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Chapter 7

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What Can I Keep

Should I Get An Attorney To File Bankruptcy

Bankruptcy Overview

Bankruptcy is a legal process available to individuals or married couples who need help dealing with a large amount of debt. In a bankruptcy, you and your attorney work with a court and a trustee -- a person appointed by the court to administer the bankruptcy -- to pay off some of your debt and have the rest forgiven. As soon as you file for bankruptcy, you are granted an automatic stay, which stops creditors from harassing you and trying to repossess, foreclose or collect on the debt. At the end of the bankruptcy process -- which can take four months to five years, depending on which chapter you file under -- you will receive a bankruptcy discharge which effectively eliminates many debts.

Of course, there are drawbacks to bankruptcy. Filing for bankruptcy means making financial sacrifices – you may have to pay some of your income to debtors, and possibly sell off valuable assets. Another important drawback is that bankruptcy stays on your credit rating for seven to ten years. During that decade, it can be difficult to get anything that requires good credit -- from a home loan to a cell phone account. In addition, bankruptcy won’t wipe out certain types of debt, including alimony or child support debt, and can only help a little with student loans and tax debt. For these reasons, it’s important to talk to an experienced bankruptcy attorney before filing a bankruptcy.

Most individuals are eligible for one or two types of bankruptcies:: Chapter 7 or Chapter 13

What Is Chapter 7 Bankruptcy

If you are struggling to catch up on credit cards, medical bills, payday loans and other unsecured debts despite your best efforts, Chapter 7 bankruptcy may be an option for you. Chapter 7 bankruptcy is often referred to as liquidation because a bankruptcy trustee can liquidate (convert to cash) your non-exempt assets to pay part of your outstanding bills. The term liquidation is rather misleading, though, since most people filing bankruptcy in Chapter 7 cases do not have any non-exempt assets, and thus there is no actual liquidation. In order to qualify for Chapter 7 bankruptcy, you must pass a means test.

Learn whether you are eligible to file Chapter 7 bankruptcy and how filing Chapter 7 bankruptcy may help you be excused from your credit cards and other unsecured debts by getting in touch with a local bankruptcy lawyer. At Total Bankruptcy, all you have to do is fill out free bankruptcy case evaluation form below, and we’ll quickly connect you with a local bankruptcy lawyer who can explain in more detail how Chapter 7 bankruptcy may work for your situation.

 

 Chapter 7 Bankruptcy Timeline

These are the basic steps involved in all Chapter 7 Bankruptcies:

1.                    Consult with a bankruptcy attorney to determine eligibility and have your questions answered.

2.                    Gather the necessary documentation and deliver them to your attorney so your attorney can form your Chapter 7 Bankruptcy case.

3.                    Once your case is filed you will be notified of the date and time of your meeting with the trustee.

4.                    Wait for the final order of discharge.

5.                    Get back to your life!

This entire process can often take less than four months.


How a Chapter 7 Bankruptcy works

A Chapter 7 Bankruptcy begins with a debtor filing a voluntary petition, schedules of assets and liabilities, schedules of income and expenditures, and other related documents. The debtor is also required to provide a copy of their most recent tax filing, some proof of income, and proof of meeting the pre-filing credit counseling requirement. Your attorney will walk you through these requirements. Married couples may file joint petitions. Immediately upon filing the voluntary petition the automatic stay takes effect. This is a temporary injunction that stops all: collection attempts; repossessions and foreclosures; and creditor harassment  The automatic stay is taken very seriously. Creditor violations of the automatic stay may be acted on by your attorney and may result in damages paid to you. Between 20 to 40 days after the filing of the voluntary petition, the Trustee will hold the meeting of the creditors. You must attend this meeting and have your social security and photo identification available. The trustee may request additional documents. It is important to cooperate with the trustee and supply any requested documents as soon as possible. Generally, you will receive your discharge in 60 to 90 days after the meeting of the creditors. This entire process is made simple with the help of a bankruptcy attorney.!

What Is Chapter 7 Bankruptcy Means Test

Beginning in October of 2005, people who want to file for Chapter 7 bankruptcy have to pass what is known as the "Chapter 7 means test". The Chapter 7 means test is a formula applied to determine whether or not the consumer should have enough money available to make some minimal payment to creditors in a Chapter 13 bankruptcy plan. The goal is to reserve Chapter 7 bankruptcy for those who really have no means to pay, and to push those who have available income into Chapter 13 bankruptcy plans, so that their creditors will receive at least partial payment.

As the means test can be a bit complicated, you’ll want to enlist the help of an bankruptcy lawyer who can help you determine if you qualify for Chapter 7 bankruptcy.

The Means Test Is A Two Step Process
Step One: Medium Income Comparison 

The first step in the Chapter 7 bankruptcy means test is simple: it compares your income to the median income in your state for a family the same size as yours. The median income for your family size may differ dramatically depending upon where you live, and your bankruptcy lawyer can tell you whether you are above or below the applicable median income.

If your income is higher than the median income, it doesn't necessarily mean that you can't file for Chapter 7 bankruptcy; it just triggers the second step in the test.

