There isn’t a day that goes by that I don’t appreciate my clients in some new way. I want them to come away from their first bankruptcy filing with the tools they need to be successful. I simply hope that they never have to be in overwhelming amounts of debt again. Asking for protection from foreclosure, credit card debt help, and relief from creditors is certainly hard enough the first time.

However, hard times hit us all. In this economy, I see more and more who have suffered from a layoff or medical emergency and landed right back into debt. Those situations sometimes make it necessary to refile a Missouri or Illinois Chapter 7. So, how soon can those folks seek bankruptcy protection? You can look into refiling a Chapter 7 bankruptcy 8 years after your previous filing. Keep in mind, bankruptcy has changed a bit in the last few years.

New laws were passed in 2005 that require anyone looking to file in Missouri or Illinois to pass the Chapter 7 “means test.” Most of the other rules, though, remain the same. You must continue to pay on property that you wish to keep but your unsecured debts, like medical and credit card debt, can still be eliminated. If it is in your best interest to do so, re-filing for Chapter 7 bankruptcy can be an even better experience the second time around. After you file the first time, you understand the rules, regulations and the entire process. There aren’t many surprises leftand that could be a good thing.

Bankruptcy is, by definition, a legal declaration that a borrower lacks the ability to repay his or her creditors and an appeal to the courts for relief. Plainly this is not a good position to be in and in some societies – like that of the United States – declaring bankruptcy carries a social stigma that suggests the bankrupt is irresponsible and untrustworthy. This alone is enough to convince many people to avoid bankruptcy until there really is no other alternative available, but this somewhat defeats the purpose as the benefits of declaring bankruptcy are only fully realized if the claimant makes the filing before they are completely destitute.

Obviously bankruptcy looks bad to most creditors as it shows that the individual has a history of defaulting on his or her debts. However, interestingly enough, the law now stipulates that credit card debt cannot be discharged in bankruptcy a second time until eight years have passed, so this means that people that have recently have their bankruptcy cases resolved make prime targets for predatory lenders since it is guaranteed that the bankrupt cannot go back to court for eight years. Nevertheless, bankruptcy stays on the credit report for a full ten years and cannot be removed, even if the person manages to acquire new credit after the fact.

Many people also have a lot of misunderstandings about exactly what bankruptcy can do for them. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 radically altered the bankruptcy laws of the United States and many of the things that were possible before this are no longer allowed. Further, it has to be kept in mind that bankruptcy does not discharge all debts, and since the aforementioned act passed it discharges even less than had previously been the case. By law people have to go through credit counseling before they can file for bankruptcy today, so it is worth taking the time to see if other options may be more appropriate. 

The answer to the question “Who pays for bankruptcy?” depends on the context. To initiate the process, obviously the person who is making the filing – be it the debtor or the creditors (involuntary bankruptcy) – pays the fees. However, if the question is meant to ask “Who pays for the discharged debt from a bankruptcy?” the answer is ultimately the American taxpayers in most cases. Of course if the question relates to a Chapter 13 bankruptcy, no money is actually lost at all, instead the debt is essentially just restructured by the court and the amounts owed should be paid off by the time the case closes.

To file for a basic Chapter 7 bankruptcy, the petitioner has to pay court fees of $299 to initiate the process. If this is too much, the courts can allow the petitioner to pay this amount in installments and in some extreme cases can waive the fee altogether (but only if the petitioner can show his income is less than 150 percent of the poverty level). On top of this, the petitioner has to show proof that he or she underwent credit counseling within 180 days of filing the petition and this proof usually costs extra money. Further, since bankruptcy law is extremely complex, it usually pays to hire a bankruptcy attorney in order to achieve the best outcome. On average, most individual Chapter 7 filings in the United States end up costing about $2,000 paid by the debtor.

If the question related to who pays for the discharged debt, the answer is ultimately the American taxpayers. The creditors whose debt is discharged by the bankruptcy courts write this amount off their books as after discharge it is wholly uncollectible. However, these same creditors usually write this off as a business loss, which is – more often than not – deducted from the creditor’s corporate income taxes. This deduction means less money paid in taxes, so the debt is ultimately covered by the government and thus the taxpaying public.

Although many people explore both these options when seeking solutions to their debt problems, the two are very different things. Further, since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which established a means test that has to be taken into account before a bankruptcy court will accept a petition, most people that can afford debt consolidation are not qualified to file for Chapter 7 bankruptcy relief. In so many words, if debt consolidation is an option for you, then bankruptcy Chapter 7 bankruptcy probably is not, although this may not be the case with Chapter 13 bankruptcy.

Debt consolidation usually takes one of two forms: a hard money loan or balance transfers. A hard money loan is essentially a new loan that you take out that is enough to cover all of your existing debts that you then repay back to the lender through agreed upon terms. A debt consolidation loan can make life much easier, can lead to lower interest rates, and may include some debt settlement done by the lender. However, in order to qualify you have to be in pretty good financial shape and usually you have to substantial capital, like home equity as well. This option simply is not available to most in an extremely back financial situation.

Balance transfers, where you shift all your credit card balances over to yet another card for a temporary reduction in interest rates or lower monthly minimum payments has long been recognized as slippery slope that usually does not actually fix anything. Further, now that the era of “easy credit” is over, the chances are pretty good that if you are already drowning in debt you would not qualify for a new line of credit large enough to consolidate all of your existing credit card debt.