Get Out Of Debt

Bankruptcy is seen differently by different people, especially depending on their situation. Some may see it as a quick fix to a long building problem while others may not see it as an option at all due to the costs of the attorney. Everyone should understand exactly what bankruptcy is, and if it is a good idea for them in their situation.

In reality, bankruptcy should only be seen as a very last resort, and sometimes it’s hard to tell if you’ve really hit rock bottom financially. Take, for instance, someone that has $100,000 in debt that they cannot hope to pay off any time soon. However, once they bring their case to court to file for bankruptcy, the fact that they own a second home comes to light. They really didn’t consider it because it’s an older home that’s not in great shape that they are letting relatives live in for free. Suddenly their asset to debt ratio looks completely different than what they had assumed, and the bankruptcy is either declined or pushed through on terms that are not at all good for the one claiming.

This is but one example of the many situations where a qualified attorney would’ve actually saved you quite a bit of money simply by looking at things from an angle that you had not considered because you do not deal with bankruptcies all day every day. There are also many situations where, no matter how hard he looked, the layman could not possibly see coming because they arise due to laws and regulations that most simply do not know, nor have the training to understand them even if they were able to look them up. Bankruptcy law was complicated to begin with, but with the legislation passed within recent years, there are now multiple levels of confusing changes that must be navigated. You probably do not stand where you think you do when it comes to your financial situation as seen by the law.

Another issue people face is the type of bankruptcy they plan to file: Chapter 7 or Chapter 13. Put simply, in a Chapter 7, you discharge everything because you do not have the means to pay any or all of it within a certain time frame, and in a Chapter 13, only some of the debt may be discharged, if any, and what is left is generally reduced to an amount that the person filing is able to pay. And even at that, there are certain types of debt that cannot be eliminated through any type of bankruptcy, so if your debt is comprised in large part by these types of debt, a filing is not going to help you at all.

You can file whichever you like, but it is not the one filing who decides which type of bankruptcy is passed. The court determines how much the filer is able to repay, and whether the case constitutes as a Chapter 7 or Chapter 13, regardless of which is initially filed. A qualified bankruptcy attorney knows how to present the case in a light that is much more likely to get the type of bankruptcy passed that you need.

Bankruptcy can be defined in several ways. In simple terms bankruptcy is a legally declared inability or impairment of ability of a person or organization to pay their creditors. A declared state of bankruptcy can be requested or initiated by the bankrupt person or company, or it can just be requested by creditors in an effort to recoup a portion of what the company or individual owes them. However in the most of the cases the bankrupt individual or the organization initiates bankruptcy.

Bankruptcy has become quite common these days. There are several reasons behind it out of which the foremost and important factor is credit card payments and bank loans. Nowadays people are extremely burdened by the credit card bills and other loans that they take at the time of need. After a certain time these bills and the loan repayment amount start increasing day-by-day due to the interest charged over them. This makes it all the more problematic for the concerned person to finish off with his debts.
Therefore an individual should avoid taking loans and making credit card payments as much as possible.

In order to prevent the growing bankruptcy cases government has proposed a new law. This new federal law has made it clearly mandatory for any person opting for a loan to join a counseling session before six months of filing for bankruptcy. The law also states that people complete a financial education course before their bankruptcies are final, and credit counselors will have some of these courses.

This law has proved to be a great help to the people who confront the trauma of bankruptcy. But on the same hand it is a very expensive idea. People have to pay $50 for 90-minute counseling session.

Prevention is better than cure. So in order to avoid counseling and burden of loans etc. it is better that you plan your payments. This has become all the more important after the minimum payment for credit cards has increased.

However while seeking bankruptcy advice you should ensure that the advice is specific to your situation. Deciding where to go and what to do is another big issue like bankruptcy itself. But the fact is that a large number of individuals and businesses do not need to enter into a formal bankruptcy.

The usual time for a bankrupt to automatically be discharged is two years if it is the first time that you have gone bankrupt and unsecured creditors are less than

The quick and dirty definition of bankruptcy is when a person who is unable to pay their debt goes to court seeking relief. If you are the petitioner, the court must determine if your debts are truly beyond your ability to pay. Then, depending on your case, either the court discharges the bulk of your debt or sets up a payment schedule that is in your best interests but does not entirely absolve you of the responsibility of paying your creditors.

While that might be a simplified explanation of bankruptcy, it is one of the most complicated consumer legal issues you might encounter. Part of the complexity is due to the regulations, the fact that there are different types of bankruptcy petitions, and the process to administer the petition within the court system.

