Did you know that declaring bankruptcy will not always release your from all your debts and obligations to your creditors? Since the New Bankruptcy Law took effect, the application process for bankruptcy has been made more complicated.
Under the New Law, an attorney cannot decide for you as to which type of bankruptcy you should seek. Even if you would like to aquire a Chapter 7 bankruptcy to be released from all your debts, it will not be for you to decide.

Rather, the bankruptcy court judge will be the one to decide whether you are qualified for a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. To be discharged from all debts, you need to get a Chapter 7. To start with, you must take the “Income Means Test” to determine if your present income enables you to handle repayment. If you pass the test, you can file for a Chapter 7 Bankruptcy. If you fail, the judge will require you to file for a Chapter 13 bankruptcy which will put you under a mandatory repayment program.

A Chapter 13 bankruptcy will subject you to a mandatory repayment program. Yes, you will still be accountable to pay your creditors under a repayment plan which lasts up to 5 years. Under the bankruptcy provision, your creditors can only impose a maximum interest rate of 10% to your debts. A certain percentage (depending on your salary range) will be automatically deducted from your monthly wage and sent to your creditors as payment.

Avoid Bankruptcy Through Home Equity

With the changes made in the New Bankruptcy Reform Act, you might want to seriously think about the pros and cons of your actions before going through the process bankruptcy.

In addition, the New Bankruptcy Law requires all applicants to undergo and complete a credit counseling course with an accredited agency at least six months prior to filing. Your credit counselor can help you find an alternative solution to your problem, one that best fits your situation.

Rather than file for bankruptcy right away, have you considered other alternatives to recover from your debts? For instance, you may take out a Home Equity Loan so you can pay off your debts one step at a time.

Taking out a loan from your home’s equity loan gives you the chance to pay your creditors right away and stop your debts from further accumulating. True, there are still risks involved since you can lose your property if you fail to keep up with your loan payments. Nevertheless, you can ask advice from a trusted credit counselor on how you can come up with a repayment plan that will help you get out of your debts and complete your home equity loan payments on time.

Furthermore, before obtaining a home equity loan, find a lending company that offers a low interest rate and a flexible repayment term. Carefully check the Terms and Conditions before signing up your loan contract.