There are many reasons why people consider declaring personal bankruptcy. Unexpected medical bills, a job loss or difficult divorce can quickly put a strain on a person’s budget. Money goes out faster than it comes in. Checks start to bounce, creating even more fees and debt. The spiral is overwhelming. But crisis is not the only cause of serious debt. Many young graduates enter the work force with high hopes and small salaries that just don’t keep up with their spending habits. Some reach adulthood never learning to manage the balance between incoming and outgoing funds. Regardless of the reason, some people see their situation as hopeless and declaring personal bankruptcy the only option.
Personal bankruptcy falls under chapters 7 and 13 of the federal Bankruptcy Code, created to help individuals in extreme debt start afresh and creditors recover a portion of the amount lost. Most people are familiar with Chapter 7 bankruptcy, where the person declaring sells his or her possessions or property in order to pay back the amount owed. At the end of the settlement, the individual’s debt is wiped clean, allowing him or her to start again with a fresh slate. This liquidation of assets usually takes about four months to complete before the debt is discharged. The problem is that many people declaring personal bankruptcy under Chapter 7 have little or no assets to sell to repay their debt. Plus if spending habits created the situation, debt simply returns several years later. On the other hand, Chapter 13 bankruptcy is less severe. In this case, debtors create a plan to repay a legitimate portion of the debt over a three to five year period. In exchange, the person filing can retain property and assets as long as payments are made in accordance with the agreement. Once either type of proceeding has been initiated, individuals are protected against lawsuits a creditor may issue, wage garnishments, or other legal action. Under Chapter 7, married individuals must file together while under Chapter 13, spouses can file individually.
People declaring personal bankruptcy must file through the district federal court system. Fees for filing are around $200 to $300 plus the costs of an attorney if the individual decides to hire one. Although hiring a lawyer can be expensive, they know the business and can help a debtor wade through the mountain of paperwork and court proceedings that are part of the process. Online services also exist for individuals who cannot afford attorneys. They do not provide advice as an attorney would, but assist with filing the actual paperwork involved. Required information includes a list of creditors, debtor’s income, property values, and a detailed list of monthly expenses. In previous years, a judge would determine whether or a not a person could file. But recently, new laws have made it more difficult for people to file. In order to file Chapter 7, a debtor’s income must be no more than 150% above the poverty level. This forces more individuals to file under Chapter 13. Other requirements, such as getting financial counseling, is also required before a bankruptcy is finalized. In either case, after an initial hearing, the court will appoint a trustee to handle the transactions including in the bankruptcy. If filing under Chapter 7, the trustee will manage the sale of items to repay debts. Trustees with clients filing under Chapter 13 are responsible for collecting the monthly payment from the debtor and issuing it to the creditors as outlined in the agreed plan.
The removal of debt demonstrates to us the grace of God. “Therefore is the kingdom of heaven likened unto a certain king, which would take account of his servants. And when he had begun to reckon, one was brought unto him, which owed him ten thousand talents. But forasmuch as he had not to pay, his lord commanded him to be sold, and his wife, and children, and all that he had, and payment to be made. The servant therefore fell down, and worshipped him, saying, Lord, have patience with me, and I will pay thee all. Then the lord of that servant was moved with compassion, and loosed him, and forgave him the debt.” (Matthew 18:23-27)
However, declaring personal bankruptcy in our day does have its consequences. Applications for mortgages and credit cards will most likely be denied for a time. Employers also review the record of a potential employee to see if that person is financially responsible to hold the position. But filing won’t automatically destroy a person’s credit score. In most cases, a debtor’s score is already low and won’t drop once proceedings begin. In fact, just the opposite might occur. In many cases, after declaring personal bankruptcy, a debtor’s credit score may actually rise. Creditors will not show a negative balance and will cease to report delinquencies. After 18 months, a debtor can apply for a secured credit card, making pre-payments to rebuild credit worth.