The other aspect that cannot be ignored is the negative stigma attached to bankruptcy. You have not owned up to your debt, you are trying to cheat your creditors out of money, etc. It is true that some people are looking for an easy way out to not pay their bills, but the fact of the matter is that bankruptcy is a legitimate legal proceeding to reorganize your debt.

In order to decide whether bankruptcy is the right course of action, the first thing you need to do is separate the emotional response from the financial response. Then go consult with a lawyer. Bankruptcy law changed significantly last year, and your first and best source of information is always going to be someone who is aware of the legal ramifications and, in fact, whether or not bankruptcy is the best financial choice in your situation.

Credit Cards

Unless your credit cards are paid off in full before you file, chances are you will not be able to use them again after you file (and even then, the creditor may cancel the credit card.) This is not a call to action to charge up your cards the month before you file. For one, the courts may recognize that as bad faith and order you to pay those recent charges in full instead of discharging them. Two, the act of bankruptcy is intended to give you the means to show more financial responsibility and charging your cards to the max is rarely a sign of responsible spending.

However, your credit card companies will stop collection calls on your delinquent credit card accounts, and your attorney can handle all the contact with credit agencies. This is one of the most powerful benefits of a bankruptcy: the “automatic stay.” This means that all attempts to collect all debts by all entities must immediately cease.

Other Types of Debt

If you have foreclosures or garnishments, the collection actions on those will stop as well. Secured debt, i.e. mortgages and car payments, cannot be eliminated through bankruptcy. The debtor has the choice of catching up on arrears and continuing to make payments, surrendering the collateral and owing nothing, or “redeeming” the collateral with a lump sum payment of the balance due or current value, whichever is less. If reading that is already overwhelming, just know that secured debt is still your debt after you file.

In the immediate future, your credit will take a severe hit, so the likelihood that are you are extended credit after you file is slim. That does not extend indefinitely into the future. The point of bankruptcy is also to give you a chance to rebuild your credit, and sooner than you expect, you might be eligible for some forms of credit. Although something large like a mortgage on a home will probably be five years or more away.

You should also be aware that there are certain types of debt that will not be wiped clean no matter your situation. You will almost always owe on student loan payments, even in bankruptcy, as well as back taxes from the last few years. Child support and alimony are two other types of debt that you will continue to owe.

Public Disclosure of Debt

If embarrassment is your main concern, then you should know that most court proceedings are public record, can be researched by just about anyone, and in some cases, the information about your claim will show up in newspapers. Public disclosure is part of the legal process, and it should not stop of you from declaring bankruptcy if it is a sound financial decision.

A report of bankruptcy does stay on your credit report for ten years. It stays that long to discourage people who are only filing to get out of obligations they never intended to pay to begin with. Though it is possible to file multiple bankruptcies in a lifetime, for most individuals, one time should be sufficient to get you back on track financially.

The Next Step

The two most common petitions for individuals are Chapter 7 bankruptcy and Chapter 13. This is where a conversation with a lawyer is critical so that you can understand the differences between the two and get information on your eligibility for Chapter 7. The 2005 Bankruptcy Reform made it more difficult for individuals to qualify for Chapter 7 bankruptcy.

In general, Chapter 7 discharges the bulk of your debt (the exceptions were mentioned earlier) and Chapter 13 is essentially a court ordered payment plan to handle your debt. There is a court supplied formula that determines what the monthly payment should be in Chapter 13. It is based on the income and expenses of the debtor. If the plan is approved, after 60 months of steady payments whatever remains unpaid is discharged.

If you are overwhelmed by your debt, then the best thing to do is think carefully about the ramifications of filing for bankruptcy. First, separate the financial and emotional issues, and have a conversation about each separately. It is important to talk to someone who is familiar with bankruptcy law, and advisable to seek out a lawyer in any case to address the financial implications.

Everyone’s debt situation is unique and determining what will work best for you begins with categorizing your debt. Whether your debt is secured or unsecured significantly effects the measures you can take to eliminate debt.

Secured debt is a loan which is “secured” by property. Simply put, if the bank can come and take something from you if you don’t pay (ie; home, car) then the debt is secured.

Unsecured debt is the most common type of debt and is typically in the form of credit card debt.

Eliminating Unsecured Debt

The three most common ways to eliminate unsecured debt are

1. paying as agreed

2. bankruptcy

3. reaching a settlement with the creditor for less than the balance due – also known as debt settlement or debt negotiation

Bankruptcy is rarely a viable option. Due to the changes to the Bankruptcy Law in 2004 by the Bush administration, estimates are that less than 10% of people who file for bankruptcy are successfully discharging any debt. Most have to pay it back now under Chapter 13.

