subject: Debtor Education is Essential When Filing Personal Bankruptcy [print this page] Debtor Education is Essential When Filing Personal Bankruptcy
Debtor refers to anyone who owes money to another. Debtors can include individuals, companies, governments, and financial institutions. Whether a person owes money to a relative or a country owes money to another country, they all fall under the same blanket description.
A debtor can also be referred to as a borrower or mortgagor. These terms are often used within legal documents such as real estate contracts and promissory notes. Mortgagor is commonly used within mortgage notes, while borrower is typically used with IOU notes and unsecured loans. Regardless of the noun, each references the person or entity responsible for repayment of debt.
Long-term unemployment combined with economic recession left many debtors unable to comply with loan obligations. In 2010, more than 1 million property owners lost their home to foreclosure and over 1.5 million people petitioned courts for bankruptcy protection. This is an increase of nearly 15-percent over the previous year.
Mortgagors faced with foreclosure often file personal bankruptcy to prevent lenders from repossessing their home. This can be effective on a short-term basis, but rarely offers a long-term solution.
Filing bankruptcy is a serious decision that can present severe ramifications. This debt relief option is costly, time-consuming, and stressful. Although there are times when bankruptcy is a viable option, it is wise to seek out alternative options when possible.
Before doing anything, debtors should take time to research the Bankruptcy Abuse Prevention and Consumer Protection Act. These new bankruptcy laws took effect in 2005 and forever changed the way legal proceedings are handled.
Within the United States there are six bankruptcy chapters. Personal bankruptcy includes Chapter 7 and Chapter 13. Chapter 7 involves liquidating property to repay creditor debts. Unresolved balances are written-off and discharged through the court.
Under Chapter 13, debtors are allowed to keep property by developing a creditor payment plan which is monitored through the court. Chapter 13 payments can extend up to 5 years and often place tight financial restrictions on debtors.
An unfortunate truth about Chapter 13 is nearly half of petitioners fail out of bankruptcy within the first year. This yields a fatal blow to debtors' credit that can take years to recover from. When bankruptcy petitions are dismissed creditors with claims can pursue debtors for outstanding debts.
On the flip side, debtors capable of complying with Chapter 13 payments can restore credit more rapidly. It's smart to review credit reports to ensure discharged debts are properly recorded. This is especially important for Chapter 7 petitioners, as discharged debts often go unreported.
To comply with BAPCPA regulations, every person filing bankruptcy is required to undergo credit counseling. Debtors obtain counseling from state agencies approved by the U.S. Trustee. Counseling can be beneficial on many levels.
Depending on circumstances and types of debt owed, credit counselors can sometimes assist with creditor negotiations to develop debt management plans. This can sometimes help debtors avoid bankruptcy and develop budgets to help them stay on track.
In today's society good credit is everything. While there are situations that require debtors to borrow money, it is best to keep expenses well below income. Doing so ensures borrowers can comply with loan obligations and maintain high credit scores.
