Bankruptcy Questions Answered

MIKE SELVON asked:


Congress decided to make major changes to the United States bankruptcy code in recent years because of the problem the current code was creating. With more people filing for bankruptcy protection and discharging their debts, companies that extended credit to the debtors were forced to cease trying to collect on the money that was owed to them.

Under the new guidelines, it is much more difficult for debtors to simply discharge their debts and they are forced to enter into repayment options if they choose to file. The most recent reformations were a result of many years of abusing the bankruptcy system.

The new bankruptcy code resulted in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, but changes in bankruptcy code are not new for citizens of the United States. Congress was authorized to make changes to the rules and regulations that govern the relationship between debtors and creditors since 1801. Since then, the legislators have amended the bankruptcy code many times. The 2005 changes, however, created the most significant changes in the code in nearly two decades.

In April of 2005, President George Bush signed into law some new regulations to be added to the existing bankruptcy code. Under the new bankruptcy regulations, debtors who file for any form of bankruptcy protection must meet several requirements. Firstly, debtors who file for new bankruptcies are required to complete a financial counseling course.
Since a large number of bankruptcy filings are due to irresponsible personal finance management, the counseling course is designed to help people recognize and change their spending behaviors. This also helps to deter future bankruptcy filings because statistics show that many people who file bankruptcy will do it again in the future.

One way that the new code discourages abuse of the bankruptcy system is that it requires the signature of a lawyer for those who are considering bankruptcy. With the new guidelines, a bankruptcy petition cannot officially be filed unless a debtor has consulted with an attorney about other options that are available.

This encourages a second look at the person’s finances and the circumstances regarding the debt rather than just rushing to have them discharged. A comparison of the debtor’s finances against the average income of the state’s population plays a major role in the investigation.

Other restrictions of the new bankruptcy code make it more difficult for debtors to file Chapter 7 bankruptcy to simply have their debts discharged. With the new regulations, the majority of cases are forced into a Chapter 13 bankruptcy that requires debtors to repay their debts with a scheduled payment plan.

This process involves a court-appointed trustee to handle the finances of the debtor and a certain percentage of their regular income is delegated to the creditors. Repayment schedules are typically arranged so that the debts are paid within five years. Under the old bankruptcy code, however, it was much easier for debtors to file Chapter 7, which simply erases their debts without any form of repayment.

As of October 17, 2005, these and other changes were added to the United States bankruptcy code for several reasons. Because of the toll that unpaid debts have on the economic status of society, major changes were needed to lessen these detrimental effects. Since the focus of these amendments was placed on behavior change and reducing the abuse of the bankruptcy system, the new code should be able to force debtors to think about their financial decisions more carefully.



Bankruptcy Questions

Jessica Bennet asked:


If you have too much of debt and there’s no income as such to support your debt payments, bankruptcy filing may be the only option for you.

However, you need to get an idea as to what bankruptcy is all about and how it can affect you once you file it. Given below are the 5 things you should surely ask before you file bankruptcy.  

1.Find out if you’re eligible to file: If you have more than enough income and asset limit, you may not be allowed to file Chapter 7. In such a case, the court may ask you to file Chapter 13 which is basically a repayment plan developed in order to help you pay off debt within a period of 3-5 years. So, it’s important for you to know under what conditions bankruptcy filings are possible.
2.Know what debts won’t be wiped out: It’s essential to find out those debts which cannot be canceled or wiped out through bankruptcy filing. There are certain debts such as student loans, child support, back taxes, alimony etc which cannot be discharged or wiped out in bankruptcy. So, it’s no use including such debts into your filing.

Credit cards and personal loans are debts, which can be discharged through bankruptcy filings. But if they are fraudulent debts (for example: you have lied on your credit application), then you will not be able to include them in your bankruptcy filing.

3.Effect on your spouse or cosigner: Bankruptcy filing won’t affect your spouse unless his/her name is on the debt account. If you’ve filed Chapter 7, your spouse’s credit will get tarnished along with yours. But Chapter 13 will protect your spouse or cosigner as it is a sort of repayment plan that allows you to reorganize your debts.

