The Online Bankruptcy Blog

Although bankruptcy is covered by federal legislation, there are local laws in each state that also need to be addressed. One of these covers what can and cannot be included in the exempt assets component of a bankruptcy petition. There are 16 states that allow petitioners (debtors) to select either state of federal law, the remaining states use state-based laws only.

Some states, like California, have two pieces of legislation, one setting out the states set of exemptions, the second somewhat mirroring the original federal legislation. In California, you can choose between either one. Some of the state-based laws can be quite generous when compared to federal laws; however, this is not true in every situation.

Because of the complexity of the law and the variations between state and federal laws, it really makes sense to engage a bankruptcy lawyer to help you. They have the knowledge and know both the state and federal components of the law. They often have precedent in their favor as well, having lodged previous petitions before the courts. They have first hand knowledge of how the court in your jurisdiction will handle your petition.

This ‘inside’ knowledge is invaluable when it comes to dealing with exemptions, particularly if you are looking at your home or perhaps a ‘cram down‘ on your car, an issue we addressed in a previous post.

Bankruptcy is a serious issue so if you want to keep your home (or your car) then consult a bankruptcy lawyer first. They will be able to advise whether or not you can keep your home and what you need to do to protect any other assets. They will also give you a fair idea of what assets may be at risk, particularly in a Chapter 7 petition for bankruptcy.

This is actually a trick question. Can anyone file for bankruptcy? Now legally, yes, any American citizen can apply for bankruptcy relief. In practice, whilst you can apply, there is no guarantee you will make it past the first phase. In fact, those going through the filing process without legal assistance rarely make it through to a satisfactory conclusion.

Bankruptcy as a legal right has been modified over the years to bring protection to those in serious need and to creditors who have a right to what is owed to them. Bankruptcy then is designed to do the best possible justice to both parties.

If the debtor is in a situation where repayments are impossible, a Chapter 7 petition is generally their best approach – so long as they pass the means test. Most people who are in this situation will pass this means test.

On the other hand, if the debtor has some income, and the debt can be serviced by reducing payments then a Chapter 13 debt reorganization petition is the best approach.

The Chapter 7 approach will see a debtor stripped of their non-exempt assets, which are sold off to repay some of the debts. After that, the debt is written off totally. In these cases, the debtor loses (their assets) and the creditor loses (the balance of what is owing).

In a Chapter 13 filing, the debts are repayed over time. The debtor gets to keep their assets and the creditor receives their rightful payments, albeit a little slower than planned.

Yes, anyone can file for bankruptcy. However, not everyone meets the criteria and will find their applications to the courts rejected. Filing for bankruptcy is now a complex process so hiring a competent bankruptcy specialist is the only to ensure your passage through the bankruptcy court is as smooth as possible.

When filing for bankruptcy you will need to list every debt you have, not just the ones you can remember. This can be difficult, especially if you have defaulted loans that are a year or so old and the agency has stopped harassing you. Just because they stop harassing you doesn’t mean you no longer owe the debt.

Getting a full copy of your credit report from the credit reporting agencies can be a big help in listing all your debts. These reports are fairly accurate except perhaps for debts acquired during the preceding three months, or debts that you have defaulted on during the last three months.

Your credit report has information such as when the debt was defaulted, how much was owed at the time the debt was defaulted, when the debt was first acquired and of course who currently owns the debt (the last being important since some companies buy and sell overdue accounts).

There are three major credit reporting agencies and you should obtain credit reports from each of these. The three agencies are Equifax, Experian, and Trans Union. They do not share information so you will need to get a copy of your history from all three.

Credit reporting is not foolproof so check each report carefully for any errors. If you find errors, report them to the credit reporting agency as soon as possible. If you are considering bankruptcy, the last thing you need are debts registered against your name that are incorrect. Try to fix these errors before you file for bankruptcy. You should also be aware that all creditors that appear in your credit reports will be advised of your bankruptcy petition and invited to participate. This could also include challenges to any discharge of debts.

Consult a bankruptcy lawyer before commencing any bankruptcy proceedings – they can help you get through the process with as few hassles as possible.

Planning for bankruptcy has two connotations – one, you are planning a fraudulent means of obtaining goods by overspending then filing for bankruptcy; and two, finding yourself overburdened by debt and considering bankruptcy. In the first instance, don’t bother. The trustee together with the creditors will soon dig out fraudulent bankruptcy cases. In the second scenario, most definitely.

I would go so far as to say that those that don’t plan for bankruptcy actually make life hard for themselves. This is where a bankruptcy lawyer is particularly useful. They do the planning for you – in fact, all you have to do is honestly answer their questions and to provide all the documents requested.