Filing won’t erase all debts. Student loans, child support or alimony, as well as mortgages are all exempt from bankruptcy filings. Courts will also not erase debts that were incurred by providing false information to a creditor or that occurred from intentional harm. Most people would agree that declaring personal bankruptcy should only be used a final option. Financial counselors advise working with creditors to settle out of court. Many credits will reduce monthly payments or agree to accept a partial repayment before launching proceedings. Consolidation is another option. By consolidating several loans into one payment, debtors can often save money and keep their creditors happy. Some people are able to borrow money from friends or family until they able to get back on their feet again. Others might be able to withdraw from retirement funds to ease the current financial pressure.
If no other option is available and declaring personal bankruptcy is the only choice available, it is not the end of the world. In many cases, people have recovered from their debt crisis and have been able to establish solid credit records.
People considering bankruptcy must tell their lawyer every claim that anyone has against them. A claim is basically a right to payment. Somebody who holds a claim is a “creditor”.
Claims can come in many varieties.
Claims may be:
A judgment is a court order to pay money immediately to the creditor – who as a result of the judgment is called a “judgment creditor”. The debtor must also pay interest. The judgment creditor has the right to use the courts to help collect the judgment. He can garnish wages, seize real estate or personal property, impound bank accounts and take many other remedies under state law. A creditor still holds a claim against a debtor in bankruptcy even if a court has not yet declared the creditor entitled to a judgment
A liquidated claim is for a specific amount of money. A claim in a pending lawsuit may not yet be liquidated. The plaintiff may contend that a lot of money is owed not exactly how much. That kind of claim is unliquidated. You have to schedule an unliquidated claim in bankruptcy even if you don’t know exactly how much is due.
A fixed claim is definitely due. A contingent claim may be due or not depending whether something else happens first. A contingent claim is still a claim in bankruptcy even if the claim is not definitely due and may never be
A matured claim is due right now. An unmatured claim isn’t due yet. It might not be in default. It is still a claim in bankruptcy and must be scheduled.
A disputed claim is one which you deny owing. You still have to schedule it on your bankruptcy case along with those claims you acknowledge are due.
An equitable claim might arise because you did something you shouldn’t have or didn’t do something you should have. A court might be able to make you do what you should do or not do what you shouldn’t. If the value of the equitable claim could be quantified in money, then it’s a claim to be scheduled in your bankruptcy.
A secured claim is backed by collateral. An unsecured claim is not.
All claims must be listed in bankruptcy cases. If you don’t, you could remain liable on the claim even if you get a discharge in bankruptcy.
For more information about “claims” click here. Lakelaw represents people in bankruptcy in Illinois and Wisconsin.
The best and simplest way to avoid high interest rates on your credit cards is to pay off your balance every month. But for those of us who are already inundated with debt, doing so may seem next to impossible. So here are a few tips on how to avoid high interest rates, even if you have a balance:
Shop around for the best rate. When opening new credit accounts make sure that the interest rate is as near prime as possible. Don’t make the mistake of signing up for the first credit card offer that lands in your mailbox. Take the time to consider all of your options by seeking out the best interest rates on your own. Oftentimes, card offers received via mail don’t offer the best interest rates.
You may remember from an earlier post that you are probably an “assisted person”. Another of our posts explained to you that your bankruptcy lawyer seems to be a “Debt Relief Agency”.
What do “Debt Relief Agencies” do for “assisted persons”. It seems that Congress thinks that they give “bankruptcy assistance”.
Here’s what the Bankruptcy Code says:
The term “bankruptcy assistance” means any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors’ meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title.
Why does the Bankruptcy Code make this so complicated? For the past 35 years, I always that I was a lawyer who gave legal advice to a client. But if I give you advice under the Bankruptcy Code, I am a Debt Relief Agency providing bankruptcy assistance to an assisted person.
