Bankruptcy vs. Debt Settlement

May 7, 2013 - 02:07 by rmckinney

It seems like there are always new debt “solution” trends every day. Just in the last several years we have seen the emergence of products like credit counseling and debt settlement that promise to reduce your debt within a certain amount of time without having to ever file bankruptcy. These services are typically provided by financial companies that require you to put an amount of money into a new account every month and when the time is right they will negotiate with your creditors to hopefully pay them off. So is debt settlement a better solution to filing bankruptcy? Here’s my take on why I think the answer is NO.

1. No legal requirements for creditors to comply

A debt settlement is ultimately when a debtor pays a company to negotiate with their creditors on their behalf with the hope of reducing their overall balance. The key is the negotiators can only “hope” that the creditors agree to reduce the debt, there is no requirement for them to do so. On the other hand, if a debtor files a Chapter 7 bankruptcy or a Chapter 13 bankruptcy and it is approved by the court the creditors are required to comply with the courts orders, whether it be to completely erase the debt, or accept a decreased payment.

2. Debt settlement typically takes longer

As I mentioned earlier typical debt settlement programs will set up a bank account for its customers and tell them a certain amount of money to put into it every month. Once the account reaches a specific amount the debt settlement company will then begin negotiations with creditors. What many customers do not realize at the beginning of this process is how long it will take to reach the specific amount that is required for negotiations to start. In some cases it can take anywhere from 6 months to 2 years for the account to be large enough to meet the requirements. A quick chapter 7 bankruptcy can be done in 5-9 months.

3. No protection from creditor harassment

In the weeks and months that a debtor spends depositing money into their debt settlement account they will most likely still be receiving creditor phone calls, letters, and general demands for payment. In most cases there is no protection that debt settlement companies can give for this. That means that creditors can take a debtor to court even though they are involved in a debt settlement program. That is not the case with bankruptcy. The day your bankruptcy is filed with the court is the last time a creditor can legally contact you.

Ultimately the only person that knows what’s right for your situation is you. Consult with friends, family, bankruptcy attorneys, and even debt settlement companies before making a final decision. Just remember that there are options everywhere and you are not alone in this struggle: people just like you are having to decide what to do about their debt problem.



Bankruptcy Defined

May 1, 2013 - 02:04 by rmckinney

According to the official United States courts online glossary, (that you can view here) bankruptcy is defined as: “a legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code).” What does that mean in layman’s terms? Let’s go through it here together:

A Legal Procedure

This means that the process of filing bankruptcy is required to be done in a United States court of law and overseen by an appointed US bankruptcy trustee. Anyone who tells you that a bankruptcy can be filed outside of a US courtroom is incorrect. This does not, however, mean that all bankruptcies require the aid of a licensed attorney; it is possible to file a bankruptcy “pro se” or on your own. Nevertheless, the hiring of a bankruptcy lawyer is highly recommended due to the amount of law involved, the many forms required, and the complex calculations involved with larger cases.

For Dealing with Debt Problems

This is without a doubt the main object of any bankruptcy, no matter which chapter it is. All bankruptcies have the same common goal: to eliminate or reduce problem debt. Note that the definition doesn’t define what types of debt are allowed to be eliminated by a bankruptcy - the actual law does this.

Of Individuals and Businesses

This part of the definition outlines who is allowed to be involved in the filing of a bankruptcy. There are different Chapters associated with personal and business bankruptcies. The most common types of personal bankruptcy are Chapter 7 and Chapter 13 while the most common business bankruptcy is Chapter 11. The type of personal bankruptcy filed by most Americans each year is Chapter 7.

Specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code) - This part of the definition lists the exact law that governs bankruptcy: title 11 of the US Code. This part of the US code is commonly referred to as the “bankruptcy code” and has been revised several times since its initial creation. The most recent revision to the bankruptcy code was in 2005 with the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act which was put in place to make the abuse of bankruptcy less likely.

