There are five types of bankruptcy provided under the law:
· Chapter 7 is known as "straight" bankruptcy or liquidation. It requires a debtor to give up property that exceeds certain limits called "exemptions", so the property can be sold to pay creditors. Most people keep all their property.
· Chapter 13 is called "debt adjustment". It requires a debtor to file a plan to pay debts (or parts of debts) from current income.
· Chapter 11, is known as "reorganization", is used by businesses and a few individual debtors whose debts are very large.
· Chapter 12 is reserved for family farmers and commercial fishermen.
· Chapter 15 is reserved for Ancillary and Other Cross-Border Cases.
Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13. Either type of case may be filed individually or by a married couple filing jointly.
Chapter 7 (Straight Bankruptcy)
In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property, which the law allows you to keep. In most cases, all of your property will be exempt. But property that is not exempt is sold, with the money distributed to creditors.
If you want to keep property like a home or a car and are behind on the payments on a mortgage or a car loan, a Chapter 7 probably will not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
Chapter 13 (Reorganization)
In a Chapter 13 case you file a "plan" showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a Chapter 13 case is that it will allow you to keep valuable property, especially your home and car-which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.
You should consider filing Chapter 13 plan if you:
- own your home and are in danger of losing it because of money problems;
- are behind on debt payments, but can catch up if given some time;
- have valuable property which is not exempt, but you can afford to pay creditors from your income over time
You will need to have enough income in Chapter 13 to pay for your necessities and to keep up with the required payments as they come due.
Friday, October 31, 2008
What Different Types of Bankruptcy Should I Consider?
Wednesday, October 29, 2008
What Bankruptcy Can and Cannot Do for You.
What Can Bankruptcy Do for Me?
Bankruptcy may make it possible for you to:
· Eliminate the legal obligation to pay most or all of your debts. This called a "discharge" of debts. It is designed to give you a fresh financial start.
· Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages or other liens on your property without payment.)
· Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
· Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
· Restore or prevent termination of utility service.
· Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
What Bankruptcy Cannot Do.
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
· Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan.
Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
· Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, and certain other debts related to divorce, some student loans, court restitution orders, criminal fines and some taxes.
· Protect cosigners on your debts. When a relative or friend has cosigned a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
· Discharge debts that arise after bankruptcy has been filed.
Bankruptcy may make it possible for you to:
· Eliminate the legal obligation to pay most or all of your debts. This called a "discharge" of debts. It is designed to give you a fresh financial start.
· Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages or other liens on your property without payment.)
· Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
· Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
· Restore or prevent termination of utility service.
· Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
What Bankruptcy Cannot Do.
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
· Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan.
Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
· Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, and certain other debts related to divorce, some student loans, court restitution orders, criminal fines and some taxes.
· Protect cosigners on your debts. When a relative or friend has cosigned a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
· Discharge debts that arise after bankruptcy has been filed.
Tuesday, October 28, 2008
What is Bankruptcy?
Basically, bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.
Monday, October 27, 2008
Can I File a Chapter 7 By Myself, Without an Attorney?
You certainly have the right to file a Chapter 7 case by yourself. The forms are available either on-line or at an office supply store. There are also several books about how to do this.
Here are the problems:
1. Bankruptcy has become significantly more complicated since October 2005, when the BAPCPA changes to the bankruptcy laws were enacted. Many lawyers who used to file the occasional Chapter 7 have given up the practice because of the complications. Particularly, you need to fully understand how the means test works. If you do the calculations incorrectly, you could end up in a deposition at the United States' trustee's office, face a motion to dismiss, or face a motion to convert to Chapter 13.
2. You need to understand about the pre-filing credit counseling requirement as well as the pre-discharge financial management course requirement
3. In order to actually file your case, you will need to have your petition and schedules scanned into PDF format for filing with the Bankruptcy Clerk. You can do this at the Bankruptcy Court and I believe that this process is not particularly complicated, but I have not done it since I file electronically from my office.
4. You may not be able to dismiss a Chapter 7 voluntarily if you change your mind. For example, if you file, but it turns out that you earn too much or own too many assets the judge may not let you out of your case, at least until after your assets are liquidated.
5. You need to understand how the bankruptcy exemption law works and how it applies in Chapter 7 to protect property that the law allows you to protect. If you don't properly declare property as exempt even if the law would otherwise allow you to protect it, then you could lose your property anyway.
