When Bankruptcy Is The Best Decision
The worst thing about filing bankruptcy is agonizing over the decision to file. Many people worry about under-going a grueling investigation concerning their finances, losing everything they own, and having to deal with a very public court proceeding. The truth is that bankruptcy can be the best decision for someone drowning in debt.
Once you decide to file bankruptcy, you will discover that the procedure is very simple and straight-forward. The bankruptcy process essentially breaks down to an accounting to determine whether you have sufficient assets or income to pay something to creditors. If you do, then your creditors will receive some payment and the rest of your debts are discharged. If you don’t, then creditors receive nothing and are discharged. There are a few narrow exceptions to discharging debts, like student loans, child support, and recent taxes, but most debts are dischargeable.
Nearly all those who file bankruptcy are able to keep all of their property. The United States Trustee Program reports that nationwide only around four percent of all Chapter 7 bankruptcy cases have assets that are turned over to the bankruptcy trustee. That means one case in twenty-five may have non-exempt property that is taken and sold to pay creditors. An experienced bankruptcy attorney is able to identify assets that may be at-risk and will advise the client regarding options for protecting the asset from turn-over.
Many people are unaware that the bankruptcy process is quite private. The press reports on celebrities who file bankruptcy, but unless you are famous or infamous, you will likely not receive any attention. Newspapers no longer publish the names of individuals who file bankruptcy. Notice of your bankruptcy is sent to your creditors, but not to your friends, family, bank, or your employer (unless you owe money to them).
The typical debtor never sees the bankruptcy judge, and there is generally one meeting with a bankruptcy trustee. This meeting will take place with other debtors and, while it is open to the public, it is rare that anyone other than debtors, attorneys, and an occasional creditor attends this meeting. Most clients report being very nervous about meeting with the bankruptcy trustee, and are surprised at how fast and easy the meeting actually is.
Many clients confess that bankruptcy was the best decision to discharge overwhelming debt. Once the burden of debt has been lifted, you feel better and your financial condition can begin to improve. If you are struggling with debt, speak to an experienced bankruptcy attorney and learn how the federal bankruptcy law can provide you with a fresh start.
How Often Can I File Bankruptcy?
Filing bankruptcy is a difficult decision, but sometimes life dictates choices to us. Financial disaster can blind-side any of us, like a job loss or medical catastrophe. Whatever the reason, individuals occasionally need the protections of the federal bankruptcy laws a second time.
An individual can ordinarily file a bankruptcy case at anytime, however there may be restrictions on the relief that is available. The most common restriction is the eligibility to receive a bankruptcy discharge. To receive a Chapter 7 discharge, you must file your case eight (8) years after your previous Chapter 7 case was filed, or six (6) years after your Chapter 13 case was filed. To receive a Chapter 13 discharge, you must file your case four (4) years after your previous Chapter 7 case was filed, or two (2) years after your Chapter 13 case was filed.
In some cases, receiving a bankruptcy discharge may not be important to the debtor. For instance, if a debtor has a non-dischargeable debt like child support or taxes that must be paid, bankruptcy can offer an organized process for payment while the debtor retains some control.
Another less common restriction concerns the automatic stay. If your bankruptcy case is dismissed within the past year, the bankruptcy court assumes that your second bankruptcy is filed in bad faith. The automatic stay will only apply for 30 days after your second filing. A hearing is required to extend the automatic stay and you must convince the court that you have filed in “good faith.” If you file two or more cases within the past years, you must petition the bankruptcy court for a stay – it is not automatic for any period of time.
Finally, you are not eligible to file at all if your case was dismissed by the bankruptcy court within 180 days due to a willful failure to obey an order of the bankruptcy court, or if your case was voluntarily dismissed after a creditor sought to lift the automatic stay to enforce a lien against your property.
Filing a second bankruptcy is not uncommon. Congress has established a few additional rules to deter abusive serial filers, but bankruptcy protection is available for the honest yet unfortunate debtor. If you need assistance with filing a second bankruptcy case, contact an experienced bankruptcy attorney and get the relief you need.
Bankruptcy and Divorce
Harvard law professor and bankruptcy expert Elizabeth Warren has stated that the economic fallout from divorce is a leading cause of bankruptcy. The divorce process assigns debt, awards assets, and can significantly deplete marital assets. In many cases, one or both spouses are in a difficult financial position after the divorce. If the fall-out from your marital debt is pushing you and your spouse into divorce court, consider how a bankruptcy can alleviate the stress and simplify your finances. Filing bankruptcy before starting a divorce proceeding can be advantageous to both parties, and, in some cases, can even save a marriage.