Congress in 2005 tried to regulate the relationship between people and others who try to assist them in filing a bankruptcy case, whether or not they are attorneys. In particular, Congress tried to regulate what lawyers can tell their clients, whether or not the advice they might give their clients is legal or even in the client’s best interest. The Supreme Court recently heard arguments in a case in which this issue came up. Unfortunately, the Court did not seem very sympathetic to the bankruptcy attorney’s arguments. It seems that lawyers will have to continue to speak to you in riddles in order to comply with the law.
What can you do about it?
Your lawyer must comply with the law. You are an “assisted person” getting “bankruptcy assistance” from a “Debt Relief Agency.” So Congress has limited what your lawyer can say to you. Congress has told your lawyer to say certain things to you at certain times. It has told your lawyer to give you a fee agreement at or near your first meeting. Don’t let this put you off. It’s not your lawyer’s fault. Blame Congress. If you hear your lawyer speak in “governmental gobbledygook” to you, be sure to ask for straight talk. You’ll get it and you’ll be glad you did.
Lakelaw represents people in bankruptcy cases in Illinois and Wisconsin.
A chapter 13 bankruptcy attorney is the person to call for professional assistance in deciding to go bankrupt and how the whole process works. The attorney will work with clients so that filing will help them rehabilitate their credit through the restrictions and limitations of the court. When filing, debtors pay off some debts, but it is on much better terms, i.e., lower or no interest. Also, clients don’t have to sell assets under a Chapter 13 if they are working and can make payments. The United States Code allows up to five years to pay off creditors, and the process is completely supervised by the court. The chapter 13 bankruptcy attorney will make sure the debtor’s interests are protected.
“The righteous shall inherit the land, and dwell therein for ever” (Psalm 37:29). Despite the fact that our earthly possessions mean little in the long run, the debtor is allowed to keep all of his property under Chapter 13. Currently, a bankruptcy lawyer will take into account the debtor’s regular monthly payments such as house and car notes, and utilities when deciding what the monthly payments will be. After the attorney has worked out a plan with the court, the client begins making payments 30 to 45 days after the case begins. Payments are made to the trustee who has been appointed by the court, and he disburses the funds to the creditors. The creditors are required by law to strictly follow the terms of the repayment plan. They can no longer look to the debtor directly for payment. After the payment plan is filed, there will be a confirmation hearing before a judge. Clients may appear at the hearing, and if they have a problem with the plan, objections are permitted. The judge will hear both sides before confirming the plan. Once the plan is confirmed, payments can begin.
The ability to make the monthly payments is a necessary part of a Chapter 13, so the client must be gainfully employed, or at least have prospects of future income. Those who need to file because of job loss and trouble finding employment may have to file under Chapter 7, or find some other way out of indebtedness, such as consolidation or an equity loan. When consulting a Chapter 13 bankruptcy attorney, he will lay out the options and will know his client’s ability to obtain new loans or credit without the court’s permission. The debtor’s bank may be one of those which offers “secured” credit cards, those with a certain amount of money put on it by the cardholder. Two years after going bankrupt, clients will once again be eligible for mortgage loans on the same terms as someone who never filed for bankruptcy with a bankruptcy lawyer.
When the new rules for filing are in place, the plan will be based on total income, without the payments mentioned above being a consideration. This is going to make it harder to file unless the debtor’s income is below the local poverty level. It may require the client to sell their house and car, and move to a less expensive neighborhood in order to meet the debt payback requirements. Consultation with a Chapter 13 bankruptcy attorney will provide the details about filing before the new rules go into effect, and what to expect if debtors wait.
Any bankruptcy lawyer will say that any of the chapters should be a last resort, because it is there to allow debtors to get out from under and make a fresh start. Although the record of going bankrupt stays on a credit report for ten years, it won’t be that long before filers can get credit again. The more time that passes afterward, the better the chances for obtaining credit. It is expected that after filing, filers will be more careful with managing debt in the future. However, should filers find difficulty again, they are allowed to file for protection again in six years.
