Ch 7, 13

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You are not legally obligated to notify your creditors when you are filing for bankruptcy. In fact, many creditors or collection agencies may construe this type of information as a hollow threat and continue to make harassing phone calls anyway. However, as soon as you actually do file for bankruptcy, you are assigned a bankruptcy case number. With this number you can notify your creditors, who then legally must stop making collection calls. Your creditors will also automatically get a notice from the bankruptcy court about your bankruptcy filing.

If you have secured debt, such as your home or car, you will have to notify your creditor if you are filing chapter 7 bankruptcy and give them your “Statement of Intention” letting them know if you intend to give the property back, or reaffirm the debt with a reaffirmation agreement.

If you are intending to file for bankruptcy and some of your creditors include close friends or family, your landlord or your mortgage company, especially if you intend to keep your home, you probably will want to inform them about your pending bankruptcy filing to maintain good relationships. They will find out anyway, so you might as well soften the blow.

Filing for bankruptcy is a process filled with complex legal hurdles and deadlines set by the bankruptcy court. It is an ambitious undertaking to navigate through the bankruptcy web without the professional services of an experienced bankruptcy attorney. Most cases of pro se bankruptcy filers are dismissed. Here are the most common mistakes that debtors, who represent themselves in bankruptcy cases, make:

* Bankruptcy petitions and forms are not filled out correctly
* Deadlines to submit crucial documentation are not met
* Unpaid filing fees
* Failure to complete pre-bankruptcy or pre-discharge counseling
* Failure to attend the Meeting of Creditors

Beyond that, pro se filers do not have the experience to properly respond and often fail to respond to an Objection to Exemptions or to an Objection to Discharge. Furthermore, failing to claim eligible exemptions or making improper use of exemptions can cause irreparable damage causing you to lose property, when in fact the whole idea of bankruptcy is to salvage your property at the brink of insolvency.

The potential risk of going it alone can be easily offset by hiring a bankruptcy attorney who knows the procedures, laws and terminology for filing bankruptcy successfully and can explain everything in simple language to help you make informed decisions. While you need to consider the cost of hiring a bankruptcy attorney, also consider what is at risk. It is a worthwhile investment.

Factors that can cause financial distress vary widely, and more often than not forces beyond your control can push you into a financial vicious cycle. Whatever the reasons that push you deeper and deeper into debt, there are proactive steps you can take to fight bankruptcy.

Learn financial management

Financial management classes should be taught along with reading and writing. Unfortunately they are not, and many of us are left without a basic knowledge of how to spend and save the money we earn. This is why it is important to take your own initiative and find out about either classes (many are offered for free) or teach yourself with publications and other writings on the subject.

Seek financial counseling

Do not wait to seek the help of professionals. Once you realize that your financial situation has spun out of control, do some research to find reputable credit counselors who can review your situation with you and help you customize a plan of attack for your needs.

Live within your means

One common reason for financial distress is a reduction of income for a number of different reasons such as a divorce, change in employment, illness, disability or job loss. If this is the case, you need to adjust your budget and spending habits to fit your new lifestyle. Scaling back is one of the most difficult steps you must take but it is an essential one to control debt and the possibility of having to file for bankruptcy.

Plan your career

Do not wait for your spouse to file for divorce or to be handed the pink slip at work. Plan your career and set goals for where you want to be in your career two, five and ten years from now. Having a goal makes you work harder and has you better prepared should the unexpected occur.

Divorce

A divorce can have devastating repercussions on your finances. If you are going through a divorce, be sure to cancel all joint credit cards and other checking accounts, especially joint accounts with overdraft protection. Also ensure that your name is on the title to your house and on all other investments accounts.

Know your rights

Knowledge is power. The more you know about your rights, the better and more effectively you can fight for your rights and avoid bankruptcy. In the event of a divorce for example, the IRS allows you to file an “innocent spouse” claim, if you believe you do not owe certain taxes.

When your financial situation is dire and you are plagued by constant phone calls from creditors trying to collect their money, filing for bankruptcy may seem like the last resort to your predicament. Before you actually take the step and file for bankruptcy however, consider these steps:

The Game Plan

Take some time to go over all your finances. Review your bills: this includes all of your monthly fixed costs such as your mortgage and car payments, but also other living essentials such as your utility bills, grocery bills, insurance, credit cards and all of your other monthly costs. Be thorough and do not overlook anything. After you collected all of your expenses, separate the essentials from the non-essentials. The roof over your head will take precedent over the new pair of heels. You need to prioritize and be willing to part from the things you do not really need.

Make an Allowance

Now that you distilled the cost of life to the exact dollar amount of everything purchased and paid you can set yourself an allowance. If you are running low of cash by the end of the month you will learn how to make that last dollar last until the next pay check, instead of indulging and buying things on credit. It may be a difficult concept to get used to but once you try it you will find how empowering it can be.

Work as a Team

It can be difficult to deny your children things they want at the grocery store. Get the kids involved and explain the benefits of having an allowance. Reward them for staying within the allowance by letting them keep a portion of the money saved.