4.You may be able to keep your home/car: Chapter 13 bankruptcy filing will help you to keep your home or car as you’re making payments under a court-approved payment plan. But if you file Chapter 7, chances are that you may lose your home or car if your home equity is more than the Federal or State exemptions applicable in your state of residence.  

5.Know if your 401k plan and insurance policies are safe: Retirement plans such as 401k, 403b etc and pension are protected under the Federal law. As such, they won’t be affected by bankruptcy filings. However, IRAs and Keogh plans may not be entirely protected, but they do have exemptions (for example: creditors cannot take up to the first $1 million of your funds in an IRA) defined under the bankruptcy laws.   

Bankruptcy filings can help you get out of debt or restructure payments depending upon whether you qualify for Chapter 7 or Chapter 13. However, just make sure you’re quite comfortable with disclosing your financial details to your creditors as well as the bankruptcy court.



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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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Larence Hubert asked:


A bankruptcy - though never pleasant - to many was a fresh start. Permitting those who got in over their heads, who may have managed finances unwisely, or who encountered sudden fiscal upsets to have a majority of their old debt eradicated and thus start anew on the road to good credit and the responsible management of funds. Yet after October of 2005 and blaming the courts, bankruptcy bound debtors found discharges heavily burdensome and instead of rejoicing at the newfound freedom and ability to once again start over, old debts were said to haunt those in dire financial straits.

While some of the changes were common sense changes for the better of the system, the limitation on the homestead exemption and the means test that would be a litmus test as to whether a family truly needed bankruptcy protection or just unload some assets - frequently at horrendous losses - were two of the most commonly cited reasons for a decline in filings. At the same time, the mandatory credit counseling before the bankruptcy filing was received as a self-serving move on behalf of the credit card industry that is heavily invested with the counseling agencies.

For this reason, though the number of bankruptcy filings have sharply declined, the number of Americans with bad credit and no hope for help in sight has just as sharply risen. In the same vein, a failure to provide quick and decisive discharge action has cost many families precious years of being mired in fiscal muck rather than having a fresh start that would eventually permit them to support their grown children’s higher education. Even if there is very little that can be accomplished by blaming the courts, bankruptcy laws have not changed for the better.

When anyone files for bankruptcy, the proceedings will go through their local federal bankruptcy court as the entire process is governed by federal law. There are a few aspects of the bankruptcy proceeding that may be influenced by state laws, the overall rules and procedures covering the process is under federal jurisdiction.

Whether an individual filing for personal bankruptcy or a company or corporation filing for protection under bankruptcy all of the proceedings are handled in federal bankruptcy court. This is more beneficial to the debtors as some of their creditors may be from other parts of the country and not influenced by decisions of state courts. With all decisions coming at the federal level, it covers the individual or company regardless of the location of the creditors.

Additionally, many creditors are less likely to attempt illegal collection tactics sometimes used when a person initially files for bankruptcy, as they fear facing charges on the federal level. There can also be no misunderstanding of the rules if they would be different in other states. Creditors may make a case speaking to the court’s trustee about the discharge of debt, but in the majority of bankruptcies, there are few times then holders of unsecured loans will appear in federal bankruptcy court.

Due to the procedure going through federal bankruptcy court, it is always best for individuals to find appropriate representation in bankruptcy proceedings. Experienced lawyers understand the process in the courtroom, but more importantly, they know the order in which everything related to the case must be completed to affect an efficient discharge of the case.

In many cases, there comes a time when many borrowers must seek bankruptcy protection from their creditors. While many people can access and utilize the help of debt credit counselors, others have no choice but to file Chapter 7 or Chapter 13 bankruptcy.

Most people who are in financially trouble prefer to seek protection under Chapter 13 bankruptcy. However the court must approve the plan and before they do so, it will have to be proven the borrower is in a situation where the plan will be consistently met within the borrower’s current financial situation. The borrower must have a job to be able to pay back the plan. In addition, the plan must be of a reasonable amount, for it to work.

