On October 17, 2005, the new bankruptcy law became effective and introduced some major changes in the bankruptcy process.

Under the new law, anyone who wants to file for bankruptcy must first undergo credit counseling with a government accredited agency.

The counseling must be completed at least six months prior to submitting the bankruptcy application. This new change was made to ensure that consumers are not simple declaring bankruptcy to escape their payment obligations to their creditors. The credit counseling agency will give advice or the best solution for the debt problem. The agency would also be the one to recommend bankruptcy after all other options has been considered.

If filing for bankruptcy is applicable, hiring a lawyer is recommended.

This is because preparing the documents can be complicated. With the amendment of the new law, bankruptcy attorneys are made accountable for any false information found in their client’s application.

This puts a greater responsibility on the part of attorneys.  Since they can be held personally liable for inaccurate information, they will go over your filing with a fine tooth comb to make sure everything is as you claim.

Consequently, many lawyers have increased their fees- even to as much as 100% increase- on account of the additional duties and responsibilities put upon them.

Today, consumers who declare bankruptcy cannot choose which Chapter of bankruptcy to file. Instead, applicants must first go through the Income Means Test to determine whether he/she is qualified for a Chapter 7 or Chapter 13 bankruptcy.

Remember that only Chapter 7 completely discharges the debtor from his debts.

Meanwhile, a Chapter 13 mandates a repayment plan of a period or 3 to 5 years, depending on the debt amount. Under this plan, a certain percentage would be automatically deducted from the borrower’s monthly salary to pay off his creditors.

This new process obviously calls for a serious consideration.

A consumer in debt cannot simply decide to file for bankruptcy to be free from bad debt. The best way to deal with a debt problem is to study the situation carefully and consider all possible solutions, other than bankruptcy. Seeking help from a trusted credit counseling agency can be a big step towards resolving bad debt.

Alternatives to filing bankruptcy

If you are not sure you should file for bankruptcy or you didn’t qualify.  You should look into hiring a debt consolidation, debt settlement / debt negotiation company.

Debt Consolidation: You obtain a loan that will allow you to consolidate all your monthly payments into 1 payment.  Hopefully, if you used a company, they negotiated with your creditors and got late fees and other excessive fees waived.

Debt Settlement / Debt Negotiation: This company will contact your creditors and attempt to save you significant money by negotiating on your behalf.   Most companies try to get debts settled for 50 cents on the dollar or less.  Keep in mind the older the debt the cheaper it can be to settle it.  Most companies look at a debt as “un-collectible” after 3 years.   And if they are no longer actively trying to collect on the debt or sending your debt to a collection agency, again you  can expect to be able to settle it for pennies on the dollar.