Step Two: Calculating Disposable Income and Unsecured Debt

The second step is a bit more complicated, and actually breaks down into separate pieces itself. Certain allowable expenses (determined by IRS guidelines) are subtracted from your income to find your "disposable income." If your projected disposable income over the next five years totals less than $6,000 ($100/month), you "pass" and can file under Chapter 7.

If your disposable income is greater than $10,000 over the next five years, a presumption arises that you don't really need to file for Chapter 7 bankruptcy, and you will only be allowed to do so if you can demonstrate special circumstances.

In the grey area between $6,000 and $10,000, yet another calculation is required. This one compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over that five years is greater than 25% of your unsecured, non-priority debts, you find yourself in the same circumstances as if you'd had more than $10,000 in disposable income. If your disposable income over a five year period is less than 25% of your unsecured, non-priority debts, you "pass" the means test.


You Don't Need To Sort Out The Means Test Alone

An attorney can crunch the numbers for you and tell you whether or not you qualify for Chapter 7 bankruptcy under the means test. The calculation can be complex, not only because of the numerous steps that may be involved, but because it requires an understanding of the rules concerning how your income is calculated for means test purposes, which debts are classified as unsecured and non-priority, and a knowledge of the IRS allowable expense figures in various categories.

Most people who want to file for Chapter 7 bankruptcy find that they are still eligible to do so. An attorney can help you determine how the means test affects your options.

Chapter 11 bankruptcy is available to businesses and to individuals with a very large amount of debt. Chapter 12 bankruptcy is designed for people with farm assets.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy often provides a solution for people who have faced short-term financial setbacks like job loss, illness, or large unexpected expenses. For people who have been derailed by a crisis and fallen behind on their bills, but who have regular income and are in a position to make regular monthly payments, filing bankruptcy under a Chapter 13 plan may allow the breathing room necessary to get back on track.

Many people looking to stop foreclosure or avoid repossession choose Chapter 13 bankruptcy, because it combines the automatic stay with the ability to catch up past due payments over a period of three to five years after filing bankruptcy while keeping current payments up to date.

Could Chapter 13 bankruptcy help you attain some breathing room from your debts?

A Chapter 13 Bankruptcy is also called a “wage earner´s plan”. It begins with the debtor’s attorney filling a voluntary petition, schedule of assets, schedule of liabilities, schedule of income, schedule o expenses and other related documents on behalf of the debtor. The debtor is also required to provide a copy of their last three years tax filings, some proof of income and poof of meeting the pre-filing credit counseling requirement. Chapter 13 allows a debtor to develop a plan that pays back a portion of their debt. The plans are typically five years long but may only be three years if the debtor makes less than the medium wage. A bankruptcy attorney can easily determine if you make less than the medium wage. A Chapter 13 Bankruptcy can also allow you to include past due payments for a home mortgage or a car loan in the plan. This will stop a foreclosure or repossession and allow you to catch up with your past due payments in 36 or 60 payments over the life of the plan. You may only pay a fraction of your unsecured debt in the plan. The remaining unsecured debts may be discharged upon completion of the plan. Talk to a bankruptcy attorney to determine which of your debts are dischargeable under a Chapter 13 Bankruptcy. Chapter 13 Bankruptcy Eligibility

Married couples may file joint petitions. Immediately upon filing the voluntary petition the automatic stay takes effect. This is a temporary injunction that stops all: collection attempts; repossessions and foreclosures; and creditor harassment. The automatic stay is taken very seriously. Creditor violations of the automatic stay may be acted on by your attorney and may result in damages paid to you.

Between 20 to 40 days after the filing of the voluntary petition, the Trustee will hold the meeting of the creditors. You must attend this meeting and have your social security and photo identification available. The trustee may request additional documents. It is important to cooperate with the trustee and supply any requested documents as soon as possible. Within a few months of your meeting with the trustee you will have a Chapter 13 Bankruptcy plan confirmation hearing. Your bankruptcy attorney will tell you if you need to attend this hearing. Once the hearing is completed and the plan has been confirmed you continue to make your monthly payments for the life of the plan. The plan may be changed prior to completion based on changing circumstances or hardship. This entire process is made simple with the help of a bankruptcy attorney.

Chapter 13 Bankruptcy Timeline

These are the typical basic steps involved in a Chapter 13 Bankruptcy:

1.                    Make a fee consultation with a bankruptcy attorneyin your area to determine your eligibility and have all your questions answered.

2.                    Gather the necessary documentation to deliver to your bankruptcy attorney so your attorney can form your Chapter 13 Bankruptcy case.

3.                    Once your Chapter 13 Bankruptcy is filed you will be notified of your meeting with the trustee and your Chapter 13 Bankruptcy plan confirmation hearing.

4.                    Make your Chapter 13 Bankruptcy plan payments for the life of your plan.

5.                    Wait for the final order of discharge.

6.                    Get your life back!

 

341 Meeting Of Creditors

When it comes time to formally file for bankruptcy, you will need to participate in a 341 creditor meeting. Many people find themselves intimidated merely by the thought of it, but the process is not scary or negative in most instances. Instead of a grand inquisition, most individuals facing bankruptcy find that a meeting of the creditors is simply a meeting that is held so that all parties have all the facts necessary in the case.