A common problem after a divorce is the family court’s order concerning joint debt. The order will typically direct one party to pay or refinance a joint debt. Many are surprised to learn that this order does not relieve a parties’ obligation to pay the debt. The simple explanation is that the family court judge does not have the authority to rewrite a contract between you, your spouse, and a creditor who is not a party to your divorce. If your spouse does not pay the joint debt, your credit may be harmed.
On the other hand, by filing a bankruptcy prior to the divorce, most joint debts can be legally and finally terminated either by payment or discharge. Additionally, by resolving many of your outstanding debts, it is easier to negotiate the remaining obligations between you and your spouse.
Married couples also enjoy protections in bankruptcy that single debtors do not receive. For instance, married couples often receive increased legal exemptions that protect property from creditor attachment. These exemptions may be lessened or no longer available once the divorce is finalized. In other words, what you could protect in bankruptcy while married may not be protected after a divorce.
To say that the interplay between the state family laws and the federal bankruptcy laws is complex is a gross understatement. However, many of these complexities can be avoided by filing a bankruptcy ahead of a divorce. In some cases, the couple decides to stay together after the financial strain is removed by the bankruptcy.
If you and your spouse are considering divorce, consult with an experienced bankruptcy attorney and have your finances examined. If bankruptcy is a possibility, it is generally better to proceed with the bankruptcy case prior to the divorce.
Medical Treatment And Bankruptcy
It is no surprise that illness is a chief contributor to personal bankruptcy. In fact, a 2009 study released by Harvard researchers claims that 62% of all personal bankruptcies during 2007 were caused by health problems. Many individuals struggling with medical bills need relief, but worry about how a bankruptcy will affect their ability to receive medical care in the future.
Under the Emergency Medical Treatment and Active Labor Act hospitals and ambulance services are required to provide emergency healthcare to a person regardless of ability to pay. This federal law requires appropriate medical screening, necessary stabilization, and transfer to an appropriate facility for treatment of an emergency condition. In broad general terms, if you have an emergency medical condition, a hospital ER must treat you.
If you do not have an emergency medical condition, the hospital or doctor may refuse treatment to a bankruptcy debtor. It is unusual for a hospital to deny service after bankruptcy unless the patient demonstrates an inability to pay the new bill. If you have insurance or other form of guaranteed payment, the hospital will likely treat you.
Individual physicians are more likely to deny services if you have discharged their bill. Many bankruptcy debtors want to continue a relationship with their personal doctor, and consequently make payment arrangements after the bankruptcy has been filed. While the bankruptcy law requires the debtor to list every creditor, there is no prohibition against paying a debt after the bankruptcy. Paying the debt does not renew or create a new obligation and the doctor may not take action to collect a discharged debt (i.e. writing or calling to encourage payment).
If you need to include medical bills in your bankruptcy, but worry about receiving future medical care, consult with your bankruptcy attorney. In most cases there is no interruption in medical care or treatment. Know your legal rights and be informed of how your bankruptcy will affect your ability to receive medical care.
Qualifying for Student Loans After Bankruptcy
Many students are unable to attend college without federal financial aid. Fortunately, a bankruptcy filing does not affect a student’s ability to obtain need-based financial aid. For most students that means Pell Grants and Stafford Loans, both subsidized and unsubsidized. Your credit is not considered in determining your financial need to receive Pell Grants and Stafford Loans and your bankruptcy filing does not disqualify you from receiving need-based financial aid. Pell Grants and Stafford Loans are the two most common forms of financial aid to undergraduate college students.
Stafford Loans during a Chapter 13 bankruptcy presents a problem for the student. You will need permission from the bankruptcy trustee and bankruptcy court to incur additional debt. These requests are handled on a case-by-case basis, so consult with your bankruptcy attorney if you want to take loans to attend school during a Chapter 13 bankruptcy.
Credit-based financial aid is a different story. This type of financial aid includes student loans from private lenders such as Sallie Mae. Applying for credit-based loans is the same as applying for an unsecured personal loan. Your credit history is considered and your bankruptcy will play a part in the decision to give you the loan.
Your credit is also considered if you are a parent applying for a parent loan like the PLUS (Parental Loan for Undergraduate Students) Loan and the Graduate PLUS (a loan for Graduate students) Loan. These federally guaranteed parent loans are credit based and federal regulations state that a parent with a bankruptcy within the past five years is automatically disqualified from obtaining a PLUS Loan for his or her child, unless there were extenuating circumstances or the borrower obtains a creditworthy endorser. However, if you are denied a PLUS Loan, your child qualifies for increased unsubsidized Stafford loan limits. Stafford loans remain in forbearance while the student attends school, while a PLUS Loan is subject to immediate repayment.