Credit Counseling and Debt Consolidation services typically focus on eliminating your debt by settling with your creditor for less than the balance due. These services are typically owned by large banks and credit companies and typically charge a fee. The good news is, this is something you can do on your own.

Settle For Less than the Balance Due

The key to a successful settlement is leverage. If a bank thinks they can get more out of you, they will not settle. This means that you may have to go months without making any payments. This will reflect poorly on your credit report and affect your credit score, but it is a necessary to obtain a good settlement.

During the time you are not making payments to the credit card company they will constantly attempt to contact you to discuss it. This is best dealt with from the very beginning by sending them a letter requesting that they only contact you in writing. Also, it is very important that you familiarize yourself with your rights under the Fair Debt Collections Practices Act and the Fair Credit Reporting Act. Collections representatives often behave in unscrupulous ways and knowing your rights is your key to fighting back.

Once you have sufficient leverage against the company it is time to attempt a settlement. A realistic goal would be to settle the debt for between 35%-50% of the balance. Contact the bank or credit card company directly and they will likely transfer you to their collections department. Once in touch with the collections representative simply let them know you wish to resolve the debt. Typically, they will make you an offer to settle for 65%-80% of the balance before you ever make an offer to pay. Let them know what you do have; an initial offer of 15%-25% of the balance is reasonable. They may tell you no or tell you that they have to speak with their manager but continue the negotiation as necessary to settle within the range that you desire.

Some credit companies are more apt to settle than others. For instance, American Express can be a very difficult company to settle with for less than 60%. Search the internet for information on your particular bank or credit card company to see how others have fared.

With the proper information in regards to the new bankruptcy laws you can avoid the hassles many people have to deal with because they did not take the time to do some research. Only you can decide what is best for your debt burden with the current bankruptcy law.

Types of Bankruptcy

You may have heard of someone filing for Chapter 11 or Chapter 7. What do they mean by this?

These are actually the types of bankruptcy, so-named after the title of the Chapter of the Federal Bankruptcy Act in which they appear. There are three common types of bankruptcy available. Here is a quick rundown of each one:

Chapter 7

This is also known as liquidation. In a Chapter 7 bankruptcy case, all the assets and nonexempt properties, if any exists, of the debtor must be turned over to a trustee for the purpose of converting them into cash to pay the debtor’s creditors.

In return, the debtor receives a Chapter 7 discharge in the form of a court order, releasing the debtor from all of his or her dischargeable debts. This order also has the effect of preventing creditors from attempting to collect these dischargeable debts from the debtor.

Note that there are some debts which cannot be discharged with a Chapter 7 bankruptcy.

Chapter 11

This type of bankruptcy is typically used for business bankruptcies and restructuring. As such, this is not an option for individual consumers. Besides being far more complex, it is also more expensive to pursue.

A Chapter 11 bankruptcy gives businesses the opportunity to reorganize themselves, restructure debt, and get out from under certain burdensome leases and contracts. “Business” here may include a corporation, sole proprietorship, or partnership.

When a corporation files for a Chapter 11 bankruptcy, the stockholders’ personal assets are not at risk. Since a corporation exists separate and apart from its owners, the stockholders, the only asset the latter stands to lose are the value of their investment in the company’s stock.

Chapter 13

This is sometimes referred to as a “mini Chapter 11″ because it allows small proprietary business owners and certain qualified individuals to file for it in order to repay their creditors but still retain your property.

So how is this different from a Chapter 7 bankruptcy, which likewise allows you to retain certain exempt properties and assets? Chapter 13 is different in that it enables a debtor to retain the assets that would otherwise be liquidated by a Chapter 7 trustee.

In most cases, you can keep your home and your car under either Chapter 7 or Chapter 13. However, there are certain instances under Chapter where you would not be able to keep your rental properties, antique gun collections, etc. Whereas, if you file for a Chapter 13 bankruptcy, you may be able to keep these “luxurious items” and submit yourself to a Plan where you can make repayments.

The goal of a Chapter 7 bankruptcy is to discharge your existing debts so you can get a “fresh start” on your finances. A Chapter 13, on the other hand, obliges you to repay most or all of your debts before your slate is wiped clean. It is because of this – you repay your debts – that you gain a certain advantage over a Chapter 7.

Make no mistake that bankruptcy is a complex process. There are many intricate details involved in this legal process that should be taken into consideration before making any decisions involving bankruptcy. The information above is only basic. There are still many important questions that may arise and only your bankruptcy lawyer who knows more about your particular situation can authoritatively answer your questions.