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Bankruptcy Law

Wednesday, March 28, 2018

Factors to Consider Before Bankruptcy


Factors to Consider Before Bankruptcy 

Filing a petition for bankruptcy protection is a major decision that will have a huge impact on an individual’s financial future. There are many factors that a person has to consider before making that decision. These are some considerations to take into account.

  • It will take 7 to 10 years for the bankruptcy to be removed from the filer’s credit history.
  • The most common reasons for bankruptcy are divorce, unemployment, and excessive medical bills, but none of these are necessary to declare bankruptcy.
    Read more . . .


Thursday, August 31, 2017

Top Five Reasons for Filing Personal Bankruptcy

Top Five Reasons for Filing Personal Bankruptcy

Although the number of personal bankruptcy filings in the U.S. has declined, many individuals continue to face insurmountable debt. Let's take a look at some of the reasons that lead people to file for bankruptcy.

Medical Expenses

A number studies demonstrate that medical expenses account for more than 60 percent of personal bankruptcies.  Catastrophic illnesses and injuries often result in hundreds of thousands of dollars in medical bills that can easily deplete savings and other sources of funds.  Once these funds have been exhausted, personal bankruptcy may be the only alternative.

Job Loss

Losing a job can have devastating consequences, whether due to a layoff, firing or resignation. While some individuals may receive severance pay or have an emergency fund to draw from, the loss of income can easily deplete one's savings. In addition, many individuals start to use credit cards to pay bills and also incur additional expenses such as COBRA insurance. Those who are out of work for an extended period of time are unable to pay creditors, and ultimately face collection activities and lawsuits.

Credit Debt

Although some individuals use credit cards irresponsibly, debts can spiral out of control due to unexpected circumstances such as illness, disability, or job loss. When consumers cannot make the minimum payment and are unable to borrow money from friends or family, bankruptcy may be inevitable. While debt-consolidations may be an option for some people, most plans only delay filings in the long run.

Divorce

Divorce can lead to financial burdens for both partners for a variety of reasons, not the least of which is legal fees. Obviously, dissolving a marriage can also lead to a significant loss of income and assets for either partner, depending on the division of marital property, and child and spousal support determinations.  Moreover, both partners will be faced with the cost of maintaining two separate households after the divorce.

Unexpected Expenses

Without an emergency fund, unexpected expenses such as a costly car repair or property damage from a catastrophic storm can easily drain a family's savings. While homeowner's insurance will cover some losses, many individuals do not receive the full value of their claims. They are also faced with expenses of finding temporary shelter and may also incur additional debt to make up any shortfalls.

Regardless of the circumstances, filing for bankruptcy can enable many individuals to eliminate or reorganize their debts and make a fresh start. However, this is a serious consideration that requires the advice and counsel of an experienced bankruptcy attorney.

 


Sunday, May 28, 2017

What Should I Do If A Creditor Violates the Bankruptcy Automatic Stay ?

What should I do if a creditor violates the automatic stay?

Immediately upon the filing of a Bankruptcy petition, a petitioner is granted the protection of an automatic stay. This means that creditors must cease all collection activity, including repossession, garnishment, law suits, phone calls, letters, or any other attempts to collect on the debt. If they fail to do so, they are in violation of the stay.

If a creditor attempts to collect a debt after the filing of a Bankruptcy petition, the Petitioner should let the creditor know that a claim has been filed. It may have been an honest error and the creditor may stop attempts to collect and correct any actions taken after being told that a bankruptcy was filed. Even though creditors receive notice of the stay when a Bankruptcy Petition is filed, the court will often forgive a violation due to a clerical error if the creditor immediately ceases all collection activity and corrects the mistake.

If collection efforts continue, a petitioner may request relief from the Bankruptcy Court. If the Court finds that the collection action was willful, it will sanction the creditor for violating the stay. The violation will be considered willful if: (1) the stay was actually in effect and was actually violated, (2) the creditor knew of the case and failed to correct its actions immediately after learning of the Bankruptcy case, and (3) the collector meant to act. For example, if a creditor repossesses a consumer’s car after a Bankruptcy Petition has been filed, and that creditor does not immediately return the car, upon learning of the mistake, the Court would return the car to the Petitioner, and the creditor can be held in contempt of court and made to pay fines, attorney’s fees, and damages to the petitioner.

