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 Long Will My Chapter 7 Bankruptcy Take?
The typical Chapter 7 bankruptcy case will take three to four months. The Bankruptcy Code has established certain deadlines during a Chapter 7 case that dictate how long the case must remain open. Additionally, delays by the debtor, the trustee, creditors, or even the bankruptcy court can prolong a case.
Most debtors are confused as to when the bankruptcy case is finished. There are actually two different events that happen near the end of a Chapter 7 case: the discharge and the closing of the case. The discharge is a permanent injunction entered by the bankruptcy judge prohibiting certain creditors from collecting from the debtor personally. The discharge injunction is ordered near the end of the case, but cannot be entered until after the last day for creditors to file objections has passed. That day is set by the Bankruptcy Code as 60 days after the date first scheduled for your 341 Meeting of Creditors. The date is also listed on the 341 meeting notice.
While the bankruptcy court may enter the discharge order before the case is closed, your case is not finished until a final order is issued closing the case. When there are no assets to distribute, the bankruptcy court will often enter the discharge order and the order closing the case on the same day. If there are assets to distribute or objections to the discharge of a debt, your case may remain open for several months. Statistically, only one in twenty five Chapter 7 cases have assets to distribute to creditors. The typical Chapter 7 case is discharged and closed soon after the objection deadline passes.
Your Chapter 7 case will likely take between three to four months from start to finish. One of the main advantages in hiring an experienced bankruptcy attorney is the benefit of the attorney’s efficient processes that will take your case from start to finish without complication. Your attorney can identify and correct potential problems before you file your case, and avoid any delays getting you the relief you need. If you are considering bankruptcy, consult with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you.
Three Easy Steps To Rebuilding Credit After Bankruptcy
There are many misconceptions about the possibility of obtaining credit after bankruptcy. The truth is that improving your credit score takes time and vigilance. If you are willing to commit your attention to rebuilding your credit, your score will improve dramatically and quickly by following three easy steps.
First, immediately after your case closes (usually soon after you receive your discharge), obtain your credit reports from the three largest credit bureaus: Experian, Equifax, and TransUnion. You can obtain an absolutely free credit report from each of these companies by visiting this site: https://www.annualcreditreport.com
Review your credit reports for errors. All debts discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” There should be no activity reported on these accounts after the date you file bankruptcy. Each credit bureau is required to provide assistance in correcting errors on your credit report. Once the credit bureau has corrected the erroneous information it will send you an updated report.
Second, obtain new credit. Many debtors are reluctant to take this step either out of fear of rejection or fear of abusing available credit. The only way to improve your credit score is to demonstrate a responsible use of credit over time. Approximately 1/3 of your score is based on your payment history; 1/3 is your available credit; and 1/3 is various items like types of credit and length of credit history. Obtaining new credit is necessary to improve your credit score after a bankruptcy.
Many debtors are amazed at receiving credit card offers in the mail just after they receive the bankruptcy discharge order. Some of these offers carry very high interest and fees, so select your new credit card account wisely. If you do not already have an installment loan, like a car loan or home loan, you should consider obtaining a secured loan from your local bank. This loan is secured by a deposit held by the lender. For instance, you deposit $500 in a savings account or CD, and the bank loans you $500. If you decide to arrange a secured loan, make sure that the bank will report your monthly payments to the credit bureaus.
Third, make your payments on time! Bankruptcy is a serious negative mark on your credit report, but it stops all other negative reports. Lenders place considerable weight on how you have handled your credit accounts since your bankruptcy. One 30 day late entry on your credit report can significantly harm your credit score when coupled with a bankruptcy. Safeguard your credit by ensuring your bills are paid on time.
Rebuilding your credit is not difficult, but it takes time and vigilance. Fixing errors on your credit report, obtaining new credit, and dealing with your creditors in a responsible manner are the three steps on the path to improving your credit score. Make the most of your fresh start by taking these steps to improve your credit score.
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.
Discharging Bad Checks In Bankruptcy
There are generally two types of “bad checks.” The first type is the kind that is “payable on demand” meaning that it is expected that the bank will honor the check when it is presented. This is the most common type of bad check. When you write a check that the recipient believes is “payable on demand,” and the check is returned for Non-Sufficient Funds (NSF), you may have committed a criminal act. Depending on the amount of the bad check written, a person can be prosecuted for a misdemeanor or a felony. Even if you later make payment on the check there may be criminal charges or substantial fees and/or fines.