This may seem like an extremely simple way to describe an incredibly complex system of rules and laws, but starting with a simple definition will help put the ultimate goal of the bankruptcy process in perspective for you. Yes, there is a lot to learn and that can be done, but it’s important to know that the option of bankruptcy exists when you are faced with an overwhelming amount of debt and do not know where to turn. Talk to a bankruptcy attorney in your area if you think this legal process could be of benefit to you.



Chapter 13 Bankruptcy and Vehicle Repossession

April 24, 2013 - 02:03 by rmckinney

Did you know that each year thousands of Americans file Chapter 13 bankruptcy in order to save their vehicle from becoming repossessed? It's true! Unlike what you may be used to hearing, bankruptcy can be used for much more than erasing credit card debt. By using a Chapter 13 bankruptcy an individual can stop the repossession process completely and catch up on their past due payments. Here's how filing a Chapter 13 bankruptcy can save your car from the stress filled process of repossession:

1. Bankruptcy stay of protection

On the day that your bankruptcy case is filed, whether it be a Chapter 7 or Chapter 13, the bankruptcy court issues a what is known as an “automatic stay.” Put simply an automatic stay acts as an umbrella of protection over the debtor that prohibits any attempt to collect a debt against them including, but not limited to: lawsuits, phone calls, letters, foreclosure, and repossession. If the repossession process has already started then the automatic stay of protection will bring it to a halt, and if the process has not begun then the stay will not allow it to start.

2. Repayment

A typical Chapter 13 bankruptcy involves a 3-5 year repayment plan where the debtor is allowed to payback a percentage of their unsecured debt. Since a vehicle loan is considered a secured debt a Chapter 13 case designed to save a car from repossession will involve a repayment plan that will ultimately catch the debtor up on all of their past payments while they are continuing to make current payments outside of the Chapter 13 repayment plan. The repayment plan will be calculated and agreed upon by the debtor, the debtor’s attorney, as well as the bankruptcy trustee who oversees the entire case.

3. Catching up

By using the repayment process the debtor will be debt free and completely current with their vehicle payments when the Chapter 13 bankruptcy is complete. By allowing the debtor 3-5 years to complete this process the bankruptcy payments each month can be made small and realistic to the debtor’s budget. You may be thinking that a lot can happen during that 3-5 year span, but with the automatic stay the debtor is protected from the day the case is filed to the day that the case is completed.

Vehicle repossession can turn a person’s life upside down. The need for a reliable means of transportation is important to dozens of things including keeping or looking for a job, getting kids to and from school, and making important appointments, etc. In some cities in America not having a vehicle is just not an option. If you are falling behind on your car payments or are already receiving calls and threats from repossession companies then think about how a Chapter 13 bankruptcy could help you today! Call a local bankruptcy attorney and request a free consultation to discuss whether or not a Chapter 13 bankruptcy is right for you and your financial situation.



Bankruptcy and Tax Refunds

April 13, 2013 - 02:00 by rmckinney

For many Americans, the first few months of the year are happy ones because of two words: tax refund. Tax refunds can sometimes be large enough for people to catch up on debts that are troubling them, put down payments on new vehicles, or pay off all of the credit cards they racked up during the holidays. For someone in the middle of a bankruptcy getting a tax refund can be a bit tricky. Legally, a tax refund during bankruptcy can be taken by the bankruptcy court in order to help pay off creditors, but in some cases there are ways around that.

For instance, you can choose to receive your refund 1 of 2 ways: by mail or by direct deposit. If you choose to have it mailed then you should know that it can be intercepted before it gets to you and held until after the bankruptcy court hearing in order to find out what the bankruptcy judge wants to do with it. If you choose to have your refund direct deposited into your bank account you should be aware that if the refund is deposited into a bank to which you owe money your accounts could be frozen until after your bankruptcy hearing. Discuss this decision with your bankruptcy lawyer to ensure the best payment option for you.

