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Credit Card Debt Help – Why is Bankruptcy Always the Last Option?
Filing for bankruptcy is a legal process and involves a Bankruptcy Court to discharge a debtor who is unable to support his debt. This is a legal remedy available to those who are insolvent. The objective of having such provisions in law under the Bankruptcy Code is to help those who are unable to service their debts, to rebuild their lives. Therefore, the process cannot be exploited by those who deliberately want to defraud the creditors. To prevent this from happening, the Code sets down certain tests which the debtor needs to go through before qualifying to file for bankruptcy. We shall now discuss why bankruptcy is always considered the last option.
To be eligible to file for bankruptcy protection, the borrowers need to go through certain tests. One such test is the “means test”. This test effectively measures your income against that of the other similar households in your state. For instance, let us assume that your monthly income is USD 2,000 and the median income in your state for a household which is similar to yours is USD 1,500, the new reforms to the Bankruptcy Code will not allow you to file for a Chapter 7 bankruptcy as you have USD 500 of disposable income to settle the debts. In this instance, you will need to file for Chapter 13 reorganization and commit to a repayment plan which runs over 3-5 years. But, rare exemptions can be made depending on your situation.
When calculating the disposable income of a person, there are expenses which are allowed by the Code. Expenses such as basic living costs and healthcare expenses are allowable expenses. After considering these expenses too if you have a disposable income then these amounts need to be settled towards your non exempt debts.
Under the new reforms in 2005, filing for bankruptcy has become more difficult. Before you are allowed to file for the bankruptcy cover, you need to give enough evidence to Court to prove that you are unable to service the debt with your disposable income.
On the other hand, easier methods such as debt reduction, debt consolidation or debt settlement can be tried by the borrowers before resorting to bankruptcy.
Debt settlement is a legitimate alternative to bankruptcy and should only be considered by consumers who have at least $10k in unsecured debt and are experiencing a financial hardship. To compare debt settlement companies it would be wise to visit a free debt relief network that will provide a free debt consultation to determine which option is best for you.
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