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Bankruptcy
Don't Pay Someone Else Thousands, Do It Yourself!
Filing
for bankruptcy has a negative stigma attached to it within
today's society, but it does provide a way for those
who have found themselves in serious financial trouble to ease the
burden and allow them to start over. Naturally, businesses
don’t like it, but for consumers, it can be a life saver.
Let’s
start by exploring the different types of bankruptcy.
There are three different filings you can make: Chapter 7,
Chapter 11, and Chapter 13.
Chapter 7
Chapter
7 bankruptcy,which is sometimes referred to as a
straight bankruptcy, is a liquidation proceeding. The debtor turns
over all property that is non-exempt to the bankruptcy
trustee who then liquidates it into cash for distribution to
the creditors.
The
debtor receives a discharge of all dischargeable debts usually
within four months. In the majority of cases, the debtor has no
assets that he would lose so Chapter 7 will give that person a
relatively quick finalisation to the proceedings, and a new
start.
One
of the main purposes of Bankruptcy Law is to give a person, who is
hopelessly burdened with debt, a fresh start by wiping
out those debts.
New
legislation has been passed regarding Chapter 7 bankruptcies.
Laws can vary from state to state, so you will want to check with
someone with some familiarity within the field, or do
extensive research into what is and is not allowed to be
discharged under a Chapter 7 bankruptcy.
Basically, what
the new laws require of people who are filing a Chapter 7 bankruptcy
is twofold. Firstly, they must have taken an approved
credit counseling course within six months before filing. They
must also complete an approved financial management course before
any debts can be discharged.
Even
though those two new requirements are in place, it is
still quite easy to file for a Chapter 7 bankruptcy.
There are, of course, governmental “hoops” you will have to jump
through which is why it is often a good idea to use a lawyer
familiar with bankruptcy law. However, it is possible for you
to do this yourself as long as you do your research and “cross your
T’s and dot your I’s”!
The
most common reason given for filing a Chapter 7 bankruptcy is,
of course, the accumulation of excessive debt. But
this excessive debt is most commonly caused
by;
Medical
bills
A
Harvard Study reported that 50% of US bankruptcies were caused
by medical bills. The study was published online in February of 2005
by Health Affairs. The Harvard study concluded that illness and
medical bills caused half (50.4 percent) of the 1,458,000 personal
bankruptcies in 2001. The study estimates that medical bankruptcies
affect about 2 million Americans on an annual basis — counting
debtors and their dependents, including about 700,000
children.
If
you find that you have to file for a Chapter 7 bankruptcy, you may
be worried about whether you’ll get to keep some of the things
that are important to you. These things may include major
assets, like a car and your home, among other
things.
Unsecured
debts, such as credit card debt, personal loans, money judgments and
certain taxes are wiped out in a Chapter 7. However, certain debts
are not dischargeable under Chapter 7 bankruptcy. These debts
include, but are not limited to, most student loans, certain taxes,
alimony and child or other court ordered support
payments.
If
a debt is secured by property, such as a home mortgage or an
automobile loan, then you get to decide how to handle that debt. For
example, in the case of a vehicle, you may be able to:
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Keep
the automobile and the debt as long as you keep your payments up
to date
-
Are
current and continue to keep your payments current.
-
"Redeem"
the automobile which means pay it off at its current "fair market
value"
-
Return
the vehicle, include any balance due in your bankruptcy and pay
nothing further on the vehicle. The choice is yours.
In
99% of the Chapter 7 cases, the person filing bankruptcy keeps all
of their property. Bankruptcy law is not designed to punish you
and allows you to keep your property under what are called
"exemptions" or things you get to keep. You keep your car, your
house, your jewelry, the boat, your clothing, everything!
Of
course, if you still owe a debt on anything like your car and your
house, you should refer to the above scenario. If you want to
discharge your car loan, you’ll have to either pay up or give up the
car.
Check
Out The "Credit Secrets Bible"
Chapter 13
Another
option for bankruptcy for individuals is the Chapter 13. This
is more commonly known as a reorganization bankruptcy. Chapter
13 bankruptcy is filed by individuals who want to pay off their
debts over a period of three to five years, rather than to have the
debt wiped.
