Chapter 13 Bankruptcy: It Isn’t What it Used to Be

Countless consumers throughout the nation feel like they are drowning in debt. Many of these Americans are stretched so thin that bankruptcy seems to be their only escape.

Despite the 2005 passage of a law that made it more difficult and expensive to file for personal bankruptcy, the number of bankruptcy filings remains astronomically high. In 2007, 822,590 Americans filed for personal bankruptcy according to the Administrative Office of the U.S. Courts. That’s up 38 percent from 2006.

The bankruptcy debate
Bankruptcy cases have been steadily increasing over the past 30 years, and there is a lot of debate about what has caused the trend. Some lawmakers point a finger at credit card companies, saying they use unethical and aggressive marketing tactics. Others say too many debtors are simply abusing the system. No matter what the reason, an increase in bankruptcy leads to rising consumer-credit interest rates.

In an effort to discourage consumers from abusing the system, the federal government passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This 200-page law, which took effect in October 2005, radically changed many aspects of personal bankruptcy filed under both Chapter 7 and Chapter 13 rules.

Understanding the current law
If you are considering filing for Chapter 13 bankruptcy, it’s important to know all the facts about current bankruptcy law. Since the passing of the 2005 bankruptcy law was passed, the rules have radically changed.

Before the 2005 law was passed, consumers who filed for Chapter 13 bankruptcy were allowed to retain their property and pay off their debt through an extended payment plan. While a Chapter 13 filing did not offer the “fresh start” of a Chapter 7 bankruptcy, it did allow the consumer to hold onto their property and often resulted in the elimination of a portion of the debt.

Under the current rules, only consumers with an income below their state’s median income (after deducting allowable expenses) are permitted to file for Chapter 7 bankruptcy. Those who do not fall into this category must file for Chapter 13.

Additionally, each consumer who seeks bankruptcy relief is required to obtain credit counseling and budget analysis from an approved, non-profit credit counseling agency—before filing their paperwork.

Know the Chapter 13 rules
The bankruptcy game has drastically changed since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Here are a few of the major changes that took effect under the law:

1. In the past, Chapter 13 filers made payments on secured loans, such as a car loan, for three years. Any amount the consumer still owed after the three year period was discharged. This was called “stripping down.” However, under the current rules, the “strip down” period is now five years. This means those who file for Chapter 13 bankruptcy will have to pay more on secured loans.
2. Under the current rules, the entire remaining balance on a secured loan must be targeted for pay-off, even if the loan amount exceeds the value of the collateral.
3. Loans for motor vehicles purchased within 910 days of a Chapter 13 filing must be paid in full.
4. All Chapter 13 filers must complete a personal finance management course before any debts can be discharged.
5. The Chapter 13 filing will not be accepted if the debtor has filed Chapter 7, 11 or 12 within the previous four years.
6. Debtors cannot file for Chapter 13 until they have filed all their tax returns.
7. If a consumer is facing eviction proceedings before he filed for bankruptcy, he will not receive any relief from these proceedings after filing.

Considering these severe Chapter 13 rules, many consumers struggling with debt are turning to consolidation loans instead. A consolidation loan allows a consumer to roll multiple payments into a single payment. As a result, these loans can help reduce the debtor’s financial stress and make the debt more manageable.

How iCreditCentral can help
If you are facing the threat of bankruptcy, turn to iCreditCentral for superior debt consolidation services. Regardless of your credit rating, iCreditCentral offers solutions for all of your debt problems—even if you have past bankruptcy.

We can assist you in consolidating your debt by reducing your monthly bills into one convenient payment. We can also help you dramatically reduce your overall interest rate and monthly payments, which will allow you to pay off your debt in time.

Avoid bankruptcy and put an end to your debt issues. Learn more about our exceptional debt consolidation services today.

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