Many creditors may be reluctant to enter into a loan consolidation plan through a private specialist, but have little choice in bankruptcy courts. They don’t always agree to erase all charges either. However, most often the bankruptcy courts will order them to do so. This allows protection to the borrower and gives the creditor no choice but to meet the orders of the court.



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Muna wa Wanjiru asked:


Going bankrupt is something that is hard to imagine happening to you. When bankruptcy does occur though, you have some options that you can try. For these bankruptcy options to work you will need to consider bankruptcy filing. The options will include chapter 11, 13, and 7.

Each of these types of bankruptcy filing allows you a breathing space while you try to sort out your financial mess. The most well used bankruptcy claims are chapters 13 and 7. In these two options you will be able to talk with your lawyer and find the best method for paying off your payments.

In general chapter 7 and chapter 13 bankruptcy claims ensures that you can’t be forced to pay further debts once you have placed a bankruptcy filing. For your creditors to stop contacting you it is essential that you file a bankruptcy claim.

Once the bankruptcy filing has been accomplished your payments will commence. These payments will be made depending on the type of bankruptcy that you have filed for. As both of these bankruptcy filings are very different it is best if you understand what happens when you file bankruptcy claims.

In the chapter 7 bankruptcy filing you agree to liquidate all of your disposable and non-exempt assets. These assets, money, and property are turned over to a court appointed bankruptcy trustee. This individual will start the process of turning your disposable assets into cash. Once the amount of money that you owe has been found, the trustee will distribute them amongst your creditors.

You should make sure that when you are preparing for bankruptcy filing that you have given your lawyer a list of all of your creditors so that the proper payments can be finalized.

This step in bankruptcy filing will wipeout all of your debts, excepting for certain non-dischargeable debts. You will however need to discuss with your lawyer the best ways to go about bankruptcy filing for chapter 7 and in some cases chapter 13.

The chapter 13 bankruptcy filing will allow you to make arrangements with your lawyer to pay off these payments as best as you can. The lawyer will examine your bankruptcy case history before you can begin the bankruptcy filing process. Once the filing has been finalized you have a period of 5 years to pay off your debt.

Bankruptcy filing is the best way to make sure that your bankruptcy claim is following in the proper path. Your lawyer should be able to advise you on the best route of bankruptcy to file for.



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Jane Worthington asked:


Filing for bankruptcy is something about which many people are embarrassed. It is important to remember that 85% to 90% of bankruptcy filings are due to divorce, illness, or loss of employment. Therefore, many people are forced to file for bankruptcy due to circumstances they cannot control. However, you have to know that you can survive after bankruptcy. No matter what reasons you had to file in the first place, you need to know that you rebuild your life afterwards!

Most bankruptcy lawyers encourage you to think of filing for bankruptcy as a fresh start. Your debts are wiped out but you will need to work hard to rebuild your credit! The stigma is the same whether you filed for Chapter 7 or bankruptcy Chapter 13. If you are diligent and honest, you will be able to regain a decent credit score in as little as two years. If you put off rebuilding your credit, however, you will find that it takes much longer than it should.

You need to start working hard immediately after your bankruptcy case is over. All of these steps are suggestions on how to reestablish your credit so that you can overcome your bankruptcy and live a happy life. The first step to building up your credit again is to establish new credit lines.  Most major credit card companies and banks will most likely not approve you but there are other avenues that you can try. After you talk to the three main credit report companies to make sure that they show your debts have been “discharged in bankruptcy,” you can try to find a bank that will establish a savings account for you. Try to find an account that will have a credit card attached to it; this card is called a secured credit card.

In order to get your life back on track, you need to maintain as positive an attitude as possible. If you allow yourself to be bogged down in the bankruptcy and do not work hard to overcome it, you will have a much harder time reestablishing yourself. Have a story prepared to tell people why you needed to file bankruptcy. If you are honest and show remorse, people will be more willing to give you a second chance.



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