Chapter 21 Bankruptcy Is bankruptcy the right choice

Chapter 21 Bankruptcy

Is bankruptcy the right choice for you? 10 important considerations 1. Bankruptcy may be the easiest and fastest way to deal with all types of debt problems. 2. Most bankruptcy cases are complicated. You should consider getting professional help. 3. Bankruptcy temporarily stops almost all creditors from taking any steps against you except through the bankruptcy process. 4. Bankruptcy can permanently wipe out your legal obligation to pay back many of your debts. 5. When bankruptcy does not wipe out a debt, a chapter 13 bankruptcy (a “reorganization”) gives you an opportunity to catch up on that debt.

Is bankruptcy the right choice for you? 10 important considerations 6. In most cases, you will not lose property by filing for bankruptcy. 7. The initial fee for bankruptcy is $310 under chapter 13 and $335 under chapter 7. 8. If you file bankruptcy, you usually do not need to go to court. 9. Bankruptcy will usually not make your credit report any worse. 10. Watch out for bankruptcy related scams.

General information about bankruptcy • The right to file bankruptcy is an important tool that society provides for people with debt problems. • It is often stated that bankruptcy should be considered as a “last resort” for financially troubled consumers. However, when considering bankruptcy, time is of the essence. Delaying bankruptcy could cost you time and money. • There were many news reports suggesting that changes to the bankruptcy law (BAPCPA) passed by congress in 2005 would prevent many consumers from filing bankruptcy. • BAPCPA -Bankruptcy Abuse Prevention and Consumer Protection Act

What bankruptcy can do … Bankruptcy make it possible for you: 1) Can eliminate legal responsibility for many of your debts and to get a fresh start. 2) Can stop foreclosure on your house or manufactured home and allow you an opportunity to catch up on missed payments. 3) Can prevent repossession of your car or other property, or force the creditor to return property even after it has been repossessed. 4) Can stop wage garnishment, debt collection harassment, and other similar collection activities and give you some breathing room.

What bankruptcy can do … Bankruptcy make it possible for you: 5) Can prevent termination of utility service or restore service if it has already been terminated. 6) Can lower the monthly payments on some debts, including some secured debts such as car loans. 7) Can allow you an opportunity to challenge the claims of certain creditors who have committed fraud or who are otherwise seeking to collect more than they are legally entitled to.

What bankruptcy cannot do … 1) It is not possible to eliminate certain rights of “secure” creditors. 2) It is not possible to discharge types of debts singled out by the federal bankruptcy law for special treatments, such as child support, alimony, most student loans, court restitution orders, criminal fines, and some taxes. 3) It is not possible to protect all cosigners on their debts. 4) It is not possible to discharge debts that are incurred after bankruptcy has been filed.

Possible advantages of bankruptcy • The automatic stay of foreclosures, evictions, repossession, utility shut-offs, and other creditor actions. • Your bankruptcy filing will automatically, without any further legal proceedings, stop most creditor actions against you and your property. However, there a few exceptions, usually based on prior bankruptcy filings. • Discharge of most debts. • The principal goal of most bankruptcies is to achieve a discharge. This means that, after bankruptcy, the creditors can seize its collateral if you don’t pay, but cannot try to collect the debt. • Dischargeable debts include: back rent, utility bills, court judgements, credit card bills, legal/medical bills, and most tax debts older than 3 years • Protection against wage garnishment and enforcement of judgment liens. • After you file a bankruptcy petition, creditors are prohibited from garnishing your wages or other income.

Possible advantages of bankruptcy • Added flexibility in dealing with secured creditors. • Bankruptcy can be helpful in dealing with creditors who have taken items of your property as collateral for their loans. • In some situations, bankruptcy can stop secured creditors from seizing collateral by “avoiding” the creditor’s lien. A Ch. 7 allows you to keep collateral by redeeming it. Ch. 13 will stop a threatened foreclosure and allow you to gradually catch up on back payments. • Utility Terminations. • A bankruptcy filing will not only stop a threatened utility termination, but will also restore terminated utility service, at least for twenty days. • Driver Licenses. • In situations where your license has been taken away, bankruptcy is sometimes the only possible way for you to keep or regain the license.

Other bankruptcy considerations, including possible disadvantages In most cases, you will lose little or none of your property. • Generally, you will keep all or almost all your property in a bankruptcy except property that is very valuable or that is subject to a lien you cannot avoid or afford to pay. • Remember that exemption laws vary widely from state to state. • If you have significant non-exempt assets, a chapter 13 bankruptcy may be a good way to keep all of your possessions.