A violation of the automatic stay may also be violation of state and federal Fair Debt Collection Practices acts which heavily regulate the behavior of debt collectors. To pursue relief under one of these statutes, a consumer must file a separate law suit outside of the Bankruptcy proceeding. Nevertheless, it is an additional means provided to enforce the protections of the automatic stay.


Wednesday, March 22, 2017

Pre-Bankruptcy Credit Counseling

What is Pre-Bankruptcy Credit Counseling ?

Today, individuals who are seeking relief under Chapter 7 or Chapter 13 of the Bankruptcy Code are required to complete credit counseling with an agency approved by the U.S. Trustee's office. The purpose of pre-bankruptcy credit counseling is to determine if the debtor qualifies for bankruptcy or whether an informal payment plan is a better option.

In any event, credit counseling is necessary even if a payment plan is not feasible. Moreover, counseling must be completed within the 180-day period before the bankruptcy filing. Also, a certification of completion must be filed with the bankruptcy court within 15 days of the filing date. If the required course is not completed the bankruptcy petition will be dismissed.

The fact that participation in credit counseling is mandatory does that mean the debtor must agree with the counselor's recommendations, which are based on an assessment of the debtor's financial situation. In addition to informal payment plan, a credit counselor can also recommend a formal repayment plan under Chapter 13. This plan must be filed along with the other bankruptcy documents. On the other hand, the counselor may find that a Chapter 7 filing is the only option. Ultimately, the courts are inclined to agree with the agency's recommendations.

It is important to note that this is not the only counseling bankruptcy filers must agree to. If the bankruptcy petition is approved, it is also necessary to complete an approved course on consumer debt, before the debts are discharged. The goal of this course is to educate debtors about finances, including matters such as how to develop a budget, manage money, and use credit responsibly.

In the end, the decision to file for bankruptcy is difficult and one that requires serious consideration. While filing for personal bankruptcy can help a distressed debtor make a fresh start or work out a payment plan, bankruptcy can cause long lasting damage to his or her credit worthiness. Regardless, it is best to speak to an experienced bankruptcy attorney who can help explore all the options.

 


Wednesday, June 8, 2016

Common Bankruptcy Terms

Common Bankruptcy Terms

 

Bankruptcy is designed to protect individuals, small businesses, and corporations from being overwhelmed by debt.  The process involves reorganization and restructuring of debt so that a significant portion of it is discharged ("forgiven"), and the remainder is repaid at a lower rate. Bankruptcy is designed to enable an individual or company to continue to function and prevent ongoing harassment from creditors. The two basic types of bankruptcy are liquidation and reorganization.

Discharge in Bankruptcy

There are several types of discharge in bankruptcy, but not all debts are able to be discharged.  A secured creditor may enforce a lien to recover property secured by a particular loan, such as an automobile or a house. If the debtor wants to retain such property, payments must be paid to these creditors. Also, while many debts can be discharged, and the debtor who declares bankruptcy can be protected from harassment by most creditors, there are other debts that are deemed to be  be non-dischargeable, including,  taxes, penalties, fines, college loans, and child support and alimony payments.

Types of Bankruptcy

The various types of bankruptcy are named for the chapters of the U.S. Bankruptcy Code in which they are defined. . The two most common forms of bankruptcy filed in the U.S. are Chapter 7 and Chapter 13, and bankruptcies under these chapters are typically filed by individuals or couples. On the other hand, a Chapter 11 bankruptcy is usually filed by businesses.

Chapter 7 bankruptcy is also referred to as a liquidation  because under this process the bankruptcy trustee can takes charge of, and sells, some of debtor's property to pay back a portion of the accumulated debt.  Chapter 7 bankruptcy is designed to relieve  the debtor of unsecured debts, such as credit card and medical bills. In order to qualify for Chapter 7 bankruptcy, however, the debtor must have little or no disposable income. This means that if you earn too much money, you cannot apply for this type of protection.  Chapter 7 bankruptcy, therefore, is usually helpful to low income debtors with few assets, and typically discharges debts within 3 to 5 months.