A NSF “payable on demand” check is not dischargeable in bankruptcy and bankruptcy will not exonerate you of a criminal act. The bankruptcy automatic stay does not apply to stop criminal prosecutions. Likewise, any debt to the victim of the bad check is now considered criminal restitution, also not dischargeable in bankruptcy. Any restitution, costs, and fines are not discharged by the bankruptcy.
While criminal prosecution of a bad check case is not affected by your bankruptcy, private collection is stopped by your bankruptcy. Any civil legal action concerning a bad check must stop, and any civil garnishment or other collection action must cease.
The second type of bad check is the post-dated check. These checks include payday loans and other checks that are essentially promises to pay in the future. You and the receiver are aware that the check is not presently negotiable. The bank will not pay the check because you don’t presently have the money in your account.
With a few narrow exceptions, being unable to pay a post-dated check is not a criminal act. However, it may be a crime to write a post-dated check that you intend to include in your bankruptcy. Typically the recipient of the post-dated check would have to file an adversary case with the bankruptcy court and prove that you committed fraud in writing the check with no intention to ever pay it.
If you have outstanding bad checks and are considering bankruptcy, discuss your situation with an experienced bankruptcy attorney. Your attorney can advise you on the best way to deal with a bad check during your bankruptcy.
Discharging Bank Account Debt During Bankruptcy
A bank account debt can offer many challenges to an individual in bankruptcy. Usually a bank account debt originates from fees associated with an overdrawn account. These fees can quickly accumulate and result in a debt of hundreds of dollars. A bankruptcy will generally discharge this debt, assuming the debt was not incurred by fraud or criminal activity. However, the issue is often should you discharge your bank account debt rather than can it be discharged.
In deciding whether to discharge a bank account debt, you must determine if repayment is feasible. In cases where the debt is small, the account is still open, and you have the resources to pay the debt, repaying the debt is generally the best option. Remember to consult with your attorney before repaying any debt prior to filing bankruptcy. In many cases it is advantageous to wait until after the case is filed before repaying a debt.
If paying the bank account debt is not feasible, you may face several negative consequences. First, the bank will close your bank account. Second, over eighty percent of all banks use Chexsystems, a consumer reporting agency that provides information regarding accounts at banking institutions. Negative information may remain on your Chexsystems file for five years. To view your Chexsystems report for free, visit: https://www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm
While a bankruptcy will discharge a bank account debt, factual information concerning the debt will remain on your Chexsystems report after the bankruptcy. This information is available to financial institutions and may prevent you from opening another bank account.
Fortunately, there are programs available to an individual with a derogatory Chexsystems report offered by banks, universities, and not for profit groups. One of the most popular is the “Get Checking” program offered by several groups around the country. The University of Missouri Extension offers a typical “Get Checking” program, which requires a debtor to pay all outstanding bank fees on the prior bank account and take a six-hour checking education class. The debtor then receives a certificate of completion which can be used to open a new account at a participating financial institution. If ChexSystems reports suspicion of fraud on a prior account, a certificate will not be issued and institutions are not required to open an account.
If you have an overdrawn bank account and are considering bankruptcy, discuss your financial situation with an experienced bankruptcy attorney. There are many options to deal with bank account debt, but the situation can only grow worse from procrastination. Quick action is the best cure for this type of debt.
Discharging Taxes In Bankruptcy
Generally, in order to discharge a tax debt during bankruptcy, the tax debt must meet all four of the following criteria: (1) the tax must be income taxes or “gross receipt taxes;” (2) the tax must be over three tax years old; (3) your tax return must have been filed on time; and (4) the tax debt must not be amended or challenged by the IRS as inaccurate.
There are four different types of tax debts that are automatically excluded from your bankruptcy discharge:
- unpaid taxes due within three years of the bankruptcy filing;
- unpaid taxes for returns filed late, but within two years of the bankruptcy filing;
- unpaid taxes for tax years when the debtor did not file a return; and
- unpaid taxes due when the debtor filed a fraudulent return or tried to evade the tax obligation.
If you have any question whether your tax debt can be discharged during your bankruptcy, consult with your attorney. Some tax penalties can also be discharged, so be sure to discuss exactly what portion of your tax debt will be discharged, and what portion will survive.
Tax liens can be stripped off during a Chapter 13 bankruptcy to the extent that the lien is more than the equity in property. Tax liens cannot be stripped or otherwise avoided in Chapter 7. However if the tax is dischargeable in a Chapter 7, the bankruptcy court should determine the extent of the tax lien against your property.