This
type of bankruptcy particularly appeals to individuals who have
non-exempt property that they want to keep. It is also only an
option for individuals who have predictable income and whose income
is sufficient to pay their reasonable expenses with some amount left
over to pay off their debts.
There
are many reasons why people choose Chapter 13 bankruptcy instead of
Chapter 7 bankruptcy. Generally, you are probably a good candidate
for Chapter 13 bankruptcy if any of the following situations apply
to you:
-
You
have a sincere desire to repay your debts, but you need the
protection of the bankruptcy court to do so. You may think filing
Chapter 13 bankruptcy is simply the "Right Thing To Do" rather
than file Chapter 7
-
You
are behind on your mortgage or car loan, and want to make up the
missed payments over time and reinstate the original agreement.
You cannot do this in Chapter 7 bankruptcy. You can make up missed
payments only in Chapter 13 bankruptcy.
-
You
need help repaying your debts now, but need to leave open the
option of filing for Chapter 7 bankruptcy in the future. This
would be the case if for some reason you can't stop incurring new
debt.
-
You
are a family farmer who wants to pay off your debts, but you do
not qualify for a Chapter 12 family farming bankruptcy because you
have a large debt unrelated to farming.
-
You
have valuable nonexempt property. When you file for Chapter 7
bankruptcy, you get to keep certain property, called exempt. If
you have a lot of nonexempt property (which you'd have to give up
if you file a Chapter 7 bankruptcy), Chapter 13 bankruptcy may be
the better option.
-
You
received a Chapter 7 discharge within the previous eight years.
You cannot file for Chapter 7 again until the eight years are
up.
A
Chapter 13 can be filed if:
-
You
have a co-debtor on a personal debt. If you file for Chapter 7
bankruptcy, your creditor will go after the co-debtor for payment.
If you file for Chapter 13 bankruptcy, the creditor will leave
your co-debtor alone, as long as you keep up with your bankruptcy
plan payments.
On October
17, 2005, new bankruptcy laws took effect for all three types of
bankruptcy. When it comes to Chapter 13, you cannot
file unless the following conditions are met:
-
debt
for trust fund taxes;
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taxes
for which returns were never filed or filed late (within two
years of the petition date);
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taxes
for which the debtor made a fraudulent return or evaded
taxes;
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domestic
support payments;
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Student
loans;
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Drunk
driving injuries;
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Criminal
restitution;
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Civil
restitutions or damages awarded for willful or malicious
personal actions causing personal injury or death.
-
Debtors
must provide to the trustee, at least seven days prior to the 341
meeting, a copy of a tax return or transcript of a tax return, for
the period for which the return was most recently due.
Chapter 11
A
Chapter 11 bankruptcy is similar to a Chapter 13, and is
usually filed by businesses. A Chapter 11 is available
for individuals, but it is generally used by businesses to
reorganize their debts so that they can be more financially
solid.
When
a troubled business is unable to pay its creditors or service
its debt, they can file with a federal bankruptcy court for
protection under either a Chapter 7 or a Chapter 11
bankruptcy.
In
a Chapter 7 bankruptcy, the business must cease operation and a
trustee will sell all its assets and distribute the proceeds to the
business’s creditors on a prorata basis in accordance with
statutory priorities.
On
the other hand, a Chapter 11 filing is usually undertaken
in an attempt to stay in business while a bankruptcy court
supervises the reorganization of the company’s contractual and debt
obligations. The court can grant complete or partial relief
from most of the company’s debts along with its contracts so that
the company can make a fresh start.
Often,
if the company’s debts exceed its assets, then at the completion of
the bankruptcy, the company’s owners or stockholders all end up with
nothing. All their rights and interests are terminated and the
company’s creditors end up with ownership of the newly reorganized
company in the hopes that it will eventually succeed financially as
compensation for their losses.
So,
in general, an individual bankruptcy will be under a Chapter 7 or
Chapter 11. It’s a big decision to have to make, but
sometimes, it’s the only way you can “get out from under” and have a
fresh start.
Before
you resort to filing for a Chapter 7 or Chapter 11, consider the
alternatives. Creditors are quite often open to a settlement
of their claim for a smaller cash payment, or they might be willing
to stretch out the loan and reduce the size of the payments. This
would allow you to pay off the debt by making smaller payments over
a longer period of time. The creditor would eventually receive all
outstanding monies.