Chapter 13 bankruptcy, unlike Chapter 7, is a form of reorganization of debt. This filing is  designed to assist debtors with regular income who can repay at least some portion of their debts through a structured repayment plan. While many debtors, because of their elevated income or asset level, find it necessary to file Chapter 13, there are also other advantages  such as the ability to catch up on delinquent mortgage payments. Debtors who file for Chapter 13 are permitted to keep all of their assets as long as they make structured payments to pay off their non-dischargeable debts.  Chapter 13 bankruptcy plans are usually completed within a period of 3 to 5 years.

Although the vast majority of debtors seeking individual relief from debt file for Chapter 7 or Chapter 13, there are a number of other types of filings used for various purposes. The most common of these is Chapter 11 bankruptcy.

Chapter 11 Bankruptcy is another type of bankruptcy reorganization available to individuals, corporations and partnerships. Where Chapter 13 bankruptcy limits the amount of debt that can discharged, chapter 11 does not. Therefore, Chapter 13 is typically used by businesses undergoing financial struggles and looking to reorganize. Because it is fairly cumbersome for individuals -- being both expensive and time-consuming -- Chapter 11 is generally only used by individuals with debt levels too high for Chapter 13 filing, or by individuals with extraordinarily high assets or complicated finances.

There are a number of other chapters of bankruptcy, such as those applying to family farms or fisheries, or designed to relieve municipalities or school districts of overwhelming debt, but these do not concern the typical individual. If you find yourself burdened with debt that cannot be repaid, you should consult a bankruptcy attorney promptly to discuss your best options.


Tuesday, December 8, 2015

From Filing to Completion: The Anatomy of a Chapter 7 Bankruptcy

From Filing to Completion: The Anatomy of a Chapter 7 Bankruptcy

The process of filing a bankruptcy petition can be confusing for a layperson to understand.  There are time limits and deadlines to keep in mind and all filings must be made in accordance with court rules. 

Before any filing occurs, the Courts require a petitioner to complete a Court approved credit counseling course.  The course is easy to complete and is often available online or over the telephone.  The cost is about $25.00.  The certificate of completion must be attached to every Bankruptcy Petition filed.

To file a claim it is helpful to have an attorney.  Attorneys are familiar with the paperwork and terminology involved and can help a Petitioner understand his or her rights.  An attorney will file the petition electronically, and the Automatic Stay, which prohibits collection efforts on a debt that is in Bankruptcy, will go into effect.

At this point, a number will be assigned to the case along with a Bankruptcy Trustee.  The Trustee’s job is to administer the case and to look for and liquidate any unprotected property in order to pay back creditors.

Within two weeks of filing, the trustee will formally request financial documents from the petitioner including pay stubs, bank statements, tax returns, and more.  The request will come through the mail and it is important to respond to the request quickly.

Ten days after the Bankruptcy Petition is filed, a Master List must be filed with the court including the names and addresses of all creditors included in the Bankruptcy.  Within days, another filing, called Statements and Schedules, must be submitted to the Court.  An error in either of these filings could compromise the Bankruptcy.

About a month and a half after the Bankruptcy filing, the Trustee will hold a meeting of creditors for which the Petitioner’s attendance is mandatory.  The meeting gives the Trustee and creditors an opportunity to ask questions about the documents filed with the Court.  If there are errors in the filed papers, they may be corrected at the meeting.  The meeting should not take more than 15 minutes, but can take a significant amount of time to begin.  At this point a Petitioner must take a second credit-counseling course.

If any creditors have a legal argument to prevent a debt included in the bankruptcy from being discharged, that creditor must file a lawsuit within 14 weeks of the filing.  If no objections are filed, the Court will usually issue a discharge within 4 to 6 months of the initial filing.


