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With bankruptcy, timing is everything

With the economic downturn, those struggling with their finances are learning that "bankruptcy" is not a bad word. Some attorneys who help people file for bankruptcy say that filings are still very common, with sometimes 10 new clients in a day. One suggestion from the experts is not to wait until the last minute to file.

Experts say they get clients who have waited until they are desperate and cannot think of any other options. Learning about personal bankruptcy should happen before your house is about to go up for auction or the creditors are knocking down your door. Taking precaution and learning about bankruptcy early on can give consumers the opportunity for a fresh start.

Most people file bankruptcy because of credit card debt. Usually this is because of a life-altering event, like divorce, illness, death or unemployment. People rely on credit cards to get through tough times, which is when debt often increases quickly.

The two most common forms of personal bankruptcy, Chapter 7 and Chapter 13, help people in different ways according to their current financial situation. Chapter 7 liquidates the debtor's assets and distributes non-exempt assets to creditors, while Chapter 13 is a repayment plan that spans three to five years. Which option a person takes depends on his or her income. The Means Test is used to determine a person's eligibility for either chapter based on the number of people in the household and their incomes.

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act passed by Congress makes the criteria stricter for those hoping to file for Chapter 7 bankruptcy and requires people to take credit counseling courses. The courses are offered to help people make better financial decisions in the future.

Experts suggest that people who find themselves unable to make credit card payments in addition to basics like rent and groceries should learn about bankruptcy early and understand all of their options. It could be a big relief.

Source: Tahlequah Daily Press, "Experts: Timing key when filing bankruptcy," Renee Fite, Sept. 8, 2011

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