Turn your Stuff into Cash

Raid your home for possessions you no longer need, want or desire. Have a garage sale or put them up for sale on online auctions. You will be surprised by the amount of cash you can make from your unwanted stuff. And you will declutter your home in the process.

Reap the benefits of Credit Counseling

There are many benefits of working with a credit counseling agency. Be sure you are working with a reputable agency – scammers are notorious for posing as legitimate agencies and charging exorbitant fees. You can discuss the possibility of negotiating a payment plan with your creditors or the benefits of a debt-management plan with your credit counseling agent.

If you find yourself in a financial bind, not knowing how you got there, you may be an excellent candidate for bankruptcy counseling. If you are already filing for bankruptcy, new legislation mandates credit counseling as a prerequisite for bankruptcy filing. Unlike debt consolidation, which can help make your monthly debt obligations more manageable, bankruptcy counseling will offer you an opportunity to learn the basics of money management, laying the foundation for responsible spending and thereby decreasing the likelihood of future bankruptcy filings.

Who will benefit?

Credit counseling services offer you the tools to learn how to manage bank accounts, balance checkbooks and pay bills on time, all basic but essential information to take control of your finances and eliminate debt. These money management skills will help you throughout your lifetime. They will allow you to better understand your credit worthiness, the cost of credit, particularly credit cards, allowing you to make informed decisions when considering your credit options. If you suffer from very large debt burden you will particularly benefit from credit counseling by helping you find ways out of your situation. If your credit rating and history is damaged, credit counseling can show you ways to restore it.

What does a credit counseling agent do?

Be sure to select a legitimate and qualified credit counseling agency with teams of experts who will first understand and assess the situation you are in. Based on your individual situation, counseling is geared to address issues of saving money, eliminating debt and clear the path to financial freedom.

How can bankruptcy counseling help you?

Learn how to better manage your household expenses.
Learn how to deal with harassing debt collectors.
Learn about credit.
Learn how to reduce or eliminate debt.
Learn how to avoid bankruptcy.
Learn how to make a budget and start saving money.
Learn how to maintain a steady cash flow.

If you need help straightening out your financial life and desire a life where you control your finances and not the other way around, credit counseling is a useful and beneficial resource for your journey to financial freedom.

Bankruptcy is not just for the rest of us. The widespread notion that bankruptcy afflicts mostly low-income families and thwarts all future dreams of prosperity is not exactly true. Many successful and even wealthy people have gone down this path and have emerged more successful on the other side.

Musicians
Willie Nelson
Tammy Wynette
George Jones
Tom Petty
Toni Braxton
Elton John
Meat Loaf
M C Hammer
Jerry Lee Lewis
Chaka Khan
Marvin Gaye

Actors and actresses
Kim Bassinger
Mickey Rooney
Burt Reynolds
Gary Coleman
Lynn Redgrave
Margot Kidman
Lorraine Bracco.

Politicians
Abraham Lincoln
Ulysses S. Grant
William McKinley
Levi Morton

Athletes
Mike Tyson
Leon Spinks
Joe Lewis
Johnny Unitas
Bjorn Borg

Authors
Mark Twain
Frank Baum
Oscar Wilde
Susan Powter
Kate O’Brien
Business Moguls
Donald Trump
Henry Ford
Walt Disney
Stan Lee
Milton Snavely Hershey
H.J. Heinz

So, you are in a good company. As you can see, even successful people will resort to bankruptcy to start fresh.

There are many myths associated with bankruptcy filing. These preconceived notions are often unfounded. Understanding the reasons and benefits for bankruptcy filing will help understand the idea behind bankruptcy and dispel the stigma.

Not all bankruptcies were created equal

The two major personal bankruptcy chapters are Chapter 7 and Chapter 13. In a Chapter 13 bankruptcy case, the debtor’s debt is redistributed over a longer time frame in a custom designed repayment plan. Debt is not forgiven but restructured based on the debtor’s future income. In a Chapter 7 bankruptcy, most unsecured debt such as credit cards and similar consumer debt is discharged. However, there are many debts like child support or student loans that will not be discharged. Debtors who see themselves forced to file for bankruptcy go through much distress, their credit rating is damaged for years to come and not all debt will be discharged. The cost of distress and long term poor credit rating makes bankruptcy not really a free ride.

Bankruptcy can happen to anyone

When debt grows over a debtor’s head, irresponsible spending is not necessarily the reason for having to file for bankruptcy. In many cases, unforeseeable events such as medical emergencies or job loss in a bad economy can all be grounds for filing bankruptcy. Even high earners can be inflicted with financial difficulties forcing them to file for bankruptcy. A business loan gone bad in a recession has little to do with one’s spending habit and may well become a reason to file for bankruptcy.

