Get Answers about Bankruptcy
The very word "bankruptcy" puts fear into many people's hearts. For years, the word has been equated with being destitute, being unable to pay bills and being financially insecure. But is that all that bankruptcy is about? The truth of the matter is that many people simply don't understand what bankruptcy really is. For many people, bankruptcy is a way out of a bad situation and a hand up when they need it most. It is also a life changing experience. These questions and answers are designed to teach you about bankruptcy, what it is, what it can do and what it cannot do.
What is bankruptcy?
Bankruptcy is a legal declaration of the inability to pay your creditors. This does not mean you have no money. On the contrary, many people who declare bankruptcy have enough money to live on. Instead, it means that you do not have enough money to match your basic living expenses and pay people to whom you owe money. How much this is can vary from person to person because every person needs a slightly different amount of money to meet their living expenses. Since there is no set amount, bankruptcy is often granted by a judge.
How do I apply for bankruptcy?
Laws very from state to state, of course, but applying for bankruptcy isn't very hard. At its base, it simply requires the filling out of bankruptcy paperwork. This paperwork will ask you about various items, such as your current income and your current assets. Using this paperwork, the bankruptcy judge will decide if you qualify for bankruptcy and how it will work for you. You may want to speak with a lawyer before filling out this paperwork. A lawyer will be able to inform you of what kind of bankruptcy would best suit your needs and will help you identify some of the particulars.
How do I know if I qualify for bankruptcy?
The best way to find this out is to speak with a bankruptcy lawyer. These lawyers are trained to know the state and federal bankruptcy laws and can inform you if you qualify. It is hard to know when the proper time to check with such a lawyer is, however. In general, if you are only barely making ends meet and are often hounded by creditors, it is probably a good idea to check with a bankruptcy lawyer. You should view bankruptcy as a last resort, however, and attempt to find ways to work with your creditors before you file.
If I'm in debt, will bankruptcy solve my problems?
Bankruptcy should be considered a last resort. It does not completely absolve debt, but allows you to pay your creditors some of what you owe them. Bankruptcy looks very bad should you attempt to buy things on credit or get a loan. Many credit card companies refuse to supply a credit card to anyone who's filed for bankruptcy. In addition, many loan officials will make people who have filed for bankruptcy pay a higher interest rate. So while bankruptcy can help you pay your debts where you may not be able to otherwise, it can also cause problems in the future.
How does bankruptcy help me pay my debts?
There are several different types of bankruptcy, all of which function in different ways. Businesses have several different versions of bankruptcy, some of which are useful for individuals. In general, should you need to file for bankruptcy, one of three things will happen. Either you will be required to pay a fixed amount per month until your debts are paid off, your assets will be liquidated and sold off to pay your debts and you will pay monthly to cover the rest, or your assets will be liquidated and sold off and then you will be absolved of any further debt. With any of these options, creditors can not attempt to collect above and beyond the agreed payment.
What are assets in bankruptcy terms?
Assets are basically anything you own. Which things are liquidated can depend on your quality of life, of course. If you own your house, but aren't making enough every month to cover living expenses, your house may not be liquidated. If your car is mandatory to your ability to support yourself and pay your bills, your car may not be liquidated. As well, some assets are protected from liquidation in case of bankruptcy. These items vary from state to state.
How does selling off my assets work?
The selling of assets is handled by a court of law. A court official will take stock of what you own, find the costs on the current market and sell your assets to the appropriate markets. The other option is that your assets could be sold at auction. Both options have their good points and bad points. In the case of auction, it is possible that more money can be earned from what's sold than the items are actually worth, thus taking a larger chunk out of your debt. However, it is possible that your assets could sell for less than they are worth. Selling at market prices assures that you will at least get what each item is worth.
What are the most common types of bankruptcy?
