There are times when the debtors are not in a position to pay their debts as they fall due. In this case the bankruptcy law comes in handy. This law allows the debtor to divide his assets among the creditors as a way of settling the debt. This is done under the supervision of trustees who review the debtors petitions and also have the responsibility of overseeing the pay plan in the debt recovery process.

In the United States of America, the bankruptcy laws are supervised in the courts in a special procedure. However with time this may not be so. The law has taken a new path meaning it will no longer be as easy for new filers to file a petition against debtors as it has been. In the past, debtors were allowed to pay their creditors as they earn, but the new law  may make this impossible.

There will be a procedure where the debtors will be required to go through counseling in matters to do with handling cash and on how to manage debt. It is only after the completion of this that one’s debt can be forgiven accordingly. In the old rule, one was able to choose the best way to deal with their financial situation.

The passage of the tough new bankruptcy laws in 2005 was supposed to benefit consumers in the form of reducing losses to lenders by making it harder to file bankruptcy. But two new reports released this week show that the new laws not only cost consumers more in terms of credit card debt, but may actually be encouraging greater losses to banks due to increased foreclosures.

According to new research, after the 2005 bankruptcy reform went into effect, both personal bankruptcy filings and credit card company losses sharply declined.

At the same time, while upfront annual fees on credit cards have been all but eliminated, fees have been climbing and becoming less transparent over the years, and there is no evidence that the 2005 bankruptcy reform reversed this trend…over-limit fees and late fees have been climbing since well before bankruptcy reform, and that this trend continued after the 2005 bankruptcy reform.

Industry consolidation in the credit card market enabled the top card issuers to avoid losses from “price wars” by reducing rates to attract new customers.

The credit card industry might also be able to avoid price competition because of complex, multi-tiered pricing that can make it difficult for customers to comparison shop. These fees and interest rates—complex in their own right—are presented in a form that is difficult to understand. Customers faced with such complex pricing systematically miscalculate and underestimate the cost of credit card debt.

A 2006 report from the Government Accountability Office (GAO) that found not only that bank fees and penalties are continuing to rise for card holders, but that credit card disclosures and explanations of fees are deliberately written in manners that make them hard to understand. The GAO also recommended in a separate report that credit card issuers use existing technology to customize card disclosures to individual cardholders, particularly those with high balances or frequent late payments.

The fact that after bankruptcy reform, interest rates and fees continued to rise and grace periods continued to fall, even though credit card companies reaped tremendous gains from declining bankruptcy losses demonstrates that the credit card market is not price-competitive. This lack of price competition explains why the benefits of bankruptcy reform accrued exclusively to credit card lenders and were not shared with the average American family, and why…bankruptcy reform was a failure.

Negative Impact

Another effect of the bankruptcy laws is the increase in foreclosures and defaults by mortgage holders who can’t afford to make payments on their homes. The more stringent bankruptcy code, by restricting financial relief available under the bankruptcy code and by increased the costs of filing bankruptcy, appears to have increased the number of individuals walking away from their homes, their mortgages, and their other financial obligations without seeking the protection of the bankruptcy court.

Under the new law, most individual filers would not qualify for Chapter 7 bankruptcy, which allows for the liquidation and erasure of most debt. Instead, they would be forced to file under Chapter 13, which requires regular payments of at least some of their debt to creditors.

The more stringent requirements of the new laws may be causing homeowners to “walk away” and let their homes go into foreclosure rather than attempt to file for bankruptcy. The restrictions on bankruptcy filings and subsequent increase in foreclosures puts downward price pressures on neighborhoods where many homes are in default or foreclosed upon.

One of the great lessons and ironies associated with [the new bankruptcy law] is that the new law by increasing the dollar value of assets susceptible to default has weakened many of the financial companies that sought the more stringent bankruptcy code.

A law forum that deals exclusively in bankruptcy and debt consolidation is better equipped to deal with both chapters 13 bankruptcy and chapter 7 bankruptcies. The yellow pages are a helpful source to find bankruptcy attorneys who are categorized by their field of specialization. Another way to find a qualified bankruptcy lawyer is by referral from those who are more familiar with the field and other attorneys who might make some helpful recommendations.

Due to the duty of confidentiality, the lawyer cannot share information about their current or past clients unless permitted to do so. Talking to close and trusted family friends who can guide the right direction might be of great help. This gives an insight into the lawyer’s competence. The attorney should be considerate about the client’s problem and make him feel comfortable. It is also necessary that the attorney is organized and punctual and work well together.

