Advantages of Bankruptcy

The advantages of bankruptcy give a debtor relief from insurmountable debt that is difficult or impossible to pay. Unlike days of old, there are no debtors prisons in the United States or most of the civilized world. People who do not pay their bills, however, are subject to being named in a lawsuit by their creditor. One of the advantages of bankruptcy is that once the petition has been filed, creditors are no longer able to contact you for money.

Filing a bankruptcy petition in federal bankruptcy court gives you automatic protection against creditors. If a creditor calls your home after you have filed the petition, you must tell them that you filed bankruptcy. In many cases, the creditor will want to know the case number, which you should provide. Like most cases filed in both federal and state court, bankruptcy case records are open to the public. There is no point in trying to hide your case number from your creditor as they will have to be notified of the proceedings anyway.

After you tell the creditor that you have filed bankruptcy, that creditor should no longer contact you. If they do, make a note of the time, date, name of the person who called and what was said. The creditor is in violation of Federal law. One of the biggest advantages of filing bankruptcy is to protect debtors from harassing calls from creditors and collection agencies.

If you file Chapter 7 bankruptcy, under new provisions you must demonstrate that you are unable to pay even a portion of the debt to the bankruptcy court. Once this is proven, your credit debt is completely eliminated and your slate wiped clean. Another one of the advantages of filing bankruptcy include the opportunity to start over.

Debt Exempt from Bankruptcy

Just as certain assets are exempt from bankruptcy, so are certain debts. Certain debts that you may accumulate will still have to be paid, whether or not you file bankruptcy. These debts are considered debts exempt from bankruptcy law.

One example of debts exempt from bankruptcy is child support. If you have been ordered to pay child support payments, or maintenance, by a court order, filing bankruptcy will not alleviate these debts. Child support debts will not be reduced or eliminated, whether or not you file Chapter 7 or Chapter 13 bankruptcy. Many people try to avoid paying these obligations, but child support is considered to be one of the debts exempt from bankruptcy.

Another example of debts exempt from bankruptcy is IRS liens. An IRS audit is never pleasant, and in some cases, the IRS may put a lien on your home or garnish your wages. Although IRS liens and garnishments can end up costing someone quite a bit of money, IRS liens are debts exempt from bankruptcy.

How To Avoid Bankruptcy

In many cases, bankruptcy can be avoided if the habits that lead to one filing bankruptcy are curbed early on in life. It is never too soon for individuals to learn how to avoid bankruptcy.

People in the United States tend to live on credit quite a bit. Many individuals feel pressured to keep up with neighbors, friends and family and end up overextending themselves on their credit cards. Unfortunately, credit card lenders are pretty indiscriminate as to who they issue credit. There are hundreds of thousands of credit card companies in the United States today. And once someone gets one credit card, chances are they will begin to see many offers coming through the mail for more credit.

This can be tempting, especially for younger people. A good percentage of people who file bankruptcy in the United States each year are young people recently graduated from college. In addition to student loans, college students often use credit cards for everything from pizza to books, with the intent to pay off the debt once they graduate and get a job. Hard reality sets in when they realize how long it will take to pay off the debt mounted on their credit cards, especially as it continues to accumulate interest at a high rate. Still, college students are a prime target of credit card lenders. And many of these young people are handling credit for the first time in their lives. It is very easy to let it get out of hand.

Bankruptcy Abuse Prevention and Consumer Protection Act

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 received a lot of objection from bankruptcy lawyers, judges and consumer advocate groups. Many felt that this act, which became effective on October 17, 2005, would hurt consumers who got in over their head with credit card debt and not give them the option eliminating the debt and starting fresh.

The purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, with regard to bankruptcy, was to eliminate people who took advantage of the bankruptcy laws for their own gain. For most people, filing bankruptcy is one of the most traumatic experiences they have to endure. Most people who file are ashamed and embarrassed at having failed to pay their debts. Most people are raised to pay off their debts in a timely manner and most Americans are very credit conscious individuals. We worry about our credit scores and borrowing power to the point of mania.