The most common types of bankruptcy are called Chapter 7 and Chapter 13. A Chapter 7 type of bankruptcy is a basic liquidation. This is when the courts sell your assets, use the money to pay off creditors, and call it even. After that, creditors are not allowed to attempt to seek further payment. Chapter 13 bankruptcy is rehabilitation with a payment plan. This is the kind of bankruptcy you file if you have steady income. It cancels debts up to a certain date and fixes a payment per month for anything else owed. Under Chapter 13 bankruptcy, assets are not liquidated, but it does require certain amounts of payment every month.
How much money per month has to go to payment in a Chapter 13 bankruptcy?
Bankruptcy law states that "every penny of disposable income" must go to payment. This can vary depending on various factors, such as where a person lives, what they do for a living and whether or not they have a family. The courts tend to define "disposable income" as any income that does not go towards living expenses and upkeep of property. So items such as rent, car payments, and grocery money are not counted when the courts consider "disposable income". As such, many people aren't able to file for Chapter 13 bankruptcy because they do not make enough disposable income per month to properly pay creditors.
Are there any requirements for Chapter 13 bankruptcy?
Yes, there are two federal requirements. A debtor must ensure that all creditors will be paid at least as much as they would get under a Chapter 7 filing. This amount can be a little nebulous, so it is often decided by the court. The court will take a list of your assets and judge what would be received should they be liquidated. Based on that information, they will judge how much each creditor would get. The other requirement is that the debtor provides meaningful payback. This amount varies from state to state, but in essence it means that you cannot pay a tiny fraction of your disposable income per month. Some states rule as small as one cent per dollar, while other states rule as much as twenty cents per dollar. All other requirements vary from state to state.
Many people, in today's economy, find that they are falling beneath a mountain of debt. The reasons are many and some are through no fault of their own yet the outcome is the same. Debt continues to accumulate and possessions become threatened when the debtor is no longer able to pay the bills. Accidents, unforeseen job layoffs and natural catastrophes can destroy a person's home, automobile and their job. As more people find themselves becoming unable to pay their debts, they are forced to undergo bankruptcy. Unfortunately there are many myths involving the whole bankruptcy process but in this audio program many of the more common questions will be answered. Hopefully you will find the information and help you are searching for and so desperately need.
When should I file for bankruptcy?
In perfect bankruptcy scenarios the debtor would immediately notify an attorney the moment they began having financial difficulties. But if that were the case then no one would have their homes repossessed or find face harassing phone calls from debt collectors. Most bankruptcy attorneys advise a certain level of debt before seeking bankruptcy. In some cases the person can work with a credit counseling service to help lower the monthly payments and learn how to manage their finances in a better manner. The one absolute when it comes to filing for bankruptcy is waiting until the very last minute before being taken to court over your debts by the creditor.
What types of bankruptcy are there?
There are four types of bankruptcy within the United States judicial system. Chapters 7, 11, 12 and 13, with each chapter covered under different guidelines and laws. The general breakdown of each chapter is all dependent upon the particular situation of the debtor. Businesses typically file Chapter 11 whereas farm owners will file for Chapter 12. Under Chapters 11, 12 and 13 the debtor agrees to a plan where he or she will repay a portion of the debts back to the creditor. Chapter 7 is a complete liquidation and any assets obtained through secured debts are repossessed and sold. The remainder of the debt is discharged.
How do I know which type of bankruptcy is best for my situation?
Only a knowledgeable bankruptcy attorney or group can make that determination for you. If you are a business with secured debts, you are subject to different laws than someone filing for personal bankruptcy. Different bankruptcy chapters vary on what laws govern your personal property and how much of your income or assets can be seized as repayment to your creditors. Always seek professional opinion before making any decisions.
Is my home going to be foreclosed and sold?
When a person takes out a mortgage on a home it is considered a secured debt. That means if you cannot make the payments the bank can seize the property and then sell it. If you own your home without any mortgage, it is considered an asset and can also be seized by the courts as a way to repay part of your debts to your collectors. Homes are most often the first thing sold as they are generally worth more and can repay more of the debt that is owed. There are ways to protect your home from being foreclosed but you have to seek the advice of an experienced bankruptcy attorney for help.