Possible disadvantages The effect of bankruptcy on your credit report • The one area where bankruptcy is very likely to make it more difficult for you is in attempting to obtain a conventional mortgage to purchase a home. • Bankruptcy stays on a credit report for 10 years. • To improve your chance of getting credit after bankruptcy on reasonable terms, you should make sure that the information being reported about your bankruptcy is accurate.

Possible disadvantages • Effect of bankruptcy on your reputation in the community • Feelings of moral obligation • Potential discrimination after bankruptcy • Cost of filing a bankruptcy petition • Ability to file another bankruptcy if you have more financial problems

When bankruptcy may be the wrong solution 1. You have only a few debts and strong defenses for each. 2. The debts at issue are secured by your property (e. g. , home mortgages or car loans). 3. You have valuable assets that are not exempt in the bankruptcy process. 4. Because of a prior bankruptcy, you cannot receive a discharge in a chapter 7 bankruptcy. 5. You can afford to pay all of your current debts without hardship. Thus, do not file a bankruptcy with these situations.

Satisfying the credit counseling requirement • Find an “approved” counseling agency. • You must receive the required counseling from an agency that has been approved by the U. S. trustee program (180 days before filing bankruptcy). • This required credit counseling may be helpful for you and in any case, you have to do it if you want to file for bankruptcy. • Avoid for-profit debt counseling agency. • The costs of pre-filing counseling. • You can expect that most agencies will charge between $10 to $40 for the pre-filing counseling.

Is a Debt Management Plan (DMP) right for you? • If you have trouble mainly with secured debts, if you have little or no money left over each moth, if you are still current on your credit card debt, if you cannot make a long term commitment to making monthly payments, and if you want to keep using all of your credit cards while on a DMP, a DMP is not for you. • If you are able to pay your priority debts and still have some money left over each month, a DMP may be helpful!

Asking the court to waive the counseling requirement. . • There a few situations when you can request a permanent/ temporary waiver of the counseling requirement. • You may request a waiver if you are disabled or incapacitated. • If you need to file bankruptcy in an emergency to stop a home foreclosure, car repossessions, or wage attachment, or some other “exigent circumstances, ” you can request a temporary waiver of the counseling requirement. • Since waivers are not easily approved, it is important to check carefully that you meet the requirements for a waiver before filing bankruptcy without a counseling certificate.

Chapter 7 (Liquidation) • A case under chapter 7 of the bankruptcy laws is often called a “liquidation. ” In a liquidation case, your assets are examined by a court appointed trustee to determine if anything is available to be sold for the benefit of creditors. • When making the decision to file for bankruptcy, you should first understand your state’s exemption laws. The best way to do this is to ask for a list of exemptions from a neighborhood legal services office, a private attorney, or pro bono bar organization. • At the end of a chapter 7 case, you obtain a discharge of most unsecured debts.

Answers to some basic questions about chapter 7? • Who can file? • Any individual who lives in the United States or has property or a business in the United States can file a chapter 7 bankruptcy. • In 2005, a “means test” was added to the bankruptcy law to make it more difficult for wealthy consumers to file a chapter 7 bankruptcy. • What are the first step? • It is completion of certain basic forms. • What will happen after filing? • Filing the petition triggers the automatic stay. Then a date is set for the “meeting of creditors. ” • What is a bankruptcy trustee? • After you file bankruptcy, a trustee is appointed to represent the interests of creditors.

Answers to some basic questions about chapter 7? • What is the meeting of creditors? • The meeting of creditors is conducted by the trustee and gives the trustee and others a chance to ask questions about your financial affairs. After the meeting of trustees you must complete an education course. • What must I do after the meeting of creditors? • You will need to complete an educational course on personal finances. The course should have been approved by the US Trustee Program. The fee is usually $20 -$50. • What happens after the education course is completed? • You keep the property listed as exempt in your schedules. The Trustee sells any property collected, . . And distributes it among the creditors. The trustee must give notice of intent to sell the property.

Answers to some basic questions about chapter 7? • What is reaffirmation? • Reaffirmation is your agreement during bankruptcy to remain legally obligated on some or all of a debt which you could have otherwise eliminated. • When you should never agree to reaffirm? • When the debt is totally unsecured; • When you have no interest in keeping the collateral; • When you are hopelessly behind on payments, so that the property will be repossessed in any event.

