Bankruptcy Questions Answered

Stephen Morgan asked:


OK perhaps the above headline might be accused as being slightly on the sensationalist side of things but go with me slightly as I explain my reasoning and the logic behind such a potentially controversial headline.

The core message put out recently by the UK Governments Insolvency Service was that a record number of people in the UK were made officially insolvent between July and September 2006.

The Governments Insolvency Service claimed that 27,644 people were either made bankrupt or entered into an Individual Voluntary Arrangement (IVA) as a way to control or manage their debts in an ordered fashion.
It was too early obviously to know how big a percentage of those who entered into an IVA had it failed by their manager or supervisor but it has been claimed previously that in some cases up to 50/60 percent of those entering an IVA fail to complete it in an orderly manner and therefore find themselves being made forcibly bankrupt at a later date.

The other key statistic was that insolvencies were apparently 55% higher than during the comparable period this time last year and the smart money (to spoil the metaphor) is on the figure topping the 100,000 mark for the year.

Add to that the latest trend in Lifelong Mortgages whereby the Lender gives the Borrower up to 57 years to repay the mortgage and will extend up to 5 times the borrowers annual income on a LTV basis then you can see where it would be very easy to over extend oneself.

It would appear that the proportion of those applying for and entering IVAs rose as compared to those deciding (or having decided for them) to go down the straight bankruptcy route. This latter fact has been heavily criticised (and understandably so) by the mainstream press as the process of an IVA or (Chapter 13 Bankruptcy, its equivalent in the US) is very heavily marketed as the ultimate solution to provide the maintenance of the maximum amount of dignity in an otherwise sordid scenario.

This is not entirely the case and is most certainly not always true. Whilst the principle of an IVA is fine and extremely noble, sometimes it is just not practical and therefore should be counselled against at the earliest opportunity. That is not to say that IVAs are a totally worthless idea in principle.

In the right circumstances they are ideal and managed correctly work extremely well for those who enter into the process with their eyes firmly open. Sadly this is not always the case and most often the reality is the exact opposite.



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Bowe Packer asked:


Becoming bankrupt is not something that many people think about. There are occasions when this will happen and these individuals will need to file for bankruptcy. The assorted chapters of bankruptcy like chapter 13, and chapter 11 are taken from the bankruptcy code. This code was established by the US congress.
Believe it or not, much of these laws are in place to protect the individuals who are having financial problems. Below we will outline what the bankruptcy codes are and what they mean to you.

These laws were put in place so that there was a uniform law about bankruptcy that could be found throughout the US. These laws from the bankruptcy code are designed to protect the person who is in debt from further problems.

There are currently four main types of bankruptcy laws that are taken from the bankruptcy code. You will recognize these bankruptcy laws as chapters. Chapter 11 is one of the bankruptcy laws that can be found in the bankruptcy code under the heading chapter 11.

The different chapters inside the bankruptcy code provide info for people who are in debt. The various ways that the law can work to keep you safe from unreasonable hassles can be found inside the pages of the bankruptcy code chapters.

As a citizen you have the right to view and read these laws. The only problem that we see is it is typically to late for most people. Meaning they are already in financial trouble, so reading about the laws to stop the bankruptcy may not work. However, you will still want to understand the rights you have being in a bankrupt state of affairs.

While the US government has provided the framework for these laws of the bankruptcy code each state has the right to pass other laws that will work in accordance with the bankruptcy code. They don’t have the right to change the law, just factors that pertain to their specific state can they add.

The states can only provide other laws that are compatible with their state’s laws. Otherwise the states themselves don’t have the power to govern how the bankruptcy code works.

There are many dissimilar and new laws that you can find when you look through the bankruptcy code. One of the new laws that you will find is the altered state of the debtor-creditor relationship.

While the different states can’t vary the basic rules of the bankruptcy code they do have the right to interpret how these bankruptcy claims are filed and acted on in their respective states.

If there is a major change to the bankruptcy code this change will be passed by congress. One such change that has taken effect alters the rules of bankruptcy for chapter 7. In this part of the bankruptcy code all debtors must prove that they have the right to file for bankruptcy.

The bankruptcy was established and put into place to address those that are in financial trouble and for creditors to get their money back. This of course if a very general definition, but will serve the point. So be responsible and spend less than you make.

They will be allowed to file for bankruptcy only if these people have fulfilled a counseling session. This step has been taken to hold that the bankruptcy code is not being misused by the assorted individuals who want to avoid paying their various debts. As the bankruptcy code has been placed for our shelter it is best if you handle these laws with respect.

Remember, bankruptcy is here to help and if you respect the laws of the code then it can be used as a tool if you are every in the need.



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Albert Alexander asked:


Chapter 7 is the most common type of bankruptcy, and is sometimes referred to as liquidation bankruptcy or straight bankruptcy. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. Chapter 7 is one way for you to begin reestablishing your credit by eliminating the bulk, if not all, of your unsecured debt dramatically reducing your debt to income ratio.

