Since then, the economy has dramatically declined. With the massive amount of foreclosures and the collapse of securities, bankruptcies are on the rise again. Records show that in 2008, there were approximately 1.1 million cases filed in the US, up 32% from the year before. But because of the changes in the laws, Chapter 7 may not be a viable option for many who previously qualified.

Does this affect your eligibility for filing Chapter 7? Or will you be required to file Chapter 11 or 13? Here are some of the biggest changes in regards to filing Chapter 7:

Restrictions on Time for Filing

You will not be eligible to file for Chapter 7 if you have filed and received a Chapter 7 discharge within the last 8 years.

Credit Counseling

It is now a mandatory requirement in filing bankruptcy that you meet with a federally approved credit counselor within the first six months of filing, as well as attending a money management course within the district in which you are filing. Most all courses are available online.

Stricter Exemptions for Homesteads

The old laws allowed for protection on the equity in your home based on the state in which you filed. The new laws are more complicated, and require an analysis of where you lived for the majority of the 180 days before filing, how long before the filing the home was acquired, and if you have violated any securities laws or been involved in criminal activities.

The Means Test

According to the new laws, filers must submit to a means test to determine eligibility for Chapter 7:

• Income less than the state’s median levels automatically allows for filing Chapter 7.
• Income greater than the median income requires a further test to see if your “disposable income” is excessive. If it is determined that the disposable income can be projected over the next five years to be more than $100 per month, you cannot quality for Chapter 7.
• If it is determined that disposable income over the next five years will be greater than $10,00 or more than 25% of the unsecured debt to be discharge, one remains ineligible for filing Chapter 7.
• As a last resort, if filers can prove “special circumstances, eligibility may still apply even though you fail the means test.

In order to qualify for a discharge under Chapter 7, the applicant must meet several key criteria.

• You can only apply to discharge your debt once every nine years.
• In accordance with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, any one applying for and receiving a bankruptcy discharge must participate in a money management class.
• You must not have a past that includes dishonest filings, poor record keeping, ignoring of court orders or fraudulent transfers. Any of these incidents will make it likely for the court to refuse your request for discharge.

Once your discharge is granted, you will be offered protection in several forms.

• Legal action regarding your debts and their collection must cease.
• Your debtors must stop contacting your via mail, phone or other form for each debt that was covered by the discharge.

There are several things that a discharge does not do. First, the debt does not disappear after the discharge. While the company to which the debt is owed must cease collection activities against you, that protection is not offered to anyone who has co-signed or guaranteed the loan. The company to whom the money is owed can go after them to recover the debt.

Bankruptcy discharges do not cover liens, so it is important to keep in mind any outstanding liens. For example: if a debtor had used a car valued at $3000.00 to secure a loan in the amount of $7000.00 but left the loan unpaid, they can include the $7000.00 in their request for a discharge. While the discharge may be granted, the ‘security’ used by the debtor, the car, is not protected and can in fact, be repossessed. In this case, the debtor is only protected for the difference between the original loan and the security or $4000.00.

It is also important to remember that a discharge can be revoked. There are several causes for revocation, generally involving dishonest behavior by the debtor. The court will reverse a discharge decision for several reasons.

• A trustee or creditor asks the court to revoke the discharge.
• Pertinent information was omitted or purposely misstated during the audit portion of the case
• The requestor did not provide information to the trustee regarding property they had acquired
• The debtor lied or used other fraudulent methods to qualify and receive the discharge.

A bankruptcy lawyer can help allay your fears and confusions about the dizzying process of deciding whether to file for bankruptcy, as well as guide you through the process itself, making both less painful. You can contact their offices directly to ascertain the best course of action in your case. In the meantime, study more on your own about Chapter 7 bankruptcy, in order to better understand the process, and help yourself through this tough time.

The idea behind Chapter 7 bankruptcy is to relinquish the debtor of overburdening assets as well as debt in order to give the debtor a “fresh start.” This fresh start comes with some drawbacks, however. Most importantly, a bankruptcy remains on your credit report for nearly a decade. In Chapter 13 filing, the record is affect for seven years. Regardless of how long your credit is affect for each of the two bankruptcies, you will always be stuck with the fact that you filed for bankruptcy. This means that whenever you need a loan or a new job, and must fill out an application, you will have to state (if asked) against the threat of federal imprisonment, that you were at one point officially, legally bankrupt. For these serious reasons, as well as the fees involved and the lengthy meetings, assessments, and paperwork, you should think very hard on whether to file at all, and what your other options are. The lawyers at David B. Shaev can help you sort through this morass and decide what’s best for you.

More specifically, in a Chapter 7 bankruptcy a trustee “gathers” the debtor’s assets to sell them in order to pay back the creditors. Some of the debtor’s property may be claimed by other creditors through liens or mortgages, furthermore the Bankruptcy Code includes a list of exempt assets the debtor can keep, but the trustee will liquidate the rest. Therefore, Chapter 7 Bankruptcy means the debtor will most likely lose property.