Although it is called a 341 creditor meeting, there are rarely any creditors physically in attendance. But even though the creditors may not attend the meeting, their presence in known and they are capable of calling future actions once the proceedings have entered the court of law.

However, just because the creditors do not have to be in attendance does not mean that it isn't critical for the debtor to be in attendance with his or her lawyer (if applicable). The meeting is presided over by a bankruptcy trustee (there will not be a judge in attendance).

This individual will work to ensure that both sides have the correct facts available to them when it comes time to file for bankruptcy in a court of law (but ultimately, the trustee represents the creditors). Additionally, the trustee is appointed to the meeting by the court and has the authority to swear in the debtor.

The 341 creditor meeting is held anywhere from 20 to 40 days after you file for the bankruptcy petition. This meeting is necessary for anyone filing for a Chapter 13 or Chapter 7 bankruptcy.

Although you do not need a lawyer to file for bankruptcy, you are strongly encouraged to seek professional legal representation. This is especially true in cases that are complicated, since a lawyer will be able to help you muddle through the legal information to ensure that you are on the right path at all times. If you choose not to enlist a lawyer in your bankruptcy proceedings, you will be representing yourself in the 341 meeting.

During a 341 creditor meeting, the trustee will first swear you in and then begin the meeting. These meetings are usually short and informal, requiring little more than a prepared statement from you.

This statement should state the reason why you are filing for bankruptcy in addition to a list of all of your debts. After the statement has been read, the creditors are able to ask questions. Since few creditors even attend these meetings you won't likely be presented with many questions to answer.

After hearing the information in your statement, the creditors are then able to submit any challenges regarding the debts listed in your statement. Although most creditors will not submit any challenges, you may have debts listed that fall in the space between the dischargeable and non-dischargeable categories.

In the end, a 341 creditor meeting is not meant to embarrass or anger you. The purpose of the meeting is to find all the facts before the case appears before a judge in a court of law.

In addition to ensuring that you are protected as the debtor, the creditors are seeking the same protection for themselves that is offered by the legal system. Having to make a statement and answer any questions that are posed during the meeting helps both of you (debtors and creditors) get the answers and information (and ultimately, the judgment) you are looking for.

Trustee’s Role In Bankruptcy

 

Filing for bankruptcy requires careful consideration and weighing of options. Gone is the stigma of filing for bankruptcy; in it's place is the understanding that sometimes people just need to start over. In fact, a record-breaking two million Americans filed for bankruptcy last year which means you're not alone.

 

If you decide to file for bankruptcy, you'll want to have some idea of what to expect and that includes knowing who the bankruptcy trustee is and what role they play in the entire bankruptcy process.

Regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy you'll have a trustee intimately involved in your case. Chapter 7 and Chapter 13 bankruptcy trustees are appointed by United States’ Trustees. While United States' Trustees are government employees, Chapter 7 and 13 trustees are usually attorneys and accountants. You'd be well advised to realize and remember that the trustee assigned to your case represents your creditors (not you) and is looking out for their best interests.

Trustees appointed to a Chapter 7 bankruptcy case generally have a more limited role than they do in Chapter 13 cases. First, your Chapter 7 trustee will attend creditors' meetings (the 341) and ensure everything is going smoothly with your case. He'll also look at your list of assets (if you have any) to determine what assets are exempt from the bankruptcy proceedings.

 

If you have non-exempt assets, your trustee will oversee the process of selling them and distributing the proceeds equally among your creditors. Trustees in no-asset cases make only $60 for their work, although the National Association of Bankruptcy Trustees is hoping to pass legislation that will increase that fee to $100 in no-asset cases. In asset cases, the trustee earns that fee in addition to a commission from the assets that have been sold.

The bankruptcy trustee in a Chapter 13 case has a bigger role than he does in a Chapter 7 case as the trustee has a dual role with Chapter 13 cases. As we've already discussed, his goal is to represent and look out for the best interest of the creditors (again, not you). However, he's also responsible for reviewing your repayment plan and ensuring you have no difficulties following that plan. You send each month's payment to him and he will distribute the funds among your creditors. Unlike with Chapter 7 bankruptcy, you can generally keep your assets in Chapter 13 since you'll be repaying, in full or in part, your debt.

 

Ultimately, it's important to keep in mind that the bankruptcy trustee wants to recoup as much money as possible for the creditors. Those trustees who work on Chapter 13 bankruptcies earn a percentage of the money collected during the case.

Finally, there is the United States Trustee, of whom you'll likely never have dealings. The United States' Trustee appoints and monitors bankruptcy trustees. In addition, he recommends to the United States Attorneys and Federal Bureau of Investigation that legal action be taken against those suspected of bankruptcy fraud and abuse. In short, according to the United States Department of Justice, the United States Trustee is the "watchdog over the bankruptcy process".

