Considering Bankruptcy?

Need debt relief? Considering Bankruptcy?

Filing for bankruptcy isn't an easy decision or without consequence.

It can leave a black mark on your credit report for years, making it harder
to get affordable credit and insurance. It can also hurt your chances in
landing a new job or qualifying for everyday services like a phone.

But if you find yourself needing the protection bankruptcy offers, consumer
advocates say it may be wiser to file sooner rather than later.

That's because a bill overhauling bankruptcy law that has the strong support
of the president will make the lives of debtors far more difficult.

The bill is expected to make it through the House and to the president by Easter,
and most of it will go into effect six months after he signs it.

"If bankruptcy seems like the right decision for you, it may be better to do it
sooner than later," said Travis Plunkett, legislative director for the Consumer
Federation of America, a Washington-based advocacy organization. "But we're not
talking about a rushed decision here. Take time to make a measured, thoughtful
decision."

The new bill will also require everyone considering bankruptcy to go through
credit counseling at least six months before filing. It's still unclear how long this could
take or how much it could cost consumers.

Lenders say the new rules are meant to curb abuses of the federal bankruptcy
system, but consumer groups say the bill will punish those who incur debt under
circumstances they can't control, such as crushing medical bills or a job loss.

Most worrisome, lawyers and consumer groups say, is that the new law would
make it harder for many people to file under Chapter 7 of the U.S. bankruptcy code,
which erases most debts and gives you a fresh start.

Often Chapter 7 filers don't have assets that qualify for liquidation, so credit card
companies and other creditors walk away empty-handed.

Under the new law, anyone with an income above the state's median income who
can pay at least $100 a month will be forced into Chapter 13 repayment plan that
can last up to five years.

Aside from forcing more people to file under Chapter 13, the bill will also make filing
for bankruptcy more complex and costly, according to consumer advocates.

If you have a home, you may want to consider filing soon. That's because one
amendment to the bill limits the scope of Texas' homestead exemption and goes
into effect immediately upon enactment, rather than 180 days after the president
signs it.

The bill tightens a loophole that allowed those potentially bankrupt to shield assets
by buying extravagant homes in states, like Florida and Texas, with a homestead
exemption. Under the proposed bill, homes that are valued at more than $125,000
and bought within three years and four months before the filing, are exposed to
asset sales.

Also, anyone who has been convicted of securities violations or a felony will have
the homestead exemption capped at $125,000 in most states.

Rules on auto loans will also change under the new bill.

Consumers who want to keep their cars will have to pay the auto lender what they
owe, even if it's more than the car is worth. Historically, consumers filing for
bankruptcy paid only the market value of the car to keep it from being repossessed.

The proposed law also puts limits on the automatic stay that basically stops most
collection actions and lawsuits against someone who files for bankruptcy.
For instance, the automatic stay will no longer stop or postpone evictions or divorce
proceedings.

If you've got a lot of funds in an individual retirement account, they will lose some
protections as well. Instead of keeping IRA accounts off-limits to creditors in
bankruptcy court, the bill says limits protection to the first $1 million in the accounts.

If a consumer is sued and forced into bankruptcy, the funds could be at risk.

purva.patel@chron.com