Once you have your refund you should document exactly how you spend it in case the court asks. The best way to spend your tax refund while you are in a Chapter 7 or Chapter 13 bankruptcy is on necessary items like rent, utilities, vehicle payments, and mandatory home repairs. By doing this you will show the court that you did not spend the money irresponsibly and they will have no reason to try to get the money back from you. On the other hand, if you spend your refund on items like new TV’s, Ipads, phones, and other superfluous items then the court may have reason to say that you spent the money irresponsibly and could ask you to repay the money that you spent. Again, keep a log of everything you spend your refund on so that you can show the court if they request to see it.

As you can see, tax refunds and personal bankruptcy are tricky so you should notify your attorney immediately when you know the amount of your refund, especially if it is more than $5,000. In most cases your bankruptcy lawyer will do whatever they can to keep your refund safe and in your hands, but you should be aware of the other outcome. You should also know that you cannot give your tax refund to friends and/or family for “safe keeping” until your bankruptcy is over. That is considered fraud and your entire case could be thrown out because of it. The safe bet is to be honest with your attorney about your tax refund so that it can stay with you and not be at risk of being taken by the court.



How to Avoid Having Your Bankruptcy Dismissed

April 6, 2013 - 01:59 by rmckinney

No matter which way you look at it, filing bankruptcy is a legal process. It involves following the requirements from the bankruptcy law as established by our legislature, and if the requirements are not met there are consequences. Many people may assume that if you make a mistake during your personal bankruptcy the court will give you a bit of leeway and help you fix it, but that is not always the case. There are mistakes that debtors can make that can lead to automatic dismissal of the bankruptcy case and in some rare cases even limit when the debtor can file again. Here are some ways to make sure that doesn’t happen to you:

1. Be honest

Declaring bankruptcy may be a sensitive subject for you, but no matter how worried you are don’t hide anything from your attorney or the court. You will need to be completely upfront with your attorney about your entire financial situation from day one. If you are worried about losing any of your property the way to keep it safe is not by hiding it from your attorney, but by being forthright so that your attorney can find a way to protect it. If at any time during your case the bankruptcy court believes you may have committed fraud they can dismiss your case, this is just one of the reasons honesty is vital.

2. Attend your hearing

Everyone who files bankruptcy is required to attend a court hearing known as the “meeting of creditors”. Although all of your creditors will be notified of the date and time of the hearing it is rare that any of them show up. You will receive sufficient notice of your hearing through the US mail and should make whatever plans necessary in order to attend. Your bankruptcy lawyer can prepare you with questions you may be asked at this hearing, but it is nothing to be intimidated of. The hearing will last anywhere from 8-15 minutes and will consist of questions regarding your case. If you miss this hearing the bankruptcy court could dismiss your case. If you think you will be unable to attend notify your attorney immediately to see if you can request a continuance from the court.

3. Follow directions

This may seem like a simple task, but it is one that can really save you a lot of headaches. Listen to your bankruptcy attorney and the bankruptcy judge very carefully and be sure to do whatever they say. If your bankruptcy attorney needs paperwork from you then make sure you get it to them in a timely manner. If the bankruptcy court needs you to take a required debtor education course before your hearing, make sure you do that so there will be no reason for the court to dismiss or continue your case to a later date.

By using these simple tools you can put your best foot forward and be confident that instead of having your bankruptcy dismissed, it will be completed and successful and you will be on your way to a debt free life.



5 Reasons To File Bankruptcy

March 29, 2013 - 01:54 by rmckinney

Do you find yourself thinking about filing bankruptcy more every week? Are you always googling “how to file bankruptcy” or “questions about bankruptcy”? We feel your pain. We understand that deciding to declare bankruptcy is a huge decision and absolutely deserves time and research, but just for today let us make things a tad bit easier on you by giving you 5 quick reasons to file bankruptcy.