 

The role the trustee will have in your specific case will be determined on whether you file for Chapter 7 or Chapter 13. Your bankruptcy attorney should be able to answer any questions and address any concerns you have about the bankruptcy trustee. If you're filing pro se (do it yourself) be sure to remember who the trustee represents and seek advice from a legal professional if you need to.

 

Bankruptcy and Student Loans

 

Bankruptcy offers financially strapped Americans the opportunity to dig out from under their debt and start anew. It's an opportunity more than a million Americans grab each year. Some of the biggest debtors in the United States are college students who often graduate with a brand new degree and thousands of dollars in student loan and credit card debt. Unfortunately, while bankruptcy can often relieve college grads of their credit card debt, the student loan will likely remain their responsibility.

 

Student loans can only be included in Chapter 7 bankruptcy (most or all debt discharged) if you sufficiently prove that repaying them will cause you and your family undue hardship. According to the findings in Brunner v. New York State Higher Education Services, which set the precedent many courts follow for determining the standards of undue hardship, "(1) the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans".

Meeting the undue hardship clause is extremely difficult, so don't count on that happening unless you meet the strict criteria. If you do feel as though you meet the undue hardship criteria, you or your lawyer must file for an adversary proceeding. What this means is you'll go into court to make and support your case for undue hardship. If you win, your student loans will be discharged in bankruptcy.

 

If you do not win your case for undue hardship, you still might want to consider filing for Chapter 7 bankruptcy if you have substantial credit card or other dischargeable debt. By eliminating your other debt, you may be able to relieve some of your financial burden and pay your student loans more easily.

You may also consider filing for Chapter 13 bankruptcy. Whereas Chapter 7 bankruptcy discharges most or all of your debt, Chapter 13 requires you to pay back most or all of your debt. In some instances, however, the court will allow part of the student loan to be discharged under undue hardship (but only if you prove financial hardship) while the remaining amount is placed into Chapter 13.

 

If you opt for Chapter 13, your bankruptcy trustee will take your financial information - including your total income each month, your recurring debt and disposable income - and create a repayment plan. Due to changes in the bankruptcy law in October 2005, filing for Chapter 13 may mean you'll have a lot less to live on.

Your bankruptcy trustee will calculate your disposable income based on expense guidelines set by the IRS. Unfortunately, in some instances, the expense limit is lower than the actual cost of living which means you might have to deal with money being tight.

However, if neither Chapter 7 nor Chapter 13 bankruptcy is an option for you, don't worry. You still have options for relieving some of the stress. Many student loan companies offer debt consolidation, in an effort to lower your monthly student loan payments and relieve you of some of the financial pressure.

We offer direct consolidation loans, refinance, FHA, 1st Time Homebuyers. Choose the right loan for you, check out. 
 

Bankruptcy Do’s and Don’t’s

 

THE DO's

DO take bankruptcy seriously. It is a constitutional right, and courts take a very dim view of abuse of that right.

DO be honest and forthcoming on your bankruptcy petition. It is against the law to lie in bankruptcy proceedings. That means spill your guts out; you are sacrificing a small portion of your privacy to get a discharge of your debts. If you lie on your petition, or if you conceal assets, you could get in very serious trouble. The least that will happen is that your petition could be dismissed.

DO be honest and forthcoming with your attorney. Even if it is embarrassing, even if it makes you look like an idiot or a crook, it is better if your attorney knows. Giving your attorney insufficient information is like hiring a chauffeur and not telling him or her that your brakes don't work. Anything that isn't listed in your petition may not be discharged.

DO make yourself available to your attorney for discussions regarding the case, especially preparation of the petition and appearance at the meeting of creditors. It is not a waste of your time if it helps you to have an uneventful bankruptcy.

DO follow your attorney's advice about how to behave in the meeting of creditors. Remember, he or she does this almost every day. Don't be afraid to ask him or her if something is appropriate. It's one of the things that you are paying your lawyer for. Your attorney will tell you what he or she wants from you if the Trustee or creditors ask you unexpected questions.

DO consider alternatives to bankruptcy. If you can pay your debts, there may be other things you can do. There are credit consultants and debt consolidators who may be able to help you get through this rough time in your life.

DO give your attorney EVERYTHING in your relevant financial files, again even if it is embarrassing or incriminating. If you have the document, the odds are someone else does too.


THE DON'Ts


DON'T assume that bankruptcy will get rid of all your debts. Some tax liabilities are non-dischargeable (basically, all tax liability accrued in the three tax years prior to filing are non-dischargeable in most circumstances). Student loans are now non-dischargeable except in cases of extreme hardship.

DON'T talk to your creditors directly after you have filed for bankruptcy. Tell them to talk directly to your attorney. If you receive mail from them, forward it to your attorney immediately.

DON'T forget to consider saving some of your credit cards. If any of your credit cards have zero balances, you may be able to keep them. Some card providers may ask you to reaffirm your debt in return for keeping a card, and this is worth considering, especially if there is a small balance. Life can be a lot harder without a credit card.

DON'T keep a creditor off your petition for any reason. If you intend to pay them back, you can anyway.

DON'T run up a lot of bills immediately before you file. If you max out your credit cards or take out a loan before you file, the court could find your petition to be fraudulent and dismiss it, or except those debts from discharge.