While the initial consultation is free, the client should honestly explain his or her situation to the lawyer and the lawyer should give a feed back on the situation and on the option thereon. While conversing with the lawyers, the client should find out how long he or she has been practicing the specifics of their specialization, number of cases handled by them approximately and expectation from the attorney in terms of representation. Also, it should be ascertained whether the attorney will personally attend the case or pass it on to a junior lawyer or staff. All such questions can be asked and the Attorney should make sure that the client is comfortable for appointing him or her as the bankruptcy lawyer.

Bankruptcy attorneys specialize in bankruptcy laws and provide legal methods to either wipe out debts by liquidating assets and distributing them among creditors or resolve them by developing a court approved reorganization plan. Bankruptcy lawyers explain the main purposes and application of bankruptcy laws and how they function to relieve the individual and business from indebtedness. A disclosure of all the financial affairs is extremely important in a bankruptcy setting. The lawyer should be kept informed of all the facts. In the worst scenario, failing to disclose information to the court could be a crime. Written documentation of debts and liabilities is important in bankruptcy setting. Bankruptcy lawyers usually specialize either as debtor’s counsel or as creditor’s counsel. Debtor’s counsel will usually charge a flat fee for a single bankruptcy. Creditor’s counsel usually charges on an hourly basis. For filing bankruptcy, hiring debtor’s counsel will hopefully be a one-time experience;

A lawyer may give alternatives as to what can be done and should discuss the possible consequences of each option. If the house is in foreclosure, the need to file a bankruptcy petition is imminent and therefore by the need of the meeting, there should be clear understanding of what has been accomplished.

The first and foremost step to be taken by a bankrupt person is to file for bankruptcy through the bankruptcy court, which is a legal process. The next step is to complete the bankruptcy forms called the “schedules” wherein the debtor should describe his or her current financial status and recent financial transactions. The debtor has to choose between chapter 7 and 13. For filing chapter 13 bankruptcy, a proposed repayment plan must be submitted with the petition. Filing bankruptcy can be done by talking to people who have technical information about bankruptcy or better still to visit a bankruptcy lawyer who can guide through the complicated procedure of filing for bankruptcy. The lawyer should be provided with all the personal information to put together and file the voluntary petition.

Once this process is over, the bankruptcy court assigns a trustee to see to it that all the informations are collected and that they are accurate. The next step is to notify the creditors that the debtor is filing for bankruptcy so that they stop all actions they might be taking up against the debtor to get the payments. After this, the next procedure is meeting the various persons who are involved in the bankruptcy case along with creditors and if possible, their lawyers.

An automatic stay goes into effect immediately upon filing the petition with the bankruptcy court which prevents the creditors from making direct contact or staking a claim to any of the debtor’s property from the date of filing. Approximately, a month after filing the bankruptcy petition, the trustee will call the first meeting of creditors, which is known as 341 meeting that requires the presence of the debtor. It is an open opportunity for creditors to question and the debtor is required to respond in full faith.

A creditor must file a proof of claim within 90 days after the first date set for the meeting of the creditors. If there is an excess asset after all the claims are settled, the court may grant an extension of time for filing of claims during the 90-day period. Objections if any are resolved by a negotiation between the debtor and the counsel of the debtor and the creditor. A judge will intervene, if necessary, when a compromise cannot be reached. If there are no hiccups, the debtor receives a notice from the court that the bankruptcy is discharged within 4 to 6 months.

Student loans guaranteed by the government are not dischargeable, that is the student continues to be liable for the payment even if he files bankruptcy. The debtor’s goal is to have as many debts discharged as possible. The ten categories of debts excluded from discharge are divided into 2 areas: debts that are not dischargeable due to the wrongful conduct of the debtor and debts that are dischargeable due to public policy.

First, not everyone can file for Chapter 7 Bankruptcy. If you make too much money, you will have to file Chapter 13 and make an attempt to repay your debt. In order to determine whether or not you are able to apply for Chapter 7 Bankruptcy, you will need to compare your income to the average income of families of the same size as yours in your state. As long as it is equal to or below the average, you can still file for Chapter 7.

If your income is greater than the average, you will have to pass the “Means Test” to determine if you can file for Chapter 7 Bankruptcy. Under these bankruptcy laws, you must be able to show that your disposable income, minus certain expenses, is truly insufficient to repay your debts. If you cannot pay your debts, you can still file for Chapter 7 Bankruptcy under the new bankruptcy laws.

Additionally, the new bankruptcy laws require all individuals who are filing bankruptcy to go through credit counseling with a government approved credit counseling agency. This counseling is used to determine whether or not bankruptcy is truly needed. The government does not care if you can clearly show that you need to file for bankruptcy. You still must attend counseling.

If you have attended counseling, proven that you cannot repay your debts, and showed that your income is not too high, you can still discharge your debts under the new bankruptcy laws. The purpose of the new laws is to prevent people from filing bankruptcy simply because they do not want to go through the trouble of repaying their debts, when in reality they have the money to do so.