6. You will not receive advice from the Chapter 7 trustees or the U.S. Trustees. Their interest is to maximize the recovery of the estate (i.e. your creditors). They are not your friends.
I do not think it is a good idea to try to file bankruptcy without counsel. I have always been willing to work with Chapter 7 debtors with straightforward cases and not a lot of money.
Here are the problems:
1. Bankruptcy has become significantly more complicated since October 2005, when the BAPCPA changes to the bankruptcy laws were enacted. Many lawyers who used to file the occasional Chapter 7 have given up the practice because of the complications. Particularly, you need to fully understand how the means test works. If you do the calculations incorrectly, you could end up in a deposition at the United States' trustee's office, face a motion to dismiss, or face a motion to convert to Chapter 13.
2. You need to understand about the pre-filing credit counseling requirement as well as the pre-discharge financial management course requirement
3. In order to actually file your case, you will need to have your petition and schedules scanned into PDF format for filing with the Bankruptcy Clerk. You can do this at the Bankruptcy Court and I believe that this process is not particularly complicated, but I have not done it since I file electronically from my office.
4. You may not be able to dismiss a Chapter 7 voluntarily if you change your mind. For example, if you file, but it turns out that you earn too much or own too many assets the judge may not let you out of your case, at least until after your assets are liquidated.
5. You need to understand how the bankruptcy exemption law works and how it applies in Chapter 7 to protect property that the law allows you to protect. If you don't properly declare property as exempt even if the law would otherwise allow you to protect it, then you could lose your property anyway.
6. You will not receive advice from the Chapter 7 trustees or the U.S. Trustees. Their interest is to maximize the recovery of the estate (i.e. your creditors). They are not your friends.
I do not think it is a good idea to try to file bankruptcy without counsel. I have always been willing to work with Chapter 7 debtors with straightforward cases and not a lot of money.
Sunday, October 26, 2008
Top 10 Bankruptcy Myths
Myth 1: Filing for bankruptcy hurts your credit for 10 years.
Not True. Bankruptcy stays on your credit about 7 to 10 years. Although the bankruptcy will stay on your credit, you can start rebuilding your credit once your bankruptcy is discharged. You will get credit card offers and be extended credit right after the discharge of your bankruptcy. Bankruptcy wipes out debt, which in turn helps your credit score.
Myth 2:Everyone will know you filed for bankruptcy.
Not True. Bankruptcy is public record but unless you are famous, people aren’t going to go looking. The only people who are going to know are those who you tell and those who have access to the bankruptcy court record system.
Myth 3:It's hard to file for bankruptcy.
Not True. The bankruptcy reform act changed only the method in which Debtors qualify for the different types of bankruptcy. It doesn’t prevent people from filing and in most situations people are still able to get the same relief now as before the law changed. There is a lot of paperwork involved, but having a skilled attorney makes the process much smoother. Filing bankruptcy is electronic these days, which minimizes paperwork on your part.
Myth 4:You are a bad person/failure for filing bankruptcy.
Not True. There is a reason that over one million people file for bankruptcy each year and it is not because they are bad people. Bankruptcy is a means for good people who are going through bad times to get relief. Many times people have to file because they have lost their job, gone through divorce, or experienced medical illness. Bad times don’t make a person bad. Bankruptcy can provide the relief that good hardworking people need to get them out of the bad time. It provides hard working people with the fresh start that they deserve, but are not able to obtain.
Myth 5:You will lose everything you own.
Not True. Bankruptcy allows you to keep your property. Outside of bankruptcy you could lose your property to creditors, but once you have filed for bankruptcy you and your property are protected. Bankruptcy doesn’t always wipe out liens, which means if you want to continue to keep the property you will need to continue to pay the lien.
Myth 6:Both you and your spouse have to file bankruptcy together.
Not True. You can file together or separately, that is your choice. In many cases it makes sense for husband and wife to file together, but in some instances the spouse might not want to file. This is absolutely fine and definitely allowed by the court.
Myth 7:You can't get rid of back taxes in bankruptcy.
Depends. You can get rid of income taxes that are more than three years old by filing bankruptcy. There are several qualifications that have to be met in order for the taxes to be wiped out, but having a portion wiped out is better than none at all.