1. To get out of Credit Card Debt

As of just a few weeks ago the consumer credit card debt in America reached $800 billion dollars. Credit Card debt can quickly drown people with interest, penalties, and large required monthly payments, but bankruptcy can help! In most cases filing a Chapter 7 bankruptcy can completely eliminate credit card debt. In fact, getting rid of credit card debt is one of the main reasons for filing Chapter 7 bankruptcy in America today.

2. To stop a foreclosure

Since the mortgage crisis of 2008 our country has seen a rapidly increasing number of home foreclosures. If you and/or your family are behind on your mortgage and are worried about a looming foreclosure then you may want to look into filing a Chapter 13 bankruptcy. By filing a Chapter 13 bankruptcy you can halt the foreclosure process and find a way to catch up on those payments you are behind on while staying in your home.

3. To end a garnishment

A garnishment is when the court has agreed to allowed one of your creditors to take a certain portion of your wages directly from your employer before you see your paycheck. Without filing a bankruptcy one of the only ways to stop a garnishment is to pay it off entirely. Filing a Chapter 7 or Chapter 13 bankruptcy immediately stops any garnishment currently on your paycheck.

4. To stop vehicle repossession

In most cities in America a working vehicle is a necessity, so if you are facing vehicle repossession that could truly be detrimental to your finances. Similar to a foreclosure, filing a Chapter 13 bankruptcy will stop the repossession process and allow the debtor time to catch up on past due payments while keeping their vehicle.

5. To avoid lawsuits

What many people do not know is that when your personal bankruptcy is filed the court places a “stay” of protection on you that stops all debt collection attempts against you including phone calls, letters, garnishments, and most importantly: lawsuits. None of your creditors can sue you for a debt while this bankruptcy protection is available.

As you probably know, there are literally dozens of reasons that people find to file bankruptcy. But what really matters are the financial struggles specific to you. Even if none of the reasons mentioned here apply to your situation filing bankruptcy may still be exactly what you need to find a financial fresh start. Start by discussing your situation with a local bankruptcy attorney and ask for their opinion about how bankruptcy could help you and your finances.



The 5 Largest Bankruptcies in US History

March 22, 2013 - 01:52 by rmckinney

Every now and then it’s nice to look at our nation’s history from different angles, but I bet you didn’t think bankruptcy could ever be one of them. Corporations typically file for Chapter 11 business bankruptcy that allows them to “reorganize” their debts in order to more efficiently pay them off. If the reorganization plan is successful then the company can get out debt by selling off pieces of itself to competitors or smaller companies. Below are the 5 largest corporate bankruptcies in US history based upon how much the company was worth when they filed the bankruptcy paperwork with the courts.

1. Lehman Brothers

The current leader in the nations largest bankruptcy race is Lehman Brothers, a global financial services firm that filed Chapter 11 bankruptcy in 2008 despite having a value of $690 billion dollars. They were drastically affected by the sub prime crisis of 2008 and several former employees also blame sketchy business tactics for causing the eventual bankruptcy.

2. Washington Mutual

Also in 2008 the $330 billion dollar bank named Washington Mutual followed in the footsteps of Lehman Brothers and filed Chapter 11 bankruptcy. Before the case was filed many customers of the bank became nervous and began withdrawing all of their funds. The total withdrawal from worried customers totaled 16.7 billion dollars.

3. WorldCom

Several years earlier in 2002 the nation was shaken when its largest long distance phone company WorldCom filed for Chapter 11 bankruptcy. At the time of filing the company was valued at $103 billion dollars, but because of a scandal amongst those in upper management the CEO went to prison and the company went bankrupt.

4. GM

The most recent bankruptcy on this list is the 2009 GM Bankruptcy when the failing automaker company was valued at $91 billion dollars. You may remember that to ensure the company didn’t shut down all of their factories for good they relied on a bailout from the US federal government. GM emerged from the bankruptcy in 2010 and is still fully operational today.

5. CIT Group

Another 2009 bankruptcy involved the commercial lender CIT Group worth at the time around $80 billion dollars. Only a month after filing their bankruptcy the CIT Group satisfied all of the courts requirements for the reorganization plan and began selling off parts of their company to satisfy its debts. Today CIT Group continues to improve and rebuild.