Property taxes are treated differently after bankruptcy. Your personal obligation to pay property taxes can be discharged if the tax was last payable without penalty more than one year before you file bankruptcy. However, property taxes are secured with a lien which will generally survive the discharge. If you keep the property, you must pay the tax debt after the bankruptcy. If the property is surrendered during the bankruptcy, you will owe nothing.
The intersection of tax and bankruptcy is a complicated area of the law. It is important to address any tax issues early in your case and have a clear understanding of how you and your attorney will deal with your tax debt during your bankruptcy.
Discharging Credit Card Balances
As a general rule, credit card debt is among the easiest type of debt to discharge during a Chapter 7 or Chapter 13 Bankruptcy. However, in some cases credit card companies will dispute the discharge of credit card debt by filing an adversarial proceeding against the debtor in the bankruptcy court. The creditor may claim that all or a portion of the debt is non-dischargeable. Debts that are declared non-dischargeable may have to be paid during the bankruptcy, or may survive the bankruptcy altogether.
A credit card company may claim that the debtor committed fraud in obtaining or using the credit card. If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable because of the fraud.
A credit card company may also claim that charges were placed on the credit card when the debtor had no intention to repay the debt. Additionally, a presumption of fraud arises where luxury goods and services are purchased or cash advances are taken shortly before the filing of a bankruptcy case.
Credit card companies are entitled to notice of a debtor’s bankruptcy case, and these companies monitor bankruptcy cases for signs of fraud. Certain actions send up a red flag including:
- Filing bankruptcy on a new card;
- Taking a cash advance prior to filing;
- Charges for travel or vacation;
- A debt transfer from one card to another;
- Credit charges while unemployed; and
- Charges made after consulting a bankruptcy attorney.
The more time between the credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute. The best advice is: if you are considering bankruptcy, stop using your credit cards. Consult with your bankruptcy attorney regarding the best way to discharge your credit card debt.
Loading Up on Debt Prior to Bankruptcy
For most, the decision to file a bankruptcy is a tough choice. It is the final step in a long journey that has included great compromise and sacrifice. A person usually experiences a sense of relief when deciding to file bankruptcy, and there may be a tendency to “let go” of your debt problem. Unfortunately, in some cases people will “let go” by recklessly spending money and running up credit card balances.
It is generally not a good idea to incur any new debt before a bankruptcy filing. The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy. One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case. Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing.
Recently the United States Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act. The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”
There are many situations where taking on additional debt is beneficial and permissible. The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring “additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]’”
The bankruptcy process can relieve you of many financial worries. However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney. Don’t make any significant financial decisions prior to filing bankruptcy without consulting your attorney.
Discharging Post-Petition Debt in Chapter 13
A lot can happen during a Chapter 13 repayment plan which generally lasts three to five years. Sometimes large debts are incurred that the debtor is unable to pay. Fortunately, a Chapter 13 debtor is able to discharge a post-petition debt, but only after certain prerequisites are met.
First, the debtor must amend the repayment plan to provide for a post-petition debt. Second, the debtor must usually obtain the approval of the bankruptcy trustee prior to incurring the debt. This is not always obtainable, especially in the case of a large medical bill. Third, the creditor must voluntarily choose to file a proof of claim. And finally, the claim must either be a tax claim, or a claim for a consumer debt necessary for the completion of the debtor’s plan.
A common situation in which post-petition debts arise in a Chapter 13 case is where the debtor needs to purchase a different automobile. Repaying a post-petition car loan through a Chapter 13 plan is easily accomplished through coordination and cooperation from the trustee, the lender, and the court. The lender agrees to be paid by the trustee, the trustee agrees to sanction the debt, and the court approves the amended plan allowing the lender to be paid through the bankruptcy plan.
In some cases it may not be practical to include a post-petition debt in the debtor’s Chapter 13 plan. In that case, the debtor may elect to convert the Chapter 13 case to one under Chapter 7. The Bankruptcy Code states that a debt that arises after the Chapter 13 filing date, but before the debtor’s conversion to Chapter 7, is to be treated as a pre-petition debt. The Chapter 13 restrictions and requirements listed in the preceding paragraph do not apply to debts in a conversion case.
The Bankruptcy Code contains many flexible options for reorganizing your finances and dealing with your creditors. Even when there is an unexpected event that results in a debt, your bankruptcy attorney can provide you with choices for dealing with a post-petition debt.