If you are a student or parent who needs money for school after a bankruptcy, speak with your student financial aid advisor and your bankruptcy attorney. Bankruptcy can help eliminate your personal debt and free money for college, or college loan repayment.
Keeping Household Items During Bankruptcy
Many people mistakenly believe that the bankruptcy court will take everything they own and sell it to pay creditors. Some of their descriptions of bankruptcy conjure up images of a poor unfortunate walking the streets wearing a wooden barrel with no property or money to his name.
Well, you can stop worrying about barrel chafing because there are many legal protections that allow you to keep household property during bankruptcy. These protections are generally limited to “common sense” amounts and typically apply to clothing, household furniture, musical instruments, books, electronics, appliances, etc.
One stated goal of bankruptcy is to give the debtor a “fresh start,” so Congress and state legislators attempt to balance the requirement of the debtor to have basic necessities against your creditors’ interests in receiving payment for your debts. The idea is to permit the debtor the things he needs for day-to-day living while prohibiting the debtor from living a lavish lifestyle at the expense of his creditors. For instance, if you have a Steinway grand piano worth $50,000 in your living room, it will likely be taken and sold to pay creditors. If you have a family piano worth $2,000, you can likely keep it.
The truth is that only around four percent of Chapter 7 bankruptcy cases are “asset cases,” meaning the bankruptcy trustee receives money or an asset from the debtor. In the vast majority of these “asset cases” the debtor loses a car or real estate in which he has too much equity. It is very rare to see a debtor lose any household item during a Chapter 7 bankruptcy. Debtors in Chapter 13 keep their property.
Determining whether a household item is at risk is a simple arithmetic calculation. First, start with the liquidation value of the item. Often this value can be determined by looking at yard sales or internet auction sites like Ebay. Next subtract the applicable state or federal exemption amount for that item. Any remaining sum is unprotected equity. Your bankruptcy attorney can discuss your options for protecting and keeping items with unprotected equity.
It is important to correctly describe, value and apply the proper exemptions to household items in your bankruptcy schedules. Once you have provided an adequate description and value of your household items, your attorney can apply the proper exemptions and protect your property from turn-over to the bankruptcy trustee. Discuss any high-dollar household item with your attorney to ensure that you obtain full legal protection for your property.
Who Will Know About My Bankruptcy?
Filing bankruptcy is a very personal process. Many clients worry that their friends and neighbors will learn about their bankruptcy. A common question is, “Who will know about my bankruptcy?”
First, personal bankruptcy cases are generally not reported in the local newspaper. Unless you are a celebrity or public figure, your bankruptcy is not newsworthy. More than 1.4 million consumer filings were recorded last year, so many larger newspapers would have to publish thousands of bankruptcies in their papers each month. It is not cost-effective for a newspaper to search through the bankruptcy court records to find individuals who filed in their distribution area and use valuable print space to report on personal bankruptcy cases.
Second, the bankruptcy laws require notices of the bankruptcy filing to go out to the following:
- Everyone you owe money (called “creditors”);
- The bankruptcy trustee;
- Co-signors and co-debtors; and
- You and your attorney.
Under special circumstances other notices are sent, for instance if you owe taxes, or if you want to terminate a lease or contract. Family, neighbors, friends, your employer, your bank, etc. will generally not receive notice of your bankruptcy. A common exception to this general rule is when the debtor causes a voluntary wage withholding to pay chapter 13 plan payments.
Third, while bankruptcy court proceedings and trustee meetings are open to the public, it is unusual for the press or members of the public to attend. Most of these meetings are very brief and can even be a little boring.
Finally, other than receiving notice of the bankruptcy filing from the bankruptcy court, there are only a few ways to learn of a bankruptcy case. The most common way is to contact the bankruptcy court directly. Most bankruptcy courts have an automated telephone system that will provide basic case information to the public.
Filing a bankruptcy petition is generally a private and confidential process. While there are no guarantees that your friends and neighbors will not learn about your bankruptcy, chances are they will not unless you decide to tell them. However, every case is different. If you have specific questions about the effects of filing bankruptcy, consult with an experienced bankruptcy attorney.