Wednesday, July 8, 2015

Student Loans & Bankruptcy: What are the Options ?

Student Loans & Bankruptcy: What are the Options?

I am drowning in student loan debt. Is this debt dischargeable in bankruptcy?

Traditionally, student loans were not considered a dischargeable debt under federal bankruptcy laws. However, as national student loan debt has skyrocketed into the trillions of dollars, struggling graduates may be able to escape the burden of four-figure monthly payments by successfully proving severe financial hardship. As well, there are a number of less common avenues through which student loan debt may be discharged, which could be a financial life-saver for those meeting eligibility criteria.

Three-prong undue hardship test

Under current consumer bankruptcy law, there is a three-part test to determine if a student loan is dischargeable based on undue hardship. First, you must prove that, if forced to repay the loan under its minimum payment terms, you would be unable to maintain a minimum standard of living. While the phrase “minimum standard of living” has not been officially defined in the bankruptcy code, it is generally considered to mean the financial ability to maintain adequate housing and meet daily needs for the borrower and his or her dependents.

Second, the borrower must show that the inability to maintain a minimum standard of living is not temporary in nature, and is likely to continue throughout the duration of the loan repayment period. Lastly, discharge may be possible if you have made a true good faith effort to repay the loan prior to filing for bankruptcy – which means a period of at least five years.

Known as the Brunner test, this three-prong analysis looks for poverty, persistence, and good faith – and may be a good option for borrowers who have tried, but are simply unable, to repay that those looming and unrelenting education debts.

Other options

As a debtor, there may be other options for avoiding student loan repayment, primarily if your alma mater  is involved in any kind of investigation for fraud or consumer deceit. In some instances, students have earned relief from some or all of their student loans by successfully highlighting their school’s false promises or exaggerated graduation/employment rates – thereby triggering a consumer protection or breach of contract action.


Monday, June 8, 2015

10 Things to Bring to Your First Meeting with Your Attorney

10 Things to Bring to Your First Meeting With Your Attorney

Hiring an attorney is not something most people do every day, so being a little bit unsure of how things are going to go is perfectly normal. To help ease some of the stress and make the process go more smoothly, take time to compile and bring the following list of items with you to your first meeting.

  1. A list of all your contact information. Your lawyer is going to need to know your full legal name and any other names you go by, your address, phone number(s), and email address.

  2. The names and contact information of other people that might get involved with the case - people on the other side, people on your side, witnesses, doctors, police, insurance agents, etc.  If a case has already been filed against you, the name(s) and contact information of the lawyer(s) representing the other side will also be needed.

  3. A typed up or written down account of the circumstances surrounding the situation that is causing you to seek legal help. Try to make your summary of events as detailed as possible. If writing or typing isn’t one of your strengths, try creating an audio recording.

  4. A timeline of events. The best way to do this is to buy a calendar, write all the important events on it, and bring it to the meeting with you.

  5. Any materials (including documents, digital files and photos) you have that relate to your legal matter. If possible, put the documents in an order that makes sense when paired with the summary of events and timeline you put together above.

  6. A list of information (particularly documents) you wish you had or thought you had but can’t seem to find now.

  7. The truth. You don’t have to swear to tell the truth, the whole truth, and nothing but the truth unless you are taking the witness stand in the courtroom, but lying to your attorney will not help your case. 

  8. Bring a good idea of what you hope to get out of the case. Think about what winning looks like to you. It is difficult for your attorney to figure out how best to help you if they don’t know what you want. 

  9. An open mind paired with a good sense of what your gut is telling you. Your lawyer may suggest a solution that you would never have imagined, or let you know that you don’t have a case. Listen to what they tell you, but don’t be afraid to share your thoughts on their suggestions.

  10. A list of any questions you have. The meeting will be far more productive if you leave without nagging questions or lingering doubts.

Wednesday, June 18, 2014

What property is protected in Chapter 7 & 13 ?

 

What Property Is Safe from Sale in Chapter 7 and Chapter 13 Bankruptcy?