DON'T unnecessarily spread the news that you have filed for bankruptcy. It is your business, and unfortunately there is still a stigma attached to bankruptcy. Your friends, and your employers, don't have any right to know that you are in financial trouble.


Some possible credit card discharge issues:

Credit card debt is one of the most common types of debts claimed for a discharge in bankruptcy. When you request a discharge on a debt owed to a credit card company, they can challenge that discharge (called a non discharge ability action), depending on the circumstances. In general, the longer the amount of time between your last use of the card and when you file for bankruptcy, the better.

If you bought a new TV on a card a week before you filed for bankruptcy, you can bet that the creditor is going to challenge the discharge. Other "red flags" for credit card companies that may cause them to challenge your discharge can be: a newly issued card, large cash advances made in the months leading up to your filing for bankruptcy, the use of your card for recent vacations and some others.

However, just because a non discharge ability action is challenged does not mean it will be granted. If you are concerned that a creditor may try to block your request for discharge, you can try waiting to file in order to put some time in between the last use and when you file bankruptcy.
You can also challenge it in court, settle with any creditor who tries to block a discharge or convert to a Chapter 13 in which even debts that may have been incurred fraudulently can be discharged.

 

Credit Cards After Bankruptcy

 

One of the first questions most people have after claiming bankruptcy is "How do I start rebuilding my credit?" The more general answer is slowly but surely. A more specific answer would be to get yourself a credit card and start using it - smartly.

 

Getting a credit card won't be easy, but it certainly isn't impossible either. First things first - you may used to pick your credit cards for travel rewards, points or other perks. Be aware that within a year of claiming bankruptcy, you aren't going to get those "premium cards". All you do by applying for them is rack up credit inquiries on your credit report.

In life you learn to crawl, walk and then run. When rebuilding your credit - especially with credit card companies - after a bankruptcy you have to follow the same steps. This usually involves getting a secure credit card, then an unsecured credit card and then finally having the history to get the premium cards many people take for granted.

There are tons of companies out there offering secured credit cards..A secure card is almost like a debit card. If you put 500 dollars into the credit card account then your limit is 500 dollars. However, unlike a debit card, they don't automatically deduct payments. You pay it off like a regular credit card. But because of the deposit they have no fear of losing any money. If you don't pay, they'll take your deposit to cover the charges (and put a blemish on your credit report, so remember to pay the card).

 

 

Child Support & Bankruptcy

 

Everyone deals with financial stress at one point or another during his or her life. Some can find no way out except to file for bankruptcy. Bankruptcy is often a viable option, but sometimes the process becomes complicated - especially if you're paying child support or if you are receiving child support from an ex-spouse or partner.

 

If you're an ex-spouse or partner receiving child support, the good news is child support is not dischargeable in bankruptcy. Likewise, if you owe back child support - no matter how much - you are still responsible for that debt.

Current and back child support is not eligible for discharge in bankruptcy - ever. Furthermore, any debts resulting from "the nature of support" are also ineligible for discharge. "In the nature of support" debts are debts resulting from your child's care and may include medical bills for your son or daughter's care.

In addition, while collection agencies and creditors are forbidden by law to contact you once you file for bankruptcy, if you're filing for Chapter 7 bankruptcy, action can still be taken to ensure you pay your child support. On the other hand, if you file for Chapter 13, you may receive a temporary stay of collection efforts while the bankruptcy process occurs.

Keep in mind that any stay is only temporary. Regardless of whether you file for Chapter 7 or Chapter 13 the fact remains that you are still responsible for all current and back payments of child support.

 

If you're a parent who owes child support, bankruptcy may be a viable way for you to keep up with your payments, especially if you're wallowing in other debts. By filing for bankruptcy, you may relieve yourself of those debts (if you fit the criteria and file for Chapter 7) or lower those debts (if you file for Chapter 13 which requires you to repay some or all of your debt), freeing your income to pay your child support.

If you prefer something besides bankruptcy, you might want to consider consolidating your debts. Bankruptcy certainly isn't your only option, so you might want to consult with a bankruptcy attorney to discuss all of your options.

On the other hand, if you're an ex-spouse or partner receiving child support, you may want to consult an attorney if you're not receiving the required child support payments. Additionally, alimony payments are also ineligible for discharge in bankruptcy.

 

Regardless of which side of the fence you're on when it comes to child support, you should be aware that neither current or back payments owed are dischargeable in bankruptcy. Many experts advise consulting a good bankruptcy or family attorney to advise you should you consider filing for bankruptcy or if you're having trouble getting child support payments.

 

 

What You Can & Can’t Discharge In Bankruptcy

 

Discharging debts while claiming bankruptcy refers to honest debtors legally eliminating debt owed to creditors. A debt refers to any money owed to any entity. But, don't think that claiming bankruptcy means any and all debt that you have incurred will disappear. There are some restrictions in what types of debts can be erased.

 

The speed in which your debts are discharged can vary depending on the type of bankruptcy you have filed. Chapter 7 bankruptcy filings can have debts begin to be discharged in as little as four to six months. In a Chapter 11, the discharge happens once a plan has been agreed upon and confirmed.