Changes in Law Make Bankruptcy More Accessible
Effective April 1, 2010, certain dollar limits contained in the Bankruptcy Code increased. A full comparison of the current and changed amounts can be found by following this link. These most meaningful changes to consumer bankruptcy cases are:
- An increase of the eligibility limit for Chapter 13 from $336, 900 to $360,475 in unsecured debt, and from $1,010,650 to $1,081,400 in secured debt;
- The federal homestead exemption increases from $136,875 to $146,450; and
- The presumption of fraud for luxury items purchased with a credit card within 90 days of a bankruptcy filing increases from $550 to $600; and the presumption of fraud for credit card cash advances within 70 days of filing increases from $825 to $875.
Many other dollar amount increases took effect on April 1, 2010, including increases to protected educational accounts, increasing restrictions to the bankruptcy trustee’s powers under certain circumstances, and increased protection for retirement accounts. In all, these increases will make the bankruptcy attorney’s job of protecting the consumer debtor a little easier, and make the bankruptcy process more accessible. Please note that these changes will only affect bankruptcy cases filed on or after April 1, 2010.
If you and your family struggle each month to pay bills, consult with an experienced bankruptcy attorney and discuss your financial options. There are many repayment and “walk-away” options available under the Bankruptcy Code. Get the facts and don’t let debt ruin your life.
Employment Discrimination and Bankruptcy
Most bankruptcy clients worry about how a bankruptcy might disrupt their lives. While many of these fears are unfounded, it is important for you to know the truth about the bankruptcy process and how it may affect you after your case is filed. One serious matter is how a bankruptcy may affect an individual’s employment.
The first concern is how a bankruptcy can affect your current job. An employer will not receive notice of your bankruptcy except under two circumstances. First, if you owe a debt to your employer, the bankruptcy court will notify your employer. Second, if you file a chapter 13 debt repayment bankruptcy, and choose a voluntary wage garnishment to pay creditors, your employer will be notified.
Additionally, section 525 of the Bankruptcy Code prohibits a government or private employer from terminating or discriminating against an employee who files bankruptcy. You cannot be fired from your current job because you filed bankruptcy.
A second concern is how a bankruptcy may affect your ability to get a job. Government employers are absolutely prohibited from denying employment to a person solely on the basis of a bankruptcy filing. As for private employers, most courts have found that the bankruptcy code does not prohibit a private employer from denying a person employment because of a bankruptcy filing.
Refusing to hire a person solely because of a bankruptcy filing seems like a very short-sighted and naïve policy. Consider that the U.S. Census Bureau estimates there are around 308 million people in the United States. From 2000 to 2009, there were over 13 million non-business bankruptcy filings (source: American Bankruptcy Institute). That is over four bankruptcy filings per one hundred people. That figure rises substantially once you take into account that the census includes many that are not in the “working” population, and that many of the non-business bankruptcy filings were joint husband and wife filings. Add to the fact that there are many legitimate and blameless reasons for filing bankruptcy, and it is no wonder that most employers do not discriminate based upon a bankruptcy filing.
If you are experiencing financial difficulty, consult with a bankruptcy attorney and explore your options. Bankruptcy is a federally guaranteed legal process that helps individuals recover from overwhelming financial hardship. Get your financial fresh start today.
Buying a Home After Bankruptcy
Sometimes a young couple who has struggled for years will finally decide to file bankruptcy. For a young family the financial difficulty is often a combination of unstable income, medical bills and overextended credit. While desperate to buy their first home, they have resigned themselves to the belief that the bankruptcy will prevent home ownership for the foreseeable future.
Not so.
Most debtors emerge from bankruptcy financially stronger and determined to not repeat past mistakes. Many debtors who receive bankruptcy discharges have steady jobs, no unsecured debt, and low debt-to-income ratios. Additionally, a bankruptcy debtor cannot receive a second discharge for several years. That actually sounds like a good credit risk combination, right?
The federal government recognizes that a person who has recently discharged unsecured debt through bankruptcy has little debt, but must demonstrate a commitment to managing credit in a responsible manner. That is why the FHA credit guidelines require the debtor to show two years of responsible credit management after the bankruptcy discharge before it will issue a federal guarantee on a home loan. It is also possible to obtain a federal guarantee after twelve months, if the debtor can show that the bankruptcy was caused by extenuating circumstances beyond his or her control. An FHA guarantee means that the lender is guaranteed money if the borrower defaults on the loan. This federal guarantee makes your loan application more appealing to banks and other lenders.
Rebuilding your credit report and safeguarding your credit score is very important if you want to buy a house after bankruptcy. Your bankruptcy attorney can provide helpful tips regarding the rebuilding process and help you on the path to home ownership.