The cost of going broke - WALB.com, Albany News, Weather, Sports

The cost of going broke

September 30, 2005

Albany - More than 38,000 people have already filed for bankruptcy in Georgia this year. Hundreds of thousands of people file bankruptcy each year in the U.S., but it's about to get a lot tougher and more expensive to file bankruptcy.

Long time Albany bankruptcy attorney Walter Kelley says the three main reasons south Georgians go broke are unexpected medical bills, overuse of high interest credit cards, and new cars with that luring low interest financing. Whatever the reason, it's about to be a lot harder to file bankruptcy because of new federal rules.

Let's start with Chapter 7 bankruptcy, that's when you don't have to pay back your creditors. That will change October 17th. "If you have the means to pay some of your creditors back, mainly unsecured creditors, then you can't file Chapter Seven. You have to be in a Chapter 13, wage earner plan, that requires you to pay back a certain amount of money to your unsecured creditors," said Kelley.

The income cut off for a single people will be about $40,000 and $45,000 for married couples without kids. You can only file for Chapter 7 bankruptcy every 8 year, that's up from 6 years.

The main change for Chapter 13 bankruptcy, when you have to pay back a percentage of your debt, is there will be no cram down provision. "So you bought a $20,000 car a year ago, and now it's worth $15,000. Today, you would only have to pay $15,000 over the term of the plan. After October 17th, you have to pay the full value of that vehicle," said Kelley.

Also before you can even file, you must undergo credit counseling through an approved agency such as the Consumer Credit Counseling Service.

"What we will be doing is to walk the client through their entire financial situation and give them their options as to what is the best route for them to take," said Irma Whitten, CEO of Consumer Credit Counseling Service.

After filing, you'll have to complete a debtor's education course. Both courses will cost anywhere between $50 and $100. And filing fees are going up too, so going broke has never been so expense.

The new bankruptcy laws allow farmers, who owe $3.2 million, to file for Chapter 12. Now, fisherman are also covered under that law.

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