Bankruptcy is not the end of good credit

Although a bankruptcy filing will significantly lower your credit score and will stay in your credit report for ten years, it will also allow you to rebuild your credit. If you gain the upper hand of your financial responsibilities after a bankruptcy filing, you will have a chance to slowly build your credit again. Struggling with bills, late payments and overextending one’s credit will all result in a lower credit score anyway. So instead of trying to fight the inevitable, you will be better off in the long run with a bankruptcy in your credit report than with a series of late payments and other credit no-nos.

Bankruptcy will not leave you penniless

In a bankruptcy, your assets will be liquidated to pay off your creditors. The most valuable asset is most often the home. However, the home can only be a real asset if there is enough equity on it or has significant value above the mortgage amount owed. If you have taken out a large home equity loan or the value of your home has dropped so that you owe more than what the house is worth, nobody will have an interest in your home and you most likely get to keep it.

Bankruptcy is designed to help debtors get a second chance. Although the process can be heartbreaking and difficult, the main idea is that debtors can start with a clean slate and go on with their lives without descending into poverty.

If you are married, you will have to decide whether you want to file for bankruptcy jointly or if only one of you is going to file for bankruptcy.

In a Chapter 7 bankruptcy, you can file for bankruptcy without your spouse and it would not bring your spouse into bankruptcy; however, the protection of the legal elimination of debt that the person who files is under, will also not extend to the spouse who did not file for bankruptcy, neither will the prohibition of collection against property.
Therefore, if you are jointly responsible for any debt, although the filing spouse will be protected, creditors can still go after the non filing spouse. If you both signed for loans on your home, credit cards, line of equity and so on, you both will be liable for that debt. But if only one person signed any of these contracts, then marriage alone does not make both spouses personally liable for this debt.

Taxes

If you filed a joint tax return you are jointly liable for the total tax due. Joint debts will be noted on the credit record of the non-filing spouse when filing for bankruptcy.

One of the most critical issues for bankruptcy filing is joint property. Your jointly owned property may be included in the bankruptcy estate and therefore possibly available to pay creditors. In states with community property jurisdictions both halves of the property become available to pay creditors of the spouse who has filed.

Communal Property

For all other communal property in states with community property jurisdiction, the marital community enjoys the protection of the filing spouse’s bankruptcy discharge. A creditor with a claim against the non filing spouse can only collect its debt from the separate property of the non filing spouse. The definition of separate property varies from state to state but typically describes assets acquired before marriage, as gifts during marriage or by inheritance.

Credit Reports

Bankruptcy filing will also affect credit reports. Each person has their own credit file, so if the person who does not file has good credit and there are no joint debts, the filing of the other spouse should not affect the non filer’s credit rating. However, bankruptcy of one spouse will impact the credit worthiness of the non filing spouse if they apply jointly in the future for a loan. The loan grantor will consider the credit rating of both applicants before making a lending decision.

Yes, it can, depending on your financial situation. Mortgage modification programs are primarily designed to help homeowners avoid foreclosure, now and in the future. By modifying your existing mortgage and refinancing your home to make monthly mortgage payments affordable for you (and freeing up money for your other bills), these programs give homeowners a chance to stay in their homes. However, if your mortgage payment is not the only financial hurdle that poses a challenge in paying all your bills, a mortgage modification may not be the answer.

Credit Card Debt, Medical Bills, Consumer Debt

If your credit card debts, or medical bills or any other consumer debt have spun out of control and you no longer can make payments, a mortgage modification will not solve your problem. If your consumer debt is manageable, then a mortgage modification could help avoid bankruptcy. You have to make your calculations on how a monthly mortgage reduction can free up money to pay for other debt.

Student Loans and Taxes

Because student loans and taxes are not discharged in a bankruptcy filing, a mortgage modification could be a big help in freeing up money for these debts. If you are mostly struggling with these bills, a successful mortgage modification can lower your monthly mortgage payments, allowing you to pay off these debts with the extra cash from the mortgage modification.

Since your mortgage is likely your largest debt, a mortgage modification could help ease financial problems overall by lowering your payments each month. Be truthful with yourself when you see the numbers though, if your budget is still going to be tight, it might be better to consider filing bankruptcy and getting a fresh start with a smaller home.

If you have a legitimate bankruptcy case the answer is no.

Once you have filed your bankruptcy case with the local court, the court notifies all of your creditors about your bankruptcy filing. While creditors cannot stop the bankruptcy filing, they do have the right to object to debt included in the bankruptcy discharge within 60 days after the first creditors’ meeting.

An objection in a legitimate case is rare. Only if there is reason to believe that you have engaged in fraudulent behavior, a judge can dismiss your bankruptcy filing without discharging your debt. Piling up debt on your credit cards right before filing for bankruptcy will most likely raise red flags. Untruthful information about your income and other assets will also disqualify you from proceeding with your bankruptcy filing if you are caught.

Most commonly in a divorce, a former spouse who co-signed for any of your loans may also file objections when you file for bankruptcy. So, while no one can stop you from filing bankruptcy, creditors can object to some or all of your debts being discharged and if they are successful you will be responsible for paying those debts, and at risk of having your bankruptcy case dismissed.