Bankruptcy is perhaps the most effective way to eliminate unmanageable debt. It is a highly structured, entirely legal process that has helped millions of individuals and families emerge from the frustrating, demoralizing and expensive path of minimum payments and impossibly high interest rates. Yet, numerous families who could eliminate debt and get back on their financial feet choose not to file. Why?

A common deterrent to filing for bankruptcy is confusion and misinformation regarding the sale of property during the bankruptcy process. This is unfortunate because bankruptcy laws are devised specifically to protect certain property types from sale during bankruptcy. In fact, those who file under Chapter 13 bankruptcy, assuming they qualify, experience no loss of property at any point during the bankruptcy process. Instead, under Chapter 13 bankruptcy, filers simply restructure their debt payments under court order and remaining debt is discharged at the end of the debt repayment plan.

Chapter 7 bankruptcy involves the sale of certain property, including second homes, “extra” vehicles and other property that can be sold to pay off outstanding debt. Many types of property, though, are protected from sale during the Chapter 7 bankruptcy process. These are different from state to state, but can include, to varying degrees, the following:

 

  • A primary home, i.e. a “homestead”. A primary home can be a single family home, a mobile home, a boat, a condominium, a townhouse or other form of home
  • A vehicle or vehicles
  • Personal property such as clothing, furniture and appliances
  • Jewelry, art and heirlooms to a varying level of value
  • Income and financial assets from Social Security and from personal injury and wrongful death actions up to varying levels
  • Tools of a trade, such as equipment, materials, uniforms, books, tools, furnishings and a motor vehicle
  • Various property such as building materials, health aids, a burial plot, books and animals
  • Numerous forms of pensions as well as public and private retirement benefits

Additional property can often be deemed exempt during the bankruptcy process as the filer works with the bankruptcy court.

Chapter 7 offers numerous advantages in the pursuit of eliminating unmanageable debt. When nonexempt property is sold, the proceeds aren’t forfeited by the bankruptcy filer. Instead, they are used to reduce the filer’s debt. And importantly, many types of debt that remain unpaid after nonexempt property is sold is discharged, or “forgiven”. Types of dischargeable debt can include:

  • credit card debt
  • debt owed directly to retailers
  • health care debt
  • unpaid utility bills
  • debts due to lawsuits
  • rental and lease debt, and
  • deficiencies remaining after the repossession of a car or the foreclosure of a house.

While filers are not able to discharge income tax debt less than 3 years old, child support debt, student loan debt and criminal fines debt, many other forms of debt are dischargeable.

Bankruptcy options are best explored with the help of a knowledgeable bankruptcy attorney. A bankruptcy attorney can answer your questions and provide a recommended course of action based on the specifics of your unique debt challenges.


Monday, June 9, 2014

Chapter 7 vs. Chapter 13 ?

 

Chapter 7 or Chapter 13 Bankruptcy: Deciding Which Will Work Best for You

 

If you’re trapped under a growing mountain of bills without any hope of resurfacing, you’ve probably considered how bankruptcy can help you.  If you’re largely unfamiliar with bankruptcy laws, you should gain an understanding of the key differences between Chapter 7 and Chapter 13 bankruptcy. Each of these two bankruptcy options provide specific benefits designed to address particular financial challenges. 
 
The Benefits and Characteristics of Chapter 7 Bankruptcy
 
Chapter 7 bankruptcy is most useful to parties without substantial disposable income. No repayment plan is used (because of income challenges). Instead, property is sold and the proceeds are used to pay down debt. 
 
A key component of Chapter 7 bankruptcy is the distinction between exempt and non-exempt property. Non-exempt property can be sold. Exempt property cannot. Non-exempt property varies by jurisdiction, but generally includes:
  • Second homes and vacation homes
  • Vehicles beyond a certain value and quantity
  • Expensive and valuable items and collections 
  • Cash, bank accounts and investments accounts
Examples of exempt property (i.e. property that will not be sold in bankruptcy) include: 
  • A primary home, i.e. a “homestead”, which can be a single family home, a condominium, a townhouse, a mobile home or other form of primary home
  • Varying financial assets, including most types of retirement assets 
  • A vehicle 
  • Personal and household property
  • Heirlooms 
  • Tools of a trade, including equipment, uniforms, books and vehicles
For both exempt and non-exempt property, value limits of vehicles, household property and other types of property vary by location.
 