Exemptions are different for different states as well as for the federal standards. The debtor has the power to choose whether to apply his or her state’s exemption guidelines or the federal guidelines. Choosing which is another boondoggle, and best made through the consultation of an attorney. Again, at David B. Shaev, one can receive a free consultation without any obligations.

Here’s a brief (non-exhaustive) list of what debtors usually have to forego in Chapter 7 bankruptcy:

• Any vehicles owned beyond one
• Investments, stock, bond, CDs, Savings
• Expensive Collections
• Family Heirlooms with resale value

Exempt assets, meaning property the debtor will be allowed to keep, include:

• Necessary items for the debtor’s livelihood, such as musical equipment for a professional musician or crafting supplies for a carpenter
• Necessary clothing, housing supplies, vehicles
• Medicare or Medicaid benefits, Social Security, or VA benefits
• Pensions

You should and will have many questions about filing for a Chapter 7 bankruptcy. It is not a decision to be made on your own. Call me for a no fees, obligation-free talk on what’s the right step for you on the road back to financial health.

The first mistake some debtors make is to liquidate all their monetary assets prior to filing. They may cash in an IRA, or a 401(k). Many don’t realize that in many cases, retirement assets are protected from bankruptcy, and by forfeiting them, you may give up your future security. Avoid this by considering bankruptcy before you resort to using any retirement funds.

Retirement funds may be exempt from bankruptcy liquidations

You may have to liquidate some monetary assets during a bankruptcy, but in general, retirement funds are safe from creditors during a bankruptcy. Don’t fall into this common mistake by withdrawing any retirement money before maturation.

Debt Management (without a lawyer’s help) may be a mistake

Debt management companies are often a big mistake for people who are unfamiliar with the bankruptcy process. Debt management companies may seek to profit off you by misleading you about the difficulty of handling your debt. Even worse, it’s not unheard of for debt companies to restructure your debt, and then take your money and never pay creditors. Act with extreme caution with these companies.

An experienced bankruptcy attorney can help you. Allow a knowledgeable attorney to work with both the debt management firm and your creditors if you decide to go with a debt management company. This will ensure that you protect yourself, and that the company actually follows through with the structured plan.

Keep transfers legal during the bankruptcy process

One common mistake that debtors declaring bankruptcy can make is in transfer fraud. It can be very tempting to give assets or valuable to friends to protect them from being seized during a bankruptcy, but this is against the law, and will likely be discovered. This kind of fraud also includes selling items far below their worth. Work with a bankruptcy lawyer when making any transactions to ensure that you do everything legally. Some kinds of transfers are acceptable, and it’s important to know which these are.

If you’re making a transfer in good faith, or through a normal business transaction, then you are protected from claims of fraud. If you are accused of fraudulent activity, however, your bankruptcy lawyer will be able to represent you to defend your case.

Beware Credit Scams

Credit card companies, banks, and predatory lenders may have had a hand in your financial woes. Work with your legal team to make sure that you’re not allowing these financial disasters wreck your chances of having a clean slate.

If you decide to pay-off an old collection account, the “date last active” will change.  The “date last active” is one of many factors used to calculate your credit score. Let’s assume that you have a collection from a past-due medical bill with a “last active” date of 06/02, and a $550 balance.  Since this is an old, inactive account, its effect on your credit score is very minimal.  It’s probably only lowering your score slightly.

Recently active credit accounts play a larger role in your total credit score than very old accounts – even if they are collection items or judgments.  If you decide to pay-off the old collection account, you will bring the “date last active” to the current month.  Your new balance will display $0 as the amount owed – however, since it is a recently active collection item, it may affect your score negatively.  In some cases, a recently active collection account (with a zero balance) is more harmful to your credit score than an old collection item with a past-due balance.

Fair Isaac is the company that manages credit reporting and scoring.  This company claims that adjustments have been made to credit scoring (starting in 2008) that allow you to pay an old debt without any negative movement in your credit score.  Fair Isaac says this is true for lump sum payments only – not for a series of payments over time.  Fair Isaac’s claim is very controversial, and it may not be true for all credit accounts.  Thus, you could pay-off an old collection or judgment, and your credit score may decline.  Consult your credit counselor, financial advisor or attorney before paying-off any past-due accounts with very old “last active” dates.  Depending on the circumstances, it may be better to wait for old collections and judgments to fall-off your credit report.

When considering your options, the first step is to determine whether you can pay down your debts with your current income.  If you can pay down your debts with your current income (or increase your current income), then debt settlement may be the best solution for you.  Next, you will need to determine whether you qualify for debt settlement.  To qualify for debt settlement, you will usually need to have at least $7,000 in unsecured debt.  It’s very important to ask each debt settlement company that you talk to about the minimum debt balance requirements.  Some companies have higher minimum requirements than others.