Chapter 12 or 13 filings have debts discharged after the debtor completes all of their payments under their specific Chapter 12 or 13 plan. These discharges usually occur in 4 to 6 years since repayment plans for Chapter 12 and 13 are usually spread over 3 to 5 years.

Debts that usually can not be discharged:

Some of the most common types of debts that are not allowed to be discharged in a bankruptcy case are back money owed for child support and/or spousal support (alimony),  certain types of tax debts, debts that were not listed on the schedules the debtor filed with the court for their bankruptcy claim, debts incurred as a result of willful and malicious injuries to a person or property, debts owed to the government in relation to fines or penalties (such as unpaid tickets) and debts for most types of government funded or guaranteed educational loans..

 

What Is A Bankruptcy Discharge

 

A "discharge" in bankruptcy means that you are legally free and clear of any obligation to repay certain debts; they are gone. The creditor no longer has any right to collect that debt. The debtor no longer has any obligation to repay it.

The timing of the discharge varies, depending on the chapter under which you file. In a Chapter 7 bankruptcy, for example, you normally receive a discharge just a few months after the petition is filed. In a Chapter 13 bankruptcy, the discharge typically occurs when you have successfully finished the payments you agree to make under your plan.

 

What is foreclosure?

Foreclosure is a legal proceeding in which a creditor pursues legal action to take property that they have loaned money against that the debtor has defaulted on their obligation to make payments. 

The legal process for foreclosure varies from state to state.  There are two types of foreclosures, judicial and non-judicial.  A judicial foreclosure involves a lawsuit to take possession of the property, which can take several months to complete.  States that subscribe to a non-judicial foreclosure can complete the process after a mortgage note is defaulted and accelerated by the lender.  After the lender has met the statutory requirements to file a notice of foreclosure, the foreclosure process can be completed in as little as thirty days. 

The sad truth is that too many people delay seeking representation until it is too late. They instead rely on the assertions from their Mortgage Company rather than independent legal counsel.

Bankruptcy can be a helpful remedy to stop a foreclosure proceedings and allow the Debtor to pay back the mortgage arrears on a payment plan that is tailored for their individual budget.

What should you do now?

If you face foreclosure unfortunately time is not on your side. If the Law Office is going to help you make this foreclosure mess go away, we need to talk as soon as possible. The first thing you should do is make an appointment NOW!

 

Why Are Foreclosures On The Rise

You may recall that several years ago interest rates hit an all time record low.  This reduction in interest rates spurred an increased amount of mortgage loans and creative financing.  This creative financing includes what is called an adjustable rate mortgage.  An adjustable rate mortgage allows a consumer to capitalize on extremely low mortgage payments for a fixed amount of time.  However, when interest rates increase, so do the monthly mortgage payments.  Unfortunately, many consumers are caught off guard because they were not properly informed about these types of loans.  These creative mortgage loans, along with other economic factors, have contributed to an alarming increase in foreclosure. 

 

How Can Bankruptcy Stop Foreclosure

Bankruptcy provides for an automatic stay, which halts all collection efforts including foreclosure sales.  Upon notification of a bankruptcy filing, mortgage creditors are REQUIRED to remove a scheduled foreclosure sale from the foreclosure docket and comply with the Debtor’s repayment plan under chapter 13.  For example, a Debtor, who was six months delinquent on a mortgage note with payments of approximately  $1000.00 per month, could file a Chapter 13 Bankruptcy and pay back the $6,000.00 delinquency over a three to five year payment plan.  If the debtor meets the other requirements to make the Chapter 13 Bankruptcy plan successful, this can be the difference between a Debtor keeping or losing their property.

 

Can I Stop Foreclosure Without Filing Bankruptcy?

It is possible to stop a foreclosure sale without filing for bankruptcy.  Mortgage companies, to meet the problems associated with the rising levels for foreclosures, have internal departments set up specifically to assist debtors struggling with mortgage deficiencies.  There are some common non-bankruptcy options that include loan modifications, interest rate reduction, and forbearance agreements.  Of the three options mentioned, perhaps the most widely used non-bankruptcy option is a forbearance agreement.  A forbearance agreement allows the Debtor to cure the mortgage arrears by making payments in addition to the regular monthly mortgage payments over a short period of time in an effort to bring the loan current.  In exchange, the mortgage company will remove the foreclosure sale from the foreclosure docket and allow the Debtor to complete the proposed payment plan.  A forbearance agreement is an excellent resource to be used when the mortgage deficiency is caused by a short-term interruption in income, and the debtor is now making full wages.  If the Debtor is not able to make a full mortgage payment and an additional payment, then a forbearance agreement will not be successful


New Bankruptcy Law

Congress created a new bankruptcy law in 2004. The major impact of this new bankruptcy law created qualifications for Chapter 7 filers. A Chapter 7 bankruptcy filing discharges all of the debtor's debts and allows for a fresh start. To be eligible for Chapter 7 under the new bankruptcy law a maximum debt level and maximum asset level must not be exceeded by the debtor.