Creditworthiness and the likelihood of receiving a Chapter 7 discharge are only a few of many issues to be considered in determining whether to file bankruptcy. Chapter 7 is used most often by people who are unemployed or very deeply in debt due to medical expenses or unexpected financial circumstances.

The process for a Chapter 7 bankruptcy is relatively easy. After a meeting with a bankruptcy attorney to discuss your financial situation, a bankruptcy filing may be recommended. In the case of a Chapter 7 filing, you will need to attend a creditors meeting, which generally takes place 30 days after the filing of the bankruptcy petition.

Creditors, who you have debt with, may appear and ask questions regarding the debtor’s financial affairs and property, but creditors rarely attend. Creditors, by law, are no longer permitted to initiate or continue their lawsuits, wage garnishments, attachments or other collection activity. This activity includes telephone calls from collection agencies demanding payment. Attorney’s fees for Chapter7 filings vary depending upon the complexity of the case, but generally hover around the $700 to $800 range.

In determining what debts will be discharged, or forgiven, by the courts there are certain types that can not be waived in a Chapter 7 bankruptcy filing. Debts for most taxes are not cancelled. Debts for educational benefits and student loans are not discharged unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents. Debts or obligations under a divorce or support decree are not usually cancelled, and debts due to fraud, dishonesty or misconduct are not cancelled.

Debts that you incurred a result of an intentional or even negligent misrepresentation on your part are not dischargeable in Chapter 7. Certain debts that the courts deem questionable may also be outside the scope of debt discharged. Debts owed to a single creditor totaling more than $500 for luxury goods will not be discharged if acquired up to 90 days prior to filing. Cash advances of $750 acquired within 70 days will also not be discharged.

Property is one of the biggest areas of concern for those considering bankruptcy. Consulting your attorney will make it clear whether or not your property is at risk when you file Chapter 7 bankruptcy. Sometimes property can be taken by the bankruptcy official (trustee) and sold to pay on your debts. Property or asset exemptions are determined based upon your situation, income and the laws of your state.

Chapter 7 is a complete and total liquidation of a debtor’s assets in order to pay off their creditors. Chapter 7 is designed as an orderly, court-supervised procedure by which a trustee collects the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors, such as mortgage companies and auto lenders.

Chapter 7 may be your best option however, if you are not eligible for Chapter 7 bankruptcy or if Chapter 7 will not meet your specific needs and goals, Chapter 13 bankruptcy is a useful alternative. Chapter 7 may not be available to debtors who have enough income exceeding their basic living expenses. For those who are deemed to have an excess of disposable income, the court will determine that they can afford to repay a portion of their debts through a Chapter 13 payment plan.



Bankruptcy Questions

Albert Alexander asked:


Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due.

Bankruptcy is not something I recommend any more than I would recommend divorce. Along with a divorce, bankruptcy is listed in the top 5 life-altering negative events that we can go through, along with severe illness, disability, and loss of a loved one. In its simplest form, bankruptcy is a legally declared inability or impairment of ability of an individual or organizations to pay their creditors.

Chapter 7 bankruptcy provides for the discharge, or elimination of, unsecured debts in order to start financial recovery. Chapter 13 bankruptcy provides a repayment plan for secured debts, such as a home mortgage. There are pros and cons to each of the consumer bankruptcy options as well as personal financial circumstances that may limit your options.

Because it completely rids you of your unsecured debt, Chapter 7 bankruptcy is the easiest way to come out of debt. Since all your debt is, in essence, wiped clean in a Chapter 7 filing, people have started abusing it. In a bankruptcy case under chapter 7, you file a petition asking the court to completely discharge your debts. Chapter 7 relief is available only once in any eight year period. Chapter 7 bankruptcy, which is sometimes referred to as total bankruptcy, stays on your credit report for 10 years.

Chapter 13 bankruptcy, more like a payment plan, stays on your credit report for seven years. Chapter 13 bankruptcy is the most common type of “reorganization” bankruptcy for consumers: You get to keep all of your property, but you must make monthly payments over three to five years to repay all or some of your debt. The specific amounts of your repayment are determined by the courts.

Although bankruptcy can help with your financial situation, it does not help in every circumstance. Debts that are not eligible to be discharged include child support payments, some taxes, and student loans. Debts that can be discharged include personal loans, credit card debts, and medical bills.

Filing bankruptcy is a very serious move, and you must consider your options in comparison to your financial future. Filing bankruptcy involves a series of steps that you must be aware of. Filing bankruptcy is a major decision, with many benefits, including its ability to stop foreclosure, wage garnishment and creditor harassment. Filing can provide borrowers with clean financial slates either by discharging debt so that the one no longer is liable for its repayment, or by instituting a realistic repayment plan under the discretion of the bankruptcy court.

Filing for bankruptcy may be one of the most difficult decisions a person can make. There will always be those who file bankruptcy because of irresponsible financial behavior while others have simply fallen into unfortunate circumstances. For many who are forced to consider bankruptcy, the actual decision to file is usually the hardest part. Even with the negative implications of filing bankruptcy, most who have filed will agree that the psychological relief is a huge strain removed from their lives. Filing for bankruptcy is not the end of the world.

