approved counselor before proceeding. So, it would be to your greatest benefit to educate yourself about alternatives to bankruptcy before going down that path.