There are some important facts a good bankruptcy lawyer will point out concerning the process: Clients get legal protection from creditors; most of debt can be eliminated; financial ruin can be stopped, enabling a fresh start. The counselor will also say that debtors will still have some debt to pay, will have to go to court, and the disadvantages to not filing. Filers can find a local law firm either on the Internet or in the local telephone book. Asking around if friends and family can recommend one is also a good idea. Most options are reputable, but debtors need to be sure that the counselor is licensed and has a solid reputation. Before taking any action toward bankruptcy, filers should consult with a good Chapter 13 law office to determine if this is the best action for the particular situation.
In the financial system that people are facing now, many are challenged with very complex financial decisions. Many people just lost their jobs, incurred great medical bills or even going through a divorce. These can be devastating at times to your everyday life and financial expectations.
Every individual is unique, but when you face a challenge like working through bankruptcy, you are never alone. You can always get a chapter 7 bankruptcy support. Countless men and women have faced the exact same problem and have survived and thrived. Luckily, people who file for bankruptcy may find that other difficult debts are removed from their lives and they may be able to re-structure their budgets to handle money much better. This freedom may make it much easier to maintain timely child support payments and pay off medical debts as a result. With other debts out of the way, persons going through bankruptcy may find it easier to pay off the debts that were not discharged. Over the years peoples opinion of bankruptcy have certainly changed. Whilst years ago you may have been imprisoned and looked down on it is now a viable and humane option for dealing with debts that you cannot afford to repay.
Bankruptcy can sometimes help in situations where support obligations are in arrears or a garnishment is about to effectuated for arrears. In some cases, the Bankruptcy Court could provide a forum to address any arguments about what may be owed or may have already been paid prior to filing bankruptcy. A bankruptcy judge may address accounting issues on what is due and owing in a support claim, but a Bankruptcy Court will typically not address any support orders made by a Family Law Court, or modify any future ongoing support.
Many people think that if they simply file Chapter 7 bankruptcy, then they will get rid of all of their debts. Unfortunately, this is not the case. There are some types of debts that cannot be discharged in bankruptcy by law. In other words, even if you complete bankruptcy proceedings, you still have to pay back these debts. These debts include child support, alimony, student loans, most taxes, many secured debts, and debts not listed in your bankruptcy petition. Filing for bankruptcy protection does not let your ex to discharge past due child support obligations. Any back payments owed for child support cannot be discharged in a bankruptcy proceeding.
The automatic stay rule which prevents creditors and other debt collection entities from seeking compensation from borrowers does not apply to child support payments. In other words, if you are trying to collect from an ex-spouse, his or her bankruptcy filing will not protect him or her from having to making good on past due support bills. Child support payments are considered main priority — meaning that they must be paid off before other creditor obligations, such as payday loans, credit cards and medical bills — but the receiving spouse may have to work with an attorney to ensure the proper and speedy expedition of said child support payments. If you want to know more about bankruptcy, just visit http://www.onlinebkassist.com.
Finding alternatives to bankruptcy and avoiding financial problems altogether should first be the goal for a debtor. A bankruptcy stays on a credit report for up to 10 years. The negative impact lessens with each passing year, but in order to re-establish credit, lending institutions will charge an exceptionally high interest rate. Personal bankruptcies are reaching record levels, which is not surprising, because consumer debt levels are also reaching record highs. Alternatives to should be considered because the FICO score (Fair Issac) is lowered tremendously. How does this affect a debtor? For example: on a $150,000 mortgage, someone with a good FICO score could get an interest rate of about 6% (depending on interest rate levels at the time). Someone with a high FICO score will be lucky to get a 9% interest rate. That works out to an extra $370 a month, over 7 years that equals an extra $31,000 paid in interest charges alone.
The FICO score is used for everything, from home buying and car buying, to insurance quotes, and rental deposits. Keeping a high FICO score by avoiding bankruptcy and instead finding alternatives should be explored. Before opting for giving up, it is recommended that a debtor try to get some help sorting through their options. There is an entire industry built on providing help to consumers who are overwhelmed with their debt. Some of the debt-help businesses are not exactly legitimate. It is advised to only work with debt counselors who have high ratings through a myriad of certified organizations. When alternatives to bankruptcy have been the decided plan of action, meeting with a debt counselor is the first step.
