New Bankruptcy Law Check Up
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) contains many new provisions, some of which may make it more difficult for some individuals to qualify for bankruptcy protection. Accordingly, before you decide to file for bankruptcy—and remember that a bankruptcy filing stays on your credit record for 10 years—you should do a check up of your financial situation to see if bankruptcy is right for you.
The first thing you should do is take a look at the type of debts you have. Most child support, alimony, tax and student loan debts are non-dischargeable in bankruptcy, and you will still have to repay them even if you file for bankruptcy. Accordingly, if the majority of your debts are these types, bankruptcy may not be right for you.
The next thing you should do—whether or not you’re even considering filing for bankruptcy—is to try to get control of your financial situation. This can include some or all of the following steps:
Organize your financial records.
Under the new bankruptcy law, you will be required to provide a detailed statement of your income and expenses in order to file. Accordingly, it is critical that you keep track of all your bills, pay stubs, and other important financial documents. Even if you choose not to file, you’ll need this information to get a handle on controlling your spending and starting to live within your means.
Get a credit report.
It’s always good to know what your credit rating is; if you are in financial trouble, and are looking to consolidate your debt, it is critical. Everyone is now entitled to one free credit report each year. You can get yours online at
www.freecreditreport.com.
Make a budget.
Whether or not you decide to file for bankruptcy, you’re going to need to control your spending. You can start this process by creating a budget. After you get all your financial records together, spend a little time analyzing what you’re making and what you’re spending. Once you do this, you’ll probably find that you’re spending more than you’re making. If so, look for ways that you can cut down on your expenses—either by cutting out non-essential items or spending less on things you can’t live without.
Cut out credit cards.
Other than unforeseen events, such as a job loss or illness, the reason why most people get into severe financial difficulty is because of excessive credit card use. Accordingly, if you can, take out a strong pair of scissors and cut up your credit cards, and start paying for things with cash.
Change credit-card companies.
If you simply can’t get rid of your credit cards, shop around for a card with better terms—such as a lower interest rate or less drastic penalties for late payments. You may also be able to negotiate a better rate with you current card issuer. It doesn’t hurt to ask.
Raise cash and create an emergency fund.
It may be painful, but if you are in a crisis, you may be able to liquidate things lying around your house for cash (books, old clothes, etc.) and use the proceeds to pay down your debt. If you can, try to set up an emergency fund of a couple of month’s worth of expenses—this will help you get through unexpected emergencies without going any deeper into debt.
Consult a bankruptcy attorney.
If you think there’s even the slightest possibility that you might want to file bankruptcy, consult an attorney—not just any attorney, but an experienced bankruptcy attorney. Most reputable bankruptcy attorneys will give you a free initial consultation, so it won’t cost you a penny to meet with an attorney to get answers to your questions. And make wise use of this consultation. If you gather your records and follow all the steps listed above, your attorney will be able to give you a good idea as to whether bankruptcy is right for you, or whether a non-bankruptcy alternative may be a better choice.
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