Will my children's education be taken away?
Unfortunately if your children's education fund is in your name it can be used as an asset and turned over to repay your creditors. If you have set up a separate savings account in your child's name, it may be exempt from any collection attempts. Debt collectors will do everything in their power to receive compensation for the debts that you owe so you have to be very careful in how you protect your assets and those of your family. If you have taken out stocks and bonds to help provide for your children's education, and they are in your possession and account, these will be considered your personal assets. Any assets you possess will be examined by a bank appointed trustee and can be used to repay the debt.
Can a bankruptcy affect my retirement and 401k?
Thanks to new bankruptcy laws most retirement programs and 401k's are exempt from being considered part of a person's estate. The retirement must have an anti-alienation clause that exempts them from being seized by outside creditors. There are exceptions such as in the cases of self-employed plans but even these can fall under exemption rules. There is a cap on how much retirement is allowed before the remainder is seized as an asset. That cap, under the new bankruptcy laws, is one million dollars.
How long will my bankruptcy be on my credit report?
Bankruptcy can remain on your credit report for up to ten years from the date of filing. Once the bankruptcy has been discharged all of the reported debts will show as zero. It will have an impact on your credit score but not nearly as bad as it was before. This is a golden opportunity to learn from your mistakes and learn how to manage your debts better. You will eventually be out from under the looming bankruptcy but staying out of trouble is an entirely different story. Many people do not learn from their bankruptcy mistakes and find themselves in the same situation repeatedly.
How do I deal with credit collectors?
Well... unfortunately ignoring credit collectors is not an option. Credit collectors can employ sneaky, underhanded methods of trying to collect their debts. They get paid when you pay your debt. If you have begun the process of filing for bankruptcy and have met with your attorney, any calls or letters you receive from a collection agency need to be directed to your attorney. Once the bankruptcy process has been filed, debt collectors are not allowed to continue their threatening tactics. If they continue to do so you will need to file suit against them. New debt collection laws are in your favor if you are filing for bankruptcy. The laws do not apply if you are only considering the process.
What if I cannot make my bankruptcy payments?
Chapter 13 bankruptcy requires you make repayments on a portion of your debt. Some times financial situations change and the payment you once made before easily, now is beyond your financial means. The very first step you need to take before missing a payment is to talk to your trustee and attorney. They can help you by giving you some leeway to come up with the money or they can renegotiate the terms of your bankruptcy. You may need to file for Chapter 7 bankruptcy and liquidate your assets. There are also options of discharging the remaining debt through hardship but only a knowledgeable bankruptcy attorney can advise you on the step you need to take.
Can my student loans be counted in my bankruptcy agreement?
The Federal government does not allow student loans to be discharged in bankruptcy. They cannot be discharged at all. If you are filing for bankruptcy you will need to notify your attorney of your outstanding student loans. You will then need to contact your lender to make arrangements for repayment. Most lenders can work out a plan that fits your financial situation and can even postpone payments for a set amount of time due to hardship.
What happens to businesses that file for bankruptcy?
Essentially, the same thing as happens to individuals. Either the business is shut down, their assets liquidated and their creditors paid off or they set up a payment plan and pay a certain amount per month. The only difference is when it comes to Chapter 13 bankruptcy and what is considered "disposable income." For businesses, disposable income is generally taken to mean "profits," although there is still some wiggle room here. Some less than honest business people will quickly give themselves a raise before filing, thus making it look like they make less profit than they do. However, barring small details, it is essentially the same for a business as it is for an individual.
Can a bankruptcy affect my job or future employment?
An employer cannot deny you a job based on the fact that you filed for bankruptcy. Many employers are now using credit scores and reports to make a decision on whether or not to hire a certain employee. Is this fair? No, it is not but employers do have a say when setting forth their hiring criteria. If you feel that you have been denied a job based on your credit score or history of bankruptcy, you can file a complaint with the Labor board of your state.
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