In 2009, personal bankruptcy filings rose by nearly one-third. According to the National Bankruptcy Research Center, 1.41 million people filed for bankruptcy in 2009, up 32 percent from 2008. As bad as these numbers seem, industry followers predict that 2010 will be even worse. The American Bankruptcy Institute expects there to be more than 1.6 million personal bankruptcy filings this year.
The recession, lagging housing market and unemployment rate will all contribute to the rise in filings. But, this year there will be an additional factor contributing to that number.
The BP/Transocean oil spill has caused unprecedented damage to the waters and beaches of the Gulf Coast region. The extent of the damage is still unknown and could take many more months to fully assess. Area businesses and people who work in the region are facing an uncertain future. Industries that employ numerous people in the area, including fishing and tourism, could feel the effects of this disaster for years, if not decades. As a result, experts predict this area will experience a significant increase in personal and business bankruptcies.
It is expected that many small businesses will fail and countless jobs will be lost as a result of the spill. As many small businesses are funded by personal lines of credit, they become difficult or impossible to stay afloat when revenues decline and credit lines dry up. For some people, bankruptcy may be the only way out. It can provide people with a fresh start or give them a chance to reorganize their debts and pay them back.
Chapter 7 an Option for Many
Chapter 7 is often referred to as “Total Bankruptcy.” Under this chapter, most unsecured debt, which includes debt like credits cards and medical or hospital bills, is discharged, meaning that it does not have to be paid back. There are, however, certain debts that cannot be discharged in a Chapter 7, or any other bankruptcy, including child support and other court ordered obligations, and most student loans, among others.
Many people fear that they will lose their home or vehicle after filing for bankruptcy. But, if you stay current on your mortgage and car payments, it is possible to keep this property. In fact, eliminating other unsecured debt can be one of the best ways to help you stay current on your mortgage.
How Chapter 13 Works
While Chapter 7 might be the best approach for someone who has lost a job and has no regular source of income, the truth is that not everyone will qualify. For those that don’t, particularly those with higher incomes, significant assets they would like to keep, or those that have some moral objection to discharging debt, Chapter 13 may be the best approach.
Under this chapter, you keep your property and agree to pay back your creditors over a three to five year period. The program is supervised by the court and typically debtors end up paying creditors a portion of what is owed. After the conclusion of the payment plan, any remaining unsecured debt is discharged.
Benefits of Working With an Attorney
Fears and misconceptions of bankruptcy keep some people from filing and push them toward less effective means of wiping out their debts. These alternatives can often add to their problems instead of solving them. Debt relief or debt consolidation companies can charge substantial up-front fees; using money that should be used to pay off your creditors. In the end, many people find that these alternatives are more costly and do little to address their debt issues and the underlying causes of the problem.
Also, in both Chapter 7 and Chapter 13, people filing receive the protection of an automatic stay, which is not available when pursuing alternatives to bankruptcy. This stops all collection activity, including current lawsuits, repossessions or foreclosures, and provides debtors with time to get their finances in order.
Whatever path you decide and whatever decision you make, bankruptcy can be a straightforward yet complex process. Working with an experienced attorney is the best way to determine which approach is best for you.