Choose debt settlement companies that have a strong history of negotiating with creditors.  Ask for references, and compare the services that each company offers. Check the company’s ratings with the Better Business Bureau.  Avoid debt settlement companies with negative ratings and lots of complaints.  If you decide to move forward with debt settlement, be prepared for the potential negatives.  Some potential negatives include: increased creditor phone calls, damaged credit, and possible collection lawsuits from creditors.  If you can’t handle these possibilities, then debt settlement probably isn’t the best choice for you.  Similarly, if you can’t pay off your current debt with your current income, then bankruptcy may be a better choice for you.

When considering bankruptcy, determine whether it will resolve your credit problems.  Depending on the amount and type of debt you have, a bankruptcy won’t always erase your responsibility to pay creditors.  From a cost standpoint, bankruptcy is usually more expensive than debt settlement.  And of course, bankruptcy is the darkest mark you can have on your credit score.  Compared to bankruptcy, debt settlement doesn’t affect your score to the same extent.  Talk with your attorney to determine whether bankruptcy or debt settlement is the right solution for you.

To begin with, there are a number of unscrupulous debt settlement firms.  Some debt settlement firms are deceptive and unethical – while others are outright scams.  Hiring a licensed, experienced attorney can protect you (and your credit) from deceptive companies that take advantage of debtors.  Unlike attorneys, debt settlement companies are not required to be licensed.  This means that anyone can open a debt settlement company, and there is no monitoring or oversight.

Attorneys are also more familiar with the law, as it applies to debt settlement, consumer rights, and legal negotiation.  In comparison, most debt settlement companies are not very familiar with the laws that govern consumer debt, collections, and creditors’ claims.  A bankruptcy attorney is also more knowledgeable about legal guidelines and consumer regulations regarding secured and unsecured debt.

Another reason to hire an attorney is because they are typically better at negotiation, compared to debt settlement firms. Attorneys earn a living by persuading and negotiating – this may include persuading judges, vendors, juries, and clients, among many other groups of people.  As a result, attorneys have developed good persuasion, communication, and negotiation skills.  These skills will be put to good use when settling your debt.  Compared to debt settlement companies, attorneys are also more respected (and feared).  Creditors are more likely to comply with an attorney than with a generic debt settlement company.  Depending on a number of different factors, an attorney can usually reduce your total debt owed by 30-60 percent (sometimes more). Before using a debt settlement company, consider hiring an attorney instead.  Talk to an experienced debt settlement attorney in your area to learn more.

The company’s debt was slashed from over $450 million to just over 100 million  in the bankruptcy proceedings.

Lenders will look for income verification and your down payment, in addition to your credit.  You may be able to qualify for 100% financing if you’ve re-established good credit.  After your bankruptcy has been discharged you can usually qualify as long as most of your payments have been reported to the credit bureaus as having been paid on time.

Do you want to buy a home sooner than two years after your bankruptcy has been discharged?  In this case, you will usually need to have a flawless payment history since the discharge.  You will probably also need money for a down payment.  FHA and VA home loans are another option to consider.  VA and FHA loans can be obtained as soon as one year after filing for either Chapter 7 or Chapter 13 bankruptcy.  In order to qualify to buy a home after bankruptcy, you need to begin rebuilding your credit as soon as possible.  Make consistent on-time payments, and keep your total debt balances less than 50% of your total credit lines.  Focus on paying-off all balances as soon as possible.

Given your history of bankruptcy, lenders will closely look at your debt to income ratios.  Keep a close eye on your total liabilities so that you don’t find yourself with too much debt.  You will need documentation supporting your total monthly income (i.e. paystubs) and bank account balances.  If you are self-employed (and pursuing a full documentation loan), you will need the past two years’ worth of tax returns.  Your lender will calculate how much home you can afford to buy.  Be cautious when buying your home – don’t buy something you can’t easily afford.  You don’t want to end up in bankruptcy again, so make sure you can easily afford the monthly mortgage payment.

Before you visit a car dealer for a car loan, be sure to review your credit report.  Make sure that all accounts that were included in your bankruptcy are showing as closed.  Check to see if there are any errors.  It’s common after a bankruptcy to see open accounts that should be closed.  If certain accounts are being inaccurately reported to the credit bureaus, it may be hurting your credit score.  Large errors on your credit report can prevent you from qualifying for a car loan.

After you’ve determined that your credit report is free of errors, review your budget and determine how much you can spend on a car.  Consider both the term of the loan (how long you will be making payments) and the total loan amount.  When you visit the car dealer and apply for financing, you will probably be asked about any past bankruptcies.  Be honest and explain why you filed for bankruptcy – and the steps you’ve taken to improve your finances.  Be sure to mention any improvements to your credit score.

For the best interest rate, consider using an online car loan lender.  Online lenders work with thousands of loans and can usually give you a better deal than a local car dealership can.  Once you are approved with an online car loan lender, they will send you a check for the total car purchase amount.  You will take this check with you when you visit local dealerships to shop for cars.  This check proves to the local dealerships that you have already been approved for a car loan.  Using these tips, you should be able to get approved for a car loan even with bad credit or a past bankruptcy.