Planning involves determining which Chapter a petition should be filed under; what documents are required and the pre-filing counseling that is required in most cases. Planning also takes into account all the forms that need to be filled out as part of the filing process.

There is also the social and psychological part of planning for bankruptcy. Many people feel depressed or ashamed at having to file for bankruptcy when really there is no need. There are tens of thousands of applications each year so you are just one of many, not one of a few. Being able to accept that this is a necessary process that will enable you to re-build your financial affairs means you will enter into the process in the right frame of mind.

Planning for bankruptcy is a must for those that find themselves in financial trouble. A well planned bankruptcy filing will mean you can get back on your feet in the fastest time possible rather than having to draw it out and become more painful. Consult a bankruptcy lawyer as soon as bankruptcy becomes a serious option.

Imagine this scenario – a successful person loses their job and with it their income. Because of age, or gender perhaps, they cannot get another job. The debts mount, the creditors send constant letters of demand, perhaps even arriving on the doorstep to demand payment.

Sound familiar? Are you at that place in your life? A Chapter 7 or Chapter 13 petition for bankruptcy could be your savior. Under bankruptcy law, when this petition for bankruptcy is filed, the court will automatically grant the filer an automatic stay provision. This is essentially a notice to all creditors that you have entered the bankruptcy process and they must desist from harassing you in any way.

Furthermore, this prevents any creditor from taking action such as placing liens on your property or bank accounts. Of course, taking action through the bankruptcy court is a big step on its own. It’s one step I suggest you don’t take alone as well. There are a lot of suitably qualified and experienced bankruptcy lawyers available. Make use of their services before heading into a bankruptcy court.

I make this suggestion for a couple of reasons. First, they know the system extremely well. Do You? They also know exactly what assets may be at risk and what assets you will be allowed to keep. They can also advise on what documents you need prior to filing your petition.

In fact, bankruptcy lawyers can also file the petition on your behalf. If you were to undertake all of these actions, there is a risk of you missing a vital step or document and seeing your petition either denied or at least delayed. Until your petition is accepted, you are not provided with that automatic stay protection. This leaves you vulnerable to further harassment from creditors. Get help as soon as possible and take advantage of the stay protection – it will at least take some of the pressure off.

Some people seem to be under the impression that once you file for bankruptcy, it’s simply a matter of waiting a set period of time and your debts are cleared. In many cases, that’s the process for a Chapter 7 filing. However, a Chapter 13 bankruptcy petition is a little more involved than that. The following is a typical Chapter 13 bankruptcy process.

• Undertake credit counseling – you cannot file until this has been undertaken and a certificate obtained.
• Petition filed with the Bankruptcy Court.
• Payments made as described in the repayment plan – note, failure to make payments will see your petition rejected by the court.
• First Bankruptcy Court hearing – you must take proof of ID and your social security card to this hearing or risk having your petition dismissed there and then.
• Objections by creditors – this is normal and if you have provided all the paperwork, should not be a hassle.
• Second Bankruptcy Court hearing – this hearing closely examines your financial affair and can be quite lengthy
• Education program – different from counseling, this is a financial training program and again is compulsory
• Discharge from bankruptcy – once you have completed all the requirements of the repayment plan, you will effectively be debt free so you are then discharged from bankruptcy.

You can see from the steps that the process, while not complex, can be quite long. It is also a process that has many areas where the slightest hiccup (such as forgetting your social security card) can see your petition dismissed. Creditor objections can also be tedious to deal with.

Consulting a lawyer that specializes in bankruptcy law can ease the process considerably. For example, they handle the filing process, do all the talking in the two court appearances and even handle creditor objections.

Bankruptcy is serious business. Contact someone who is trained to work in the field and they will ensure a smooth process from start to finish.

Running a business can be a rewarding career for many people – for many others, it can be nothing but a nightmare with bankruptcy their only escape. With over 70% of new businesses failing within the first two years, the chances of success for most new businesses is limited from day one. If you’re in a failing business and looking for relief from your debt through bankruptcy, I suggest you contact a lawyer first since some filings can be quite complicated.

If you’re a sole proprietor of business, your filing for bankruptcy can be achieved without a lot of pain. A business that is run as a sole proprietorship is not considered a legal entity, therefore the business itself cannot be declared bankrupt. In this situation, the sole proprietor, or owner, must personally apply for bankruptcy. If your business is failing and you have no other income then should pass the means test for a Chapter 7 filing.

As we mentioned in the past, a Chapter 7 filing will see all your non-exempt assets seized and sold and the money used to repay credits. Once all your assets have been sold and the creditors paid, the remainder of the debt is discharged (wiped) leaving you to rebuild your life.