Occasionally,
you may "buy time" by consolidating your debts; meaning that
you take out a larger loan to pay off all the
smaller debts that you owe. The major danger with
this approach is that it is very easy to go out and use your credit
cards to borrow even more.
In
that case, you end up with an even larger total debt and no more
income to meet the monthly payments. Indeed, if you have taken out a
second mortgage on your home to obtain the consolidation loan, you
may be putting your home at risk.
When
there really is no other way out, you’ll need to file for a Chapter
7 personal bankruptcy.
There
are some advantages to filing for bankruptcy. By far the most
important advantage is that debtors may obtain a fresh financial
start. Consumers who are eligible for Chapter 7 may be discharged
from most unsecured debts.
A
secured debt is one which the creditor is entitled to collect by
seizing and selling certain assets of the debtor if payments are
missed, such as a home mortgage or car loan. With those two major
exceptions, most consumer debts are unsecured. You may be able to
keep (that is, exempt) many of your assets, although state laws vary
widely in defining which assets you can keep.
Efforts
to collect outstanding money must stop as soon as you file for
bankruptcy under Chapter 7 or Chapter 13. As soon as your petition
is filed, there is an automatic stay by law, which prohibits
most collection activity.
If
a creditor continues to try to collect the debt, the creditor may be
cited for contempt of court or ordered to pay damages. The stay
applies even to the loan that you may have obtained to buy your car.
If
you continue to make payments, it is unlikely that your creditor
will do anything. However, if you miss payments your creditor will
probably petition to have the stay lifted in order either to
repossess the car or to renegotiate the loan.
You
cannot be fired from your job solely because you filed for
bankruptcy.
Of
course, there are disadvantages to filing for bankruptcy.
Since your bankruptcy filing will remain on your credit record for
up to ten years, it may affect your future finances. A bankruptcy is
not a very welcome addition to your credit record, but often
debtors who file already have a troublesome history.
In
one respect, bankruptcy may improve your credit records. Because
Chapter 7 provides for a discharge of debts no more than once every
eight years, lenders know that a credit applicant who has just
emerged from Chapter 7 cannot repeat the process in the near
future.
Research
in this area has produced mixed results. A study by the Credit
Research Center at Purdue University found that about one-third of
consumers who filed for bankruptcy had obtained lines of credit
within three years of filing; one-half had obtained them within five
years.
However,
the new credit itself may reflect the record of bankruptcy. For
example, if you might have been eligible for a bank card with a 14
percent rate before bankruptcy, the best card that you can get after
bankruptcy might carry a rate of 20 percent—or you might have to
rely on a card secured by a deposit that you make with the credit
card issuer.
There
are a couple of ways you can go about filing for bankruptcy.
The most reliable is to secure a bankruptcy attorney and have them
do it for you. They are experts in this area and will often
take care of everything for you including appearing in court on your
behalf.
They
do charge a fee for this service, however. That fee can range
anywhere from $500 to $2,000 depending on your area. Yes, it
is odd that they’ll charge that high a fee to file a bankruptcy for
someone who doesn’t have money in the first place, but many will
accept payments.
You
can also file the bankruptcy yourself. There are many places
on the Internet where you can download the forms you will
need. Be advised that they are often lengthy and in-depth, but
they are fairly straight-forward when you take the time to fill them
out completely.
Once
you have the forms all filled out, take them to your local
courthouse and pay the filing fee which is usually around $100 to
$200. You will receive a notice of a court date at which time
you will need to show up and the judge will grant your request for
bankruptcy.
The
bad part about filing yourself is that you have to contact all your
creditors yourself to let them know that the bankruptcy has been
filed. You have to be very careful to list each and every one
of your debts so they will apply under the discharge order. If
you miss even one, you will have to pay it after the bankruptcy is
granted.
Filing
for bankruptcy might not be your only option. One of the
newest trends in achieving financial freedom and a good credit score
is to secure the services of a credit counseling or debt
consolidation company. But do they work?
Don't Pay Someone Else Thousands, Do It
Yourself!
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