Debtors will lay out their financial situation, and if the debt counselor thinks the debtor can get out of debt within 5 years they will establish a repayment plan. All debts will be gathered together and consolidated, with only one monthly single payment to worry about. There will probably be a monthly fee for the service of repayment planning, but it is a small price to pay. Quite often debt counselors will attempt to lower the balances or interest charges with the creditors, sometimes they are able to forgive the debt altogether. In addition to setting up a repayment plan, they will also discuss programs and classes that can be enrolled in to learn some tricks for better budget and credit card management.
If the debt load is so large that the credit counselor doesn’t think the debtor can be debt free within 5 years, then they will probably not offer any alternatives to bankruptcy that include a payment plan. Each creditor will be contacted to attempt a final paid in full balance amount that is a small percentage of what is actually owed. This is the last step and many creditors will opt for the lower percentage than force the debtor to file in which they will get nothing. Another aspect to consider is the effect it will have on the spouse’s credit. Ideally, not having both debtor credit scores lowered is the goal. However, a divorce decree will stop any debt collectors from coming after the spouse.
Alternatives to bankruptcy should always be considered first. The financial and emotional impact of it is devastating. Work with a credit counseling agency to devise a plan to pay the way out of a financial hole. There are two types of major unsecured debts. They are credit card debt and student loan debt. It is recommended that a person who wants to declare bankruptcy for student loan debt, instead find alternatives because student loans will not be dismissed with a file for bankruptcy. Unless the debtor gets a court order for a hardship case, which is usually only in the situations of permanent disability, the student loan debt stays.
Alternatives when dealing with student loan debt abound. The student loan industry bends over backward to help find solutions that are manageable. They offer deferments, forbearances, financial hardship, loan consolidation, and a variety of other options that will lessen the burden of high monthly payments. If a home equity loan is an option, it is suggested to consolidate all credit card debt. Home equity loans offer a lower interest rate, much the same way a student loan offers. There are not as many deferment options with a home equity loan, but at least it is secured, unlike credit card debt. Having two flexible repayment plans only, will surely help when trying to manage a financial crisis. It is up to each person to pay off their own debt. A vow to pay a creditor is a vow to pay God (who owns everything). “When thou vowest a vow unto God, defer not to pay it; for he hath no please in fools: pay that which thou has vowed.” (Ecclesiastes 5:4-5)
An individual can file a Chapter 13 case if they have noncontingent, liquidated unsecured debts LESS than $336,900 and noncontingent, liquidate secured debts of LESS than $1,010,650. (these amounts are adjusted every few years)
Student loan debt, as with ANY debt, factors into the debt limits for Chapter 13 under 11 USC 109(e).
A client asked me this question thinking that because student loans were non-dischargeable perhaps that affected whether the debt applies to the Chapter 13 debt limits.
The only way the student loan (or any) debt would not count towards the unsecured debt limit in a Chapter 13 is if one of the following occurred:
A. They already had a judgment against you (in the event of a default in payments) and created a lien against assets sufficient to cover the amount of the student loan. In this case, that amount would count towards the SECURED debt limit (which as stated above is just over $1 million);
B. The debt is contingent, meaning that you don’t owe it unless some pre-condition occurs; or
C. The debt is unliquidated, meaning that there is no way to readily determine the amount owed.
Hi Mark – this is interesting as we have been holding off even trying to file bankruptcy due to our student loan debt. We were told by several lawyers that we could not file ch 13 due to being over the 336k unsecured debt limit (due to student loans) and then do not qualify for ch 7 either because we make too much money. We have no idea what to do. So, it almost sounds like it is better to wait and have the student loan companies get a judgment so that the amounts are counted towards secured debt limits. We have been told to get someone who specialized in ch 11, but there is no way we can even afford that!