Bankruptcy is not a substitute for financial responsibility. Bankruptcy is not a quick fix for all credit problems. Bankruptcy is designed as a legal option to help resolve such a crisis, and act as a financial life preserver for those drowning in debt. Bankruptcy is the process by which you are legally allowed to get rid of your debt. Filing bankruptcy should only be used as a last resort effort to help people crawl out of a credit hole and get back on their feet.



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VARADHARAJA PERUMAL asked:


While the phrase what is old is new again is a thoroughly worn out clich, it has become a clich because it is oft repeated and it is oft repeated because there is a great deal of truth and reality found within the words that comprise the phrase.

In the case of bankruptcy, this is an old problem that has come back to the forefront of the public consciousness thanks in part to the current mortgage foreclosure crisis that is facing segments of the nation.

Well, perhaps the words thanks and foreclosure do not go so well together.

In any event, there has been an alarming increase in bankruptcy filings due to the increase in foreclosures and it has become a headline grabber in the newspapers as well as a campaign issue in the upcoming elections.

The Problem Of Foreclosures

On a baseline level, the current issue of mortgage foreclosures derives from the fact that people are unable to afford their mortgages.

Because the mortgages have created a situation where the homeowner has had to max out on loans to meet mortgage payments, there has been an increase in bankruptcy filings.

The Cause Of The Foreclosures

The cause of the foreclosures is two fold: first, many borrowers simply borrowed far beyond their affordability.

When it became obvious they could not pay, they did not downsize to a smaller, less expensive home. This set them on course for bankruptcy.

The second cause of the foreclosures is the result of predatory lending when the lender purposefully swerved the borrower into purchasing a home they could not afford. The third reason is a combination of reasons one and two.

Escaping Bankruptcy Foreclosures

Now that we find ourselves in a problematic situation, how do we get out of it? This is the question posed by many individuals in regards to their current situation.

There has been talk of government bailouts, but that would seem like a very slim option. Quite honestly, the public would not be interested in helping out people who dug themselves in a hole.

Market manipulation of sub prime lending rates is an option, but a tricky one that may not prove possible.

Filing for personal bankruptcy is an option, but this has become harder in recent years as the rules for filing bankruptcy have become tighter.

The other option is to consolidate bills and seek credit counseling. The final is to simply let the foreclosure occur and let the proverbial chips fall where they may. As one can see, there are no easy options in the situation.



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Kris Koonar asked:


When you decide to file a Chapter 13 bankruptcy, the legal process grinds into gear. The petition, the document asking the court to bring you relief under chapter 13 of the United States Bankruptcy Code, is a simple two page form, signed by all debtors and the attorney. Once this form has been filed and the filing fee paid, you are given a docket number. From then on, all actions by creditors are under stay, except for those that are allowed by motion, in the bankruptcy court. Creditors can not demand money, take you to court over debt or foreclose or repossess your property.

A few days after this filing, you are required to submit a list of all your creditors and their addresses to the court. This document, the Matrix, must be followed within a week by the rest of the required paperwork, including schedules of assets and liabilities, income and expenses, your financial history and your plan for how you wish to reorganize all that under chapter 13, as well as the evidence that you will be able to complete the plan. After this process of initial submission of the Chapter 13 reorganization plan, you have the option of filing amendments to add creditors or modify the schedules or plans. Amendments may, however, involve the payment of additional fees to your lawyer, as well as extra fees to the bankruptcy court.

Unless your case has some contested issues which need to be heard before a judge, you will probably never have to appear in person. Instead, you will meet with a Chapter 13 Trustee, only one to three months after the initial filing of the petition. This is known as a 341 creditors meeting and everyone who is owed money will be invited to attend. At the meeting, the creditors will ask you questions about your financial situation. However, in most cases, few creditors ever attend and the guests are more likely to include only the big creditors and mortgage holders.

Your attorney will have to be at this meeting, to represent you and the person actually asking all the questions and coordinating the meeting will be the Chapter 13 Trustee. After this meeting, if there are no objections against it, all you have to do is to make sure you remit all the payments according to your plan and in a timely manner. Duration of time for making payments will depend upon your income and the size of your debt. By statute, all the reorganization plans must be between 36 and 60 months long. If you have enough income, the Trustee might demand that the plan be 36 months long and a larger portion of the available funds paid to unsecured creditors.

In general, if you have a little extra money one month, save it, rather than trying to pay a larger amount. If you miss a payment at a later date, you will not be given credit for any early payments made previously. However, if your income changes substantially, for a longer time, you need to inform the court and adjust your payments. Always make sure to pay on time. If you do not, one or more creditors or the Trustee will object and your case can be dismissed or converted to Chapter 7 and they may still foreclose with the permission of the court. Since you are already in a bankruptcy, one failed or late payment will leave you no recourse against losing your home. You will lose the protection of the court.



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