Bankruptcy Myths

All those bad things you’ve always heard about Bankruptcy…

Most of it is FALSE and I can prove it to you NOW…

Here are the Top 15 Myths About Bankruptcy that your
creditors don’t want you to know.

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. Making current, full payments on debt is one way to start building your credit while you are still in the bankruptcy. Once you are out of bankruptcy, make sure that you watch your income to debt ratio and try to not finance more than 40% of your credit limit.

Myth 2:
Everyone will know you filed for bankruptcy.

Not True. Bankruptcy is public record but unless you are a prominent official in society, 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. Some people think that newspapers carry bankruptcy filing information, but in our area, this is simply not true.

Myth 3:
There is no help with the new bankruptcy law.

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.

Myth 4:
You are a bad person 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 solution to help good people go through a bad time. It provides hard working people with the fresh start that they deserve, but are not able to obtain. 

Myth 5:
You can pick and choose what to put into bankruptcy.

Not True. You do have to list all of the debts that you owe and the property that you own. You cannot discriminate between creditors, even if you want to keep paying them. It is good to want to continue paying creditors, but it is still mandatory to include the debt. If you feel like paying it after the bankruptcy then go ahead, but you will not be obligated to.

Myth 6:
It's hard to file for bankruptcy.

Not True. There is a lot of paperwork involved, but having a skilled attorney makes the process much smoother. Filing bankruptcy is even electronic these days, which minimizes paperwork on your part.

Myth 7:
You will never be able to own property again.

Not True. You will get credit card offers and be extended credit right after the discharge of your bankruptcy. There are also creditors that will lend to you while you are in bankruptcy. You will be able to purchase whatever you can afford.

Myth 8:
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. Laws that allow you to keep property vary from state to state and you should consult an attorney in your area to property advise you of the laws in your jurisdiction. 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 9:
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 10:
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. In addition, sales taxes must be repaid and cannot be wiped out by filing bankruptcy. 

Myth 11:
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 12:
You can never get credit again.

Not True. You will start establishing credit from day one. Bankruptcy wipes out debt, which in turn helps your credit score. By making timely payments on the property that you choose to keep also shows a record of good credit. You will be able to get credit as soon as your bankruptcy is discharged and sometimes sooner.

Myth 13:
Only losers file for bankruptcy.

Not True. 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.

Myth 14:
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 15:
Filing bankruptcy causes more family trouble and divorce.

Not True. Bankruptcy eliminates debt eliminating 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. The absence of financial stress will give your relationship a fighting chance.


Credit Awareness

Every consumer who uses credit has a credit profile and a FICO score.  Do you know yours?

Every time you apply for credit, creditors obtain your credit  report  to verify your  past credit history .  They use your FICO score and history to determine the likelihood that you will repay the debt.    The use of these reports has broadened. Insurance companies have begun to use them to determine premiums or deny coverage. Potential employers may even use your credit report to determine if you're the right candidate for a job.

And yes -- it's perfectly legal!  Nowadays, very few transactions that involve personal finances or any type of loan will not examine your FICO score.  It's that important.


Rising interest in credit scores

Today, a credit record is more than just a dry report on how many credit cards you have and whether you have made your payments on time. Credit reporting agencies distill consumers' credit profiles into a three-digit number called a FICO score. That number alone can determine the interest rates you're offered. It's not surprising that as credit scores become more important, consumers are taking more interest in these three-digit numbers. A high score saves you money, a low score costs you. This fascination with credit scores has led to more interest in credit awareness - giving consumers the knowledge they need to maximize their score potential.


Wouldn't you like to increase your FICO score? 

The need for such a service is obvious. Practically every consumer has inaccurate or outdated information on a credit report from one of the three major credit bureaus.

These errors can be costly, and it's up to the consumer to get them corrected. The credit bureaus are not obligated to root out errors and provide accurate information. Their job is to record the information presented to them by creditors.

Call for help?

So, if your score is low or your credit report is inaccurate, what are your options? It's like hanging wallpaper -- do you call a professional paperhanger, or tackle it yourself? 

"Many people feel that bankruptcy will destroy their credit for a 7 to10 year period of time. I have seen people overcome and rebuild their credit in as little as 2 years. Just remember, what matters most is not that the bankruptcy happened….it’s how you come out on the other side. One of the best ways to begin re-establishing your credit immediately Visit Here


Getting Started And A Mortgage After Bankruptcy

There are some simple steps that anyone who files a bankruptcy needs to take in order to restore themselves financially.

Using these steps below, you can restore your credit and prepare yourself to become a homeowner.

1. Get a copy of your credit report.
Many times (most times) the credit accounts that are absolved with your bankruptcy are not removed from your credit report immediately. You can contact each credit reporting agency (Equifax, Experian, and TransUnion) directly to get a copy.

2. Have derogatory credit items that were charged off in your bankruptcy removed from your credit report.
You will need to send a copy (not the original) of your bankruptcy discharge papers to all 3 of the credit bureaus asking them to remove these inaccuracies. This process can be done by mail for free, or online for a small charge by the agencies.