Filing bankruptcy affects individuals, families, small businesses and as you can see even the largest businesses in the country. Everyone struggles financially in different ways and in some cases they choose bankruptcy to deal with those struggles. The great thing about the bankruptcy laws is that they allow different types of bankruptcy for different people, organizations, debt limits, and other variables. Whether you are a single person struggling with $5-6 thousand dollars in credit card debt or a multi millionaire struggling with a failing business, going bankrupt may be one of the best decisions you ever make for your future.



How Long Does Bankruptcy Affect My Credit?

March 15, 2013 - 01:51 by dglines

This question was probably asked to me over 1,000 times during my time as a bankruptcy paralegal. I attribute the frequency to the negative rumors that continue to surround filing bankruptcy. People constantly hear totally irrational phrases like “bankruptcy takes your credit score to zero” and “if you file bankruptcy you will never get another loan” and they are simply not true. Here are a few of the true facts regarding how long bankruptcy affects your credit:

Bankruptcy remains on a Credit Report for 7-10 years

Once you have credit taken out in your name and under you social security number 3 companies begin tracking what is called a “credit report” for you. These three companies are Equifax, Experian, and Trans Union. Your credit report reflects all credit accounts in your name and their balances, delinquencies, and overall status. When someone files a Chapter 7 bankruptcy in order to wipe away their unsecured debt and their case is completed these three companies are notified by each creditor listed in the bankruptcy paperwork. They are notified to report the balance of the debt as $0.00 and place the word “bankruptcy” as the status for the debt. Depending on the type of bankruptcy you file this will remain on your credit report for 7-10 years.

Bankruptcy doesn’t set your Credit Score to zero

Along with the creation and tracking of your credit report the three companies above are also responsible for compiling your credit score: a number between 450 and 900 that defines the creditworthiness of a person. Ultimately this number tells creditors how likely you are to pay off your debt according to the 3 credit bureaus. When a person files bankruptcy their credit score goes down because they are wiping away debts that they technically did not “pay off”. However, bankruptcy doesn’t drop the credit score down to the lowest possible number of 450.

Bankruptcy doesn’t disqualify you from obtaining new credit

With the reflection of bankruptcy on your credit report and credit score many people think that their chances of obtaining new credit are close to impossible. Fortunately for us that isn’t the case. The good news is that many people say that in just one year after filing for bankruptcy their credit is better than ever before. This is due to positive financial decisions once the bankruptcy is completed. In most cases it takes about 2 years after going bankrupt for a person to obtain a mortgage, and about 6 months for a new car loan.

There are companies that specialize in rebuilding your credit after completing a bankruptcy and they can help you achieve your new financial goals. Think about it this way: if you are considering the option of filing bankruptcy then your credit score and credit report are probably not too great anyway, so the only direction you can go is up! Don’t believe the myth’s, in the long run filing bankruptcy can really help your credit.



How Much Does Bankruptcy Cost?

March 8, 2013 - 02:50 by rmckinney

In most cases if you hire someone to perform a legal service for you then there will be some sort of fee involves. Filing bankruptcy is no different. Whether you hire a bankruptcy lawyer to guide you through the process or attempt a do it yourself bankruptcy, there will most likely be fee requirements. Hopefully this blog will give you some sense of what you may pay if you are considering a Chapter 7 bankruptcy or Chapter 13 bankruptcy in the near future.

1. Court Fees
As of 2012 the filing fees associated with personal bankruptcy are as follows: $306 for Chapter 7, and $281 for a Chapter 13 bankruptcy. Typically these are mandatory fees that are expected as soon as the debtor (or the debtor’s attorney) files the bankruptcy paperwork. In rare cases the debtor can ask the court to waive the filing fees if they believe it will cause them hardship to come up with the funds.