Myth 8:You can only file bankruptcy once.
Not True. You can file for bankruptcy as many times as you like. Although, you are limited by how often you can receive a discharge. You can receive a discharge from Chapter 7 once every 8 years. You can receive a discharge from Chapter 13 every 2 years. If you get discharged in a Chapter 7 you have to wait 6 years before getting a discharge from Chapter 13. If you get a Chapter 13 discharge then you need to wait 4 years to get discharged from a Chapter 7. However, there is no waiting period if your case is dismissed. You can file back to back should you choose.
Myth 9:Creditors can still harass you if you file for bankruptcy.
Not True. When the bankruptcy is filed, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.
Myth 10:Filing bankruptcy is emotional devastating.
Not True. Bankruptcy eliminates debt and eliminates financial stress. Filing bankruptcy is the solution to the problem, not an additional problem. Although making the decision to file bankruptcy might be difficult one, the relief provided will lift a huge weight off of you. You will be able to answer the phone, check the mail, and answer the door without fear that the contact is from a creditor or collection agency.
Not True. Bankruptcy stays on your credit about 7 to 10 years. Although the bankruptcy will stay on your credit, you can start rebuilding your credit once your bankruptcy is discharged. You will get credit card offers and be extended credit right after the discharge of your bankruptcy. Bankruptcy wipes out debt, which in turn helps your credit score.
Myth 2:Everyone will know you filed for bankruptcy.
Not True. Bankruptcy is public record but unless you are famous, people aren’t going to go looking. The only people who are going to know are those who you tell and those who have access to the bankruptcy court record system.
Myth 3:It's hard to file for bankruptcy.
Not True. The bankruptcy reform act changed only the method in which Debtors qualify for the different types of bankruptcy. It doesn’t prevent people from filing and in most situations people are still able to get the same relief now as before the law changed. There is a lot of paperwork involved, but having a skilled attorney makes the process much smoother. Filing bankruptcy is electronic these days, which minimizes paperwork on your part.
Myth 4:You are a bad person/failure for filing bankruptcy.
Not True. There is a reason that over one million people file for bankruptcy each year and it is not because they are bad people. Bankruptcy is a means for good people who are going through bad times to get relief. Many times people have to file because they have lost their job, gone through divorce, or experienced medical illness. Bad times don’t make a person bad. Bankruptcy can provide the relief that good hardworking people need to get them out of the bad time. It provides hard working people with the fresh start that they deserve, but are not able to obtain.
Myth 5:You will lose everything you own.
Not True. Bankruptcy allows you to keep your property. Outside of bankruptcy you could lose your property to creditors, but once you have filed for bankruptcy you and your property are protected. Bankruptcy doesn’t always wipe out liens, which means if you want to continue to keep the property you will need to continue to pay the lien.
Myth 6:Both you and your spouse have to file bankruptcy together.
Not True. You can file together or separately, that is your choice. In many cases it makes sense for husband and wife to file together, but in some instances the spouse might not want to file. This is absolutely fine and definitely allowed by the court.
Myth 7:You can't get rid of back taxes in bankruptcy.
Depends. You can get rid of income taxes that are more than three years old by filing bankruptcy. There are several qualifications that have to be met in order for the taxes to be wiped out, but having a portion wiped out is better than none at all.
Myth 8:You can only file bankruptcy once.
Not True. You can file for bankruptcy as many times as you like. Although, you are limited by how often you can receive a discharge. You can receive a discharge from Chapter 7 once every 8 years. You can receive a discharge from Chapter 13 every 2 years. If you get discharged in a Chapter 7 you have to wait 6 years before getting a discharge from Chapter 13. If you get a Chapter 13 discharge then you need to wait 4 years to get discharged from a Chapter 7. However, there is no waiting period if your case is dismissed. You can file back to back should you choose.
Myth 9:Creditors can still harass you if you file for bankruptcy.
Not True. When the bankruptcy is filed, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.
Myth 10:Filing bankruptcy is emotional devastating.
Not True. Bankruptcy eliminates debt and eliminates financial stress. Filing bankruptcy is the solution to the problem, not an additional problem. Although making the decision to file bankruptcy might be difficult one, the relief provided will lift a huge weight off of you. You will be able to answer the phone, check the mail, and answer the door without fear that the contact is from a creditor or collection agency.
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