3. Pay all of your bills on time.
Bankruptcy is a means to financial recovery. It is intended to allow you to "start over" financially. After your bankruptcy, you need to make sure that all of your bills are paid on time. If you are having trouble with an upcoming bill, DO NOT IGNORE IT. This is where most people go wrong. Call your creditors before they call you and let them know what your challenges are. If you can't get a reasonable rep on the line, ask for a supervisor, but again, do this as early as possible, not the day the bill is due or after it is late. If you are having trouble with your bills, you may need to solicit some help.

4. Have a strong documented rental history.
This is critical as it is most likely the largest monthly expense that you have. Underwriters (the people that actually sign off on your loan's approval) will look very hard at how you have paid your rent as they are going to replace it with a mortgage payment of equal or greater size. It is very important to be able to document your rent payment history very specifically. If you rent from an apartment community, then all the bank will have to do is request a Verification of Rent (a.k.a. VOR). If you have a private landlord, then the BEST way to document this is with cancelled checks for the last 12 months rent. Banks can do VOR's for private landlords, but rarely do because they feel that a landlord may have a relationship with the borrower and say what the bank wants to hear to help them get a loan. If you pay with cash or money orders, please stop doing this immediately and start paying with checks. Simply put, this is hurting you because by filing a bankruptcy you have already shown some financial instability. Paying your rent with cash or money order shows further financial instability and will not give you the positive rent history that the underwriter is looking for to give them the confidence in approving your loan.

5. Apply for a secured credit card.
A secured credit card allows you to make a deposit into an account to secure a credit card and then borrow against it to establish a new positive payment history. As time progresses, the bank may increase your credit line to an amount greater than your deposit, and then eventually return your deposit to you. (They will also often pay you interest on your deposit.) Be very cautious of companies that charge excessive fees or interest rates for their secured cards.

6. Prepare "non traditional" trade references
These are accounts that you pay on such as cell phones, car insurance, and store accounts which can be used to document a positive payment history, but would not be traditionally reported to a credit bureau. Ideally, if you can provide 3 of these accounts with a 12-month payment history, this will help your loan officer in convincing the banks underwriter that you are a good credit risk. The best way to document this is with a letter from the company stating that you have had a positive payment history with them for the past 12 months. Alternatively, you can provide 12 months of cancelled checks showing 12 months of timely payments.

7. Resist the urge (or encouragement) to buy a car.
Some may tell you that this is the best way to rebuild your credit. The problem is that your interest rate will be so high, that your payments will make your debt ratios higher than normal, making it harder to qualify for a mortgage. Do you remember the figure of 45-50% of your monthly income that the bank will allow you to use towards your debts? This will quickly be absorbed by a car payment.

Only buy a car if
a) you NEED (not want) a car, and
b) you have the income to cover the car payment, any of your current debts, and your proposed new car payment.

We have seen SEVERAL people that have cars rather than homes because they went out and bought a car that they could not sell and their debt ratios were too high to qualify for a mortgage. It would be a shame to have a nice car (that depreciates daily), as opposed to a more humble car along with a mortgage on a home that gives you a tax break, and increases in value over time.

I hope this is helpful and helps get you on your way to financial recovery and on to finding the home of your dreams.

Using a Mortgage Broker

If you have filed bankruptcy and are seeking to buy a home, your best option is to utilize the services of a reliable mortgage broker. They will be able to get you the best deal suited to your individual situation, taking into account the following factors:

  • Nature of the bankruptcy filed
  • Length of time elapsed since discharge
  • Whether bankruptcy is still active
  • Current credit score
  • Whether you have reestablished credit since the bankruptcy

A mortgage broker is your best bet for securing a home loan, because they have access to countless lenders with flexible lending guidelines.

This is in contrast to your local bank, which probably has one fixed set of guidelines that will probably place you in a disadvantageous position for obtaining a mortgage in view of your bankruptcy filing.

Financing Issues

If you are currently in a chapter 13 bankruptcy, it is possible for you to refinance. However, this requires obtaining the bankruptcy court's permission. When seeking permission to refinance, you will have to show the court that you have been consistent in making payments into the plan for at least a year. Refinancing in these cases usually has a maximum loan to value (LTV) limit of 70 to 80 percent.

Lenders usually look at the type of bankruptcy you filed when deciding on the type of mortgage financing to offer. For a bankruptcy under chapter 7, the lender will look at the date of discharge; whereas in a chapter 13 bankruptcy, they will consider the date of filing when making a decision to approve your mortgage.

The fact that you have filed a bankruptcy should not deter you from applying for a mortgage. Your financial position may even be much stronger post-bankruptcy, and you will be able to secure your family’s financial future.

You should know that filing for bankruptcy does not exclude you from being offered a mortgage. It merely means that you are a higher risk borrower, which in turn means that the rates of interest may be higher and the mortgage fee may be somewhat more than what is charged from other borrowers - but getting a mortgage is still something you can do.

Additionally, because filing bankruptcy clears all of your debts, giving you a clean financial slate, lenders may be more inclined to consider your mortgage application favorably.

If you have questions about your ability to secure a mortgage, Consult Here


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