2. Attorney’s Fees
Each bankruptcy attorney will create his or her own fees generally based upon an estimate of how much work the case will take. In most cases bankruptcy lawyers charge less for Chapter 7 cases because they are over quicker, take less work, and are all around more simple to work on. As of today the going rate for Chapter 7 attorney’s fees can range from $1000-$2000 depending on the attorney, the location, and the specifics of the case. Chapter 13 cases usually cost more because of the sheer complexity that is involved. Sometimes bankruptcy attorneys will allow the bulk of their fees to be included in the Chapter 13 repayment plan that will last 3-5 years.

3. Additional Fees
Although it may seem that the court fees and attorney’s fees are enough already you should always be prepared for bankruptcy to throw a few curve balls. Depending on your case and your attorney you may have a few additional fees. Some of these fees may include the 2 courses that filing bankruptcy requires. These courses can be taken online, over the phone, or in person and are typically between $40-50 dollars a piece. You may also be asked to provide the court with an appraisal of your home or vehicle which could also require additional fees.

Again, the cost of your particular bankruptcy case will depend on many variables so it may be in your best interest to obtain several quotes from local attorney’s so that you can choose the best option for you. Before signing any contract be sure you are aware of what additional costs your attorney will cover and which ones you will be required to handle. Also, pay careful attention to the payment timeline that the attorney requests. Some attorneys want all of the fees to be paid before the case is filed, and others are more lenient. Don’t let the cost of filing bankruptcy scare you from doing something that could truly benefit your financial future.



Common Bankruptcy Questions

February 20, 2013 - 02:45 by rmckinney

Here are 10 of the most commonly asked bankruptcy questions and answers:

1. What is bankruptcy?
Bankruptcy is a right that US citizens are given to relieve themselves of overwhelming amounts of debt through a legal process. There are 2 main types of personal bankruptcy avaliable: Chapter 7 and Chapter 13.

2. Will bill collectors stop calling me after I file bankruptcy?
Yes! The day that your bankruptcy case is filed with the court is legally the last day that anyone can attempt to collect a debt from you. This is called an “automatic stay” and it protects you from collection attempts until your case is over.

3. Will I have to go to court?
Yes, everyone who goes bankrupt is required to attend a hearing known as the “meeting of creditors”. Although all of your creditors will be notified of the date and time of the hearing it is rare that any will show up.

4. Do I have to list all my creditors when I file bankruptcy?
Yes, since the bankruptcy laws changed in 2005 any and all debt in your name must be listed in your bankruptcy paperwork. This does not necessarily mean that all of your debts and/or property will be erased when your bankruptcy is complete.

5. Will I be able to rent after I file personal bankruptcy?
In most rental situations the landlord will do a credit check and notice that “bankruptcy” is on your credit report. This does not stop them from renting to you, but they may want proof that you are making timely payments elsewhere.

6. How do I know if I should file personal bankruptcy?
You are the only person that can decide if personal bankruptcy is right for you, but if you are facing an overwhelming amount of debt that you cannot see yourself coming out of in the next 1-2 years then personal bankruptcy may be a good option for you. Ask friends or family that have filed bankruptcy how it helped them.

7. Who notifies the creditors that I filed bankruptcy?
Your creditors are notified of your bankruptcy by the bankruptcy court via electronic mail or paper mail via the USPS. You will not be required to communicate with creditors once your case has begun.

8. How do I choose a bankruptcy attorney?
Choosing a bankruptcy attorney may be difficult, but it is well worth the research. Again, you can ask friends or family who have filed, speak with your local bar association, or just call local attorneys and request a free consultation.

9. Can I get rid of student loans or tax debts?
In most cases filing bankruptcy cannot get rid of student loans or tax debts. These debts fall into the category of “non dischargeable” debts that are typically not erased by the bankruptcy court.

10. Can I get credit after filing personal bankruptcy?
Yes! One of the common misconceptions about declaring bankruptcy is that your credit will never recover. The day your bankruptcy is discharged you will be ready to start making positive financial decisions that will quickly begin rebuilding your damaged credit.



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