Informal bankruptcies happen now; no one ever talks about them, or would admit they did it.
The new bankruptcy laws that went into full effect in October, 2005, mean a substantial increase in these unofficial bankruptcies so it’s important that you know what they are and how they affect you.
What Is An Informal Bankruptcy?
It’s not paying your debts; you don’t file an official bankruptcy; you don’t have assets or bank accounts (or you hide them); you become what is commonly referred to as “judgment proof.”
This means even if someone obtained a judgment against you, it would be near impossible for them to collect on it in some states.
If you live in a state that allows garnishment of your wages, like New York, then they can collect; but only up to 10% of your gross income; some states also allow seizing of assets (if they can be traced and found) not exactly judgment proof, but close!
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So basically an informal bankruptcy is what has long been known as a deadbeat; someone who doesn’t pay their bills; moves when things get hot and leaves no forwarding address.
Why An Increase In Informal Bankruptcies?
The new bankruptcy law is not as debtor friendly as the old laws were. Now there are tough income requirements that will determine whether you can file Chapter 7 or must file Chapter 13; they can even disqualify you from filing at all!
Previously, states were allowed to set their own homestead exemption; now all states are limited to the outlines set forth by the new U. S. Bankruptcy Law Revisions.
You will also need to take a personal finance course for money management and pay for it yourself; as well as being required to undergo credit counseling prior to being allowed to file.
To be honest, the money management and credit counseling is an excellent idea, in my opinion, it can help people see where their “money issues” really are … you can’t fix what you don’t know about!
However, the stringent filing requirements; with repayment amounts being based upon the IRS median income and living expense charts (which are known to be quite low on the expense side), will scare many away from filing as well as having some withdraw their official bankruptcy and go the informal route.
Another concern the new laws are bringing out is the increased costs associated with bankruptcy filings; expect attorney fees to increase dramatically from what you’ve seen (or heard about) before.
One of the changes makes attorneys liable for false information provided by the client; so expect a much more stringent review by lawyers as well when they prepare your documents for you; and this means more money from your pocket to theirs!
Due to these massive changes (the most extensive seen in almost 20 years!); you really need to sit down and discuss with a qualified bankruptcy attorney how the new laws impact you.
You can call any attorney in your area, or you can get a free referral to a pre-qualified bankruptcy attorney that knows the bankruptcy laws and exemptions in your state.
If your budget would allow you to live reasonably, and payoff your existing debt, but you need to tighten your financial belt a little, I recommend you do that.
You should contact your creditors directly, or use a debt relief service, and create a repayment plan you can both live with, then stick to it.
I guarantee this will reduce the stress of worry, plus give you a feeling of satisfaction and accomplishment knowing you have a plan and goals to work toward.
If you just can’t deal with it, and don’t have the money in your budget, then don’t allow anything to stop you. Bankruptcy is a legally approved way to get out of debt. It can help to solve your money problems.