Bankruptcy Smackdown
By Drew Johnson on Wednesday, September 26th, 2007 :: 11:14 amCategory: Drew's Corner
In one of my recent posts, I discussed why doing nothing is the wrong “solution” for your high-interest debt. Doing nothing (that is, just paying the minimum balance and continuing to use your credit cards) will leave you paying on your debt for decades. DECADES. Don’t do nothing, do something.
Another alternative to debt consolidation I’d like to discuss is bankruptcy. This option has been available for a long time, but just recently new bankruptcy laws made it much more difficult to accomplish the freedom from debt it used to offer.
Before 2005, just about anyone in a huge amount of debt could file bankruptcy and essentially walk away from their creditors. Not so anymore. The new laws enacted in 2005 require debtors to do two things:
- Pass a means test. Basically, if you earn the median income for your state, you can’t file bankruptcy. You will have to complete a court-ordered repayment plan to pay back a large portion of your debts.
- The second requirement is court-ordered credit counseling. This process involves working with a court official to examine your finances. This person will be in charge of selling some of your stuff (if you have nice stuff to sell) to help repay a portion of your debt. This person will be all up in your face, examining your business, looking for a way to get you to repay your debts.
What’s it all mean?
This all adds up to one thing: bankruptcy ain’t as easy as it used to be. Nowadays, to file bankruptcy you’ll have to work hand-in-hand with a government bureaucrat before you can even think about getting rid of your debt. This person will be in your house, in your life, and doing their best to keep you from filing bankruptcy.
The last thing I’ll discuss is the effect attorneys have on bankruptcy. I’m not a huge fan of attorneys, though I was very, very close to becoming one. These guys, often enough, prey on the weakness of others to make their living. The new bankruptcy laws have driven up the need for attorney guidance, as the process has become more difficult and time consuming. Basic economics dictates: increased demand for attorneys equals decreased supply of their services equals increased prices for their services.
Attorneys have always been expensive, but now they are even more so as potential bankruptcy filers are clamoring for their services.
So, unless you are certain that bankruptcy is the best way for you to get rid of your high-interest debt, keep looking for a better solution!
Author Bio: Drew Johnson is an expert in the various methods of debt reduction and has successfully reduced his own debt. Read additional articles by Drew on Debt Management, Credit Management and more.
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