Answers to some basic questions about chapter 7? • When you should agree to a reaffirmation? • The creditor gives you something valuable in return, such as an agreement to let you get caught up on a default in a manageable way or a reduction of a secured debt to the value of the property; • You want to keep property used as collateral for a secured debt and your bankruptcy court will not allow you to keep it without reaffirming • You can easily afford the payments which will be required after bankruptcy.

What about reaffirming credit card debt? • It is almost never a good idea to reaffirm a credit card debt, even store credit cards that may be secured. Some offers to reaffirm may seem attractive at first. • Some credit cards (e. g. , department store cards) may be secured. Though you may not be aware that the credit card is secured, the card agreement you signed may have stated that the items purchased with it are collateral. After you have filed bankruptcy, the credit card company may claim that they will repossess what you bought such as a TV, computer, or sofa if you do not reaffirm the debt. • Most of the time, store credit card companies will not repossess used merchandise.

Three important points about reaffirmation 1) If a creditor tries to pressure you to reaffirm, you can say “NO”! Reaffirmation is always optional. It is not required by bankruptcy law or any other law. 2) Never reaffirm a debt just because a creditor offers to advance you some new credit or to keep your account in good standing. 3) You can voluntarily pay any debts after bankruptcy without signing a reaffirmation agreement.

Answers to some basic questions about chapter 7? • How do I get my bankruptcy discharge? The final step in most chapter 7 bankruptcy cases is the discharge. If no one objects to your discharge, the court enters the discharge without a hearing. • What will my chapter 7 discharge cover? The discharge in chapter 7 covers all unsecured debts, including most credit card debt, medical bills, and back utility debts. [A chapter 7 bankruptcy discharges unsecured debts within 6 months. ]

Answers to some basic questions about chapter 7? • What chapter 7 discharge will not include? • Certain taxes; debts not listed in your schedule; debts for alimony, child support; most fines and penalties; student loans; debts incurred by driving while intoxicated; debts incurred to pay taxes; debts you have formally agreed to repay; debts incurred by certain types of fraud; debts incurred while acting as a trustee for someone else’s property; and debts for purposely causing injuries to individuals or property. • In a chapter 7 case, you may need to provide or file with the court copies of certain tax returns, or a short version of the returns called, transcripts.

Answers to some basic questions about chapter 7? • What should I do if a creditor tries to collect a debt which has been discharged? • Collection of discharged debts is illegal. You should contact your lawyer if you have been subject to collection efforts. • After bankruptcy, the creditors can seize their collateral if you do not pay, but they cannot try to collect the debt.

Chapter 13 (Reorganization) • A case under chapter 13 of the bankruptcy laws is often called a “reorganization. ” • The heart of a chapter 13 case is a bankruptcy plan -- a document outlining how to make payments to various creditors. • A chapter 13 bankruptcy plan normally requires monthly payments to the bankruptcy trustee over a period of three to five years. • In a chapter 13 bankruptcy, you may have as long as five years to catch up with overdue payments on secured debts, and you may be able to keep all of your property.

Answers to some basic questions about chapter 13 • Who can file? • Chapter 13 is available to “individuals with regular income” who live in the U. S. or have a place of business or property in the U. S. • What will I have to pay? • You must begin making plan payments within thirty days after filing your bankruptcy case, unless the court orders otherwise. • How does my plan get approved? • The court will evaluate your plan at a “confirmation hearing. ”

Answers to some basic questions about chapter 13 • What if I fail to complete my plan? • Some people are unable to complete their chapter 13 plans, usually because of loss of income. • What should I do before my debts are discharged in chapter 13? • You must complete an educational course on personal finances before you will be given a discharge.

Choosing the right type of bankruptcy • Advantages of a chapter 7 bankruptcy - It is simpler and quicker than a chapter 13 bankruptcy. Once the papers are filed, unless unusual issues are raised, you will receive a discharge with 3 to 5 months. The chapter 7 bankruptcy will generally meet your goals if it will discharge most of your debts and not result in the loss of any of your property. Generally, chapter 7 is the best option when two factors are present; 1) All or nearly all of your property is exempt ; 2) The debts, that are causing problems for you, are unsecured and dischargeable in chapter 7. • A chapter 13 filing is generally preferable if you are delinquent on a secured debt and want to cure this default over time. A chapter 13 may not be necessary if you are current on your mortgage, car loan, and other secured debt payments.