A key advantage of Chapter 7 bankruptcy is that extensive debt is discharged once the bankruptcy is complete, regardless of whether the proceeds of sold property go very far in covering the amount of debt in question.
 
The Benefits and Characteristics of Chapter 13 Bankruptcy
 
Chapter 13 bankruptcy resembles Chapter 7 bankruptcy in that debt is discharged or “forgiven” at the end of the bankruptcy process. Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in the way debt is reduced. Instead of relying on the proceeds of sold property to reduce debt, Chapter 13 bankruptcy consolidates and reduces a filer’s monthly debt payments. 
 
How to Proceed in Investigating Bankruptcy Options
 
When deciding whether to pursue Chapter 7 vs. Chapter 13 bankruptcy, would-be filers must weigh the advantages and disadvantages of selling non-exempt property over the advantages of retaining all property but retaining (reduced) monthly debt payments. Each filer’s decision regarding which bankruptcy type to use may depend on his or her circumstances and the opinions of the courts. For further information regarding Chapter 7 and Chapter 13 bankruptcy, contact a bankruptcy lawyer. 
 

Friday, February 28, 2014

Bankruptcy and Your Business

Bankruptcy and Your Small Business

Financial hardship is difficult for any individual but for business owners, it can be particularly stressful as the line between personal and business finances may become blurred.  You may have racked up a lot of personal credit card debt and may be considering filing for personal bankruptcy, but you are concerned about how bankruptcy will affect your small business. Or, your business could be struggling and you may wonder how a business bankruptcy will impact your personal finances.

First, you need to know about the three most common types of bankruptcy: Chapter 7, Chapter 11 and Chapter 13. Under a Chapter 7 bankruptcy, which is a liquidation, assets are used to pay debts, and any remaining debts are “wiped out”.  A Chapter 7 filing can be utilized for both individuals and businesses. A Chapter 11 or 13, which are also available for individuals and businesses, commonly referred to as reorganization, allows debtors with a regular income to set up a new timetable for paying off creditors, while keeping their assets.

The second thing to consider is how your business is set up. If you are a sole proprietorship, and are simply operating the business in your own name, then there is no way to separate your personal assets and liabilities from those of your business. Therefore, any business assets (in excess of the exemption you are allowed) could be surrendered as a part of the bankruptcy. Also, any receivables of the business or other potentially valuable business property could be claimed by creditors in a bankruptcy.

If your business is operated under a separate entity, such as an LLC (limited liability company), an LLP (limited liability partnership), or a corporation, the shares of your business that you own are assets. If partners are involved in the business, the bankruptcy trustee who represents the interest of the creditors could become a de facto substitute partner and force a liquidation of the business.

If your business is struggling, but you are personally doing fine financially, you may consider a business bankruptcy. If you aren’t interested in keeping your business open, you may consider filing a Chapter 7, which will simply liquidate the business. A Chapter 7 is probably best if the business is not going anywhere, does not have significant assets, or if the debts are so completely overwhelming that it’s not possible to restructure them. Keep in mind that vendors and other creditors may have obtained a personal guarantee from you, in which case, you may be personally on the hook for your business’s liabilities, even if you do file bankruptcy for your company.  Personal guarantee clauses are common on many credit applications and commercial leases.

If your business is fundamentally sound, but because of excessive debt, bad contracts, or other unfortunate circumstances faces significant liquidity issues, a Chapter 11 may be appropriate.  A corporate reorganization can be complex and requires a significant time investment from the owners and managers who have to work with creditors and attorneys. It can also be expensive. Unfortunately, most reorganizations ultimately fail.

If you are considering business or personal bankruptcy, it’s important to carefully assess your individual circumstance and consult with a bankruptcy attorney who can advise you of all your options and help you navigate the process.   


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