Some considerations favoring chapter 13 bankruptcies • Choosing chapter 13 bankruptcies - The most common reason for filing a chapter 13 petition is that one or more secured creditors cannot be dealt with satisfactorily in any other way. • Another reason to file a 13 bankruptcy is to protect nonexempt assets which would be sold in a chapter 7 case. • However, the current value of the non-exempt property usually has to be paid over the course of the plan.

Some considerations favoring chapter 13 bankruptcies • Other important reasons favoring a chapter 13 filing include: 1) Some debts that are not dischargeable in 7 can be discharged in 13. 2) Some creditors consider a 13 filing to be less harmful to your credit rating and reputation. 3) If you obtained a 7 discharge within the previous eight years, a new 7 filing is not an option; only 13 is available.

The timing of your bankruptcy filing • The emergency bankruptcy -You may have no choice other than to file immediately to prevent a foreclosure, repossession, eviction, execution sale, or utility shut-off. Bankruptcies in an emergency can be filed with little preparation. You may initiate it by filing only the 3 -page petition, a statement of your social security number, and a list containing the names and addresses of your creditors. • Delaying bankruptcy in anticipation of further debt - If you are not facing immediate loss of property and cannot avoid incurring further debt, such as new medical, utility, or unpaid rent bills, filing should be delayed until after these debts occur. Because debts incurred after the bankruptcy filing are not discharged.

The timing of your bankruptcy filing • Exemption planning -You can legally take a number of steps to improve your legal position prior to filing bankruptcy. • These steps are generally called “exemption planning. ” • It means arranging your affairs so that a maximum amount of property can be claimed under exemption provisions, and a minimum amount is lost to creditors.

How to get help with your bankruptcy filing – Hiring a bankruptcy attorney • Hiring an attorney to handle any legal case is a difficult process. This is especially true in hiring a bankruptcy attorney. • The best way to find a trustworthy bankruptcy attorney is to seek recommendations from family, friends, or other members of the community. • In most communities, there are non-profit counselors who may be able to help you deal with your debt. However, they are not always easy to find.

How to get help with your bankruptcy filing – Problems with document preparation services • Document preparation services involve non-lawyers who offer to prepare the initial bankruptcy forms for a fee. • There are several reasons why these services have generated a lot of consumer complaints. • Non-lawyers cannot offer legal advice on bankruptcy cases. • Document preparation services also offer no services after a bankruptcy case is started. This means that, if issues arise after your forms are filed, you will have nowhere to turn for help. • For these reasons, document preparation services are rarely a good place to get help with bankruptcy.

How to get help with your bankruptcy filing – Preparing to meet with a bankruptcy attorney • You should be prepared when first meeting a bankruptcy specialist to answer the following questions: 1) What types of debt are causing you the most trouble? ; 2) What are your significant assets? ; 3) How were the debts incurred and are they secured by your property? ; and 4) Has any creditor started a process to collect any debt or to foreclose or repossess property? • The answers to these general questions will reveal not only whether bankruptcy is likely to help you but also the dimensions of your financial problems, their cause, scope, and likelihood of recurring.

Tax consequences of bankruptcy • Unpaid debt usually has tax consequences. This is because the IRS views owing money in the same way it views borrowing money, with one importance difference. • Borrowed money is income. However, because you have to repay a loan, when you borrow money, the IRS does not tax the money you borrowed. When you cancel a debt, you do not repay the amount you “borrowed. ” Therefore, a canceled debt is not only income but taxable income (e. g. , debts wholly or partially written off through plans developed by debt settlement services may create new tax liabilities for you). • Bankruptcy is one exception to this rule. If debt is discharged in the bankruptcy process, you do not owe taxes on the unpaid amount of the debt.

Using credit wisely after bankruptcy • Bankruptcy will usually not make your credit report any worse. • You should not assume that, because you file bankruptcy, you will have to get credit on the worst terms. Most lenders will not hold the bankruptcy against you if, after a few years, you can show that you have avoided problems and can manage your debts. • Chapter 7 – 7 years • Chapter 13 – 10 years

Using credit wisely after bankruptcy • Be wary of auto dealers, mortgage brokers, and lenders who advertise: “Bankruptcy? Bad Credit? No Problem!. ” They may give you a loan after bankruptcy, but at a very high cost. • You should also avoid credit offers that are aimed at recent bankruptcy filers. These may be an attempt to collect discharged debt in the form of a “disguised” reaffirmation agreement. Read the fine print of the credit offer. • Although bankruptcy can help with many financial problems, its effects are not permanent. Make careful decisions about future borrowing and credit.