If you do not qualify for a Chapter 7 filing, you can file under either a Chapter 11 or Chapter 13 petition. This will involve the debtor entering into a scheme of arrangements to repay as much of the debt as possible over a given time frame.

Sole proprietors, although running a business, are still considered to be individuals and not a business when it comes to bankruptcy. See a lawyer before seeking bankruptcy – they can ensure your application is made through the most appropriate Chapter and that your rights are protected.

You would think that a law firm was a law firm. But like doctors, some lawyers specialize in various areas. Now you wouldn’t ask a brain surgeon about a tooth ache, or a dentist about your failing heart. Likewise, why ask a criminal lawyer about bankruptcy, or a bankruptcy lawyer about criminal law.

Some law firms of course consist of a broad range of lawyers, each specializing in a particular field. You would be surprised at how many of these law firms don’t have specialist bankruptcy lawyers. Rather than going to your regular law firm for advice, you should consider checking out their reputation when it comes to bankruptcy.

Finding a lawyer or law firm that specializes in bankruptcy law is not that hard – your own lawyer may even recommend someone based on their experience or reputation. Because bankruptcy law is fairly complicated, using someone who specializes in this law makes sense.

Specialist law firms are geared to tackle cases related to their specialist areas. Even their researchers and law clerks are trained to work in that area. This means your application for bankruptcy will be handled effectively and in good time.

If you were having trouble with your tax, you could go to a taxation lawyer. If you are having difficulties coping with your current financial situation, contact a law firm that specializes in bankruptcy.

You may wonder what effect bankruptcy may have on your retirement savings. The good news is, very little. However, it does depend on where your retirement savings are. For example, if you have been putting money aside in a simple bank account or investing through shares then these savings may well be at risk. If you have put your money into a retirement plan then they should be safe.

Apart from your home, your retirement savings is your biggest single asset. The aim of Chapter 7 petition for bankruptcy is to discharge all eligible debts. To achieve this, a debtor must forfeit all non-exempt assets to pay at least some of these debts. Whilst retirement savings could well pay all your debts, they are protected.

For senior citizens, retirement accounts and pensions are generally exempt assets as well. This means the senior citizen can still receive their pension rather than forfeiting the funds. Funds such as the 401(k), 403(b) and 457(b) are all good examples of funds that are exempt under Federal Law.

In recent years, it has become common for senior citizens to file for bankruptcy due to crippling medical bills. Their pensions are safe and in most cases qualify for Chapter 7 filings. If you are unsure of your situation, particularly if you are a senior citizen with pension or retirement savings entitlements, contact a lawyer before commencing proceedings. An experienced lawyer will be able to provide advice on whether your retirement savings are exempt or not. Don’t risk those savings when they may be all you have left after a successful filing.

Most people go through the process of filing for bankruptcy because they reach a point where they cannot cope with the mountain of debt before them. The problem is often caused by unemployment of either one or both breadwinners in a family and the prospects of future employment in the short term are remote. For many, this is the case. For others, things change.

It can be amazing how much of a change comes over someone when suddenly the weight of all this debt is removed. Bankruptcy brings an end to constant harassing letters of demand, phone calls and perhaps even debt collecting visitors. With this removed, their outlook on life becomes more positive and with it a renewed vigor. They start applying for more jobs and have a better approach when being interviewed.

I am sure you can imagine that scenario, especially if you have been through similar situations. So what happens if your luck does change and you are offered a well paying position? What happens if you are still going through the bankruptcy processes?

For Chapter 7 petitions, if your ability to repay debt changes before you have been discharged then the process may well stop while your financial situation is re-assessed. For Chapter 13 petitions, your new income may be factored into your negotiated payment arrangements. Do you need to tell the trustee about your change in circumstances? Most definitely yes. Likewise, if you were employed and lose your job, you need to advise the trustee.

These changes in circumstances alter your ability to repay your debt. By employing the services of an experienced bankruptcy lawyer you can ensure that your rights are fully protected when your circumstances change. Bankruptcy is a serious position to be in – legal help is the only way to ensure you cover all bases throughout the process.

The bankruptcy process for businesses in general is through a Chapter 11 filing. We covered this topic in an early post, Bankruptcy Provisions For Business, where we looked at how the Chapter 11 process worked for all businesses. Small businesses can be dealt with in slightly different ways.

Bankruptcy is a serious issue so for any business contemplating the option, speak to a specialist lawyer first. In many cases, you have employees to consider as well as your creditors and your self. Businesses that have less than 2 million dollars in debt are considered small businesses and treated as such during the bankruptcy process.

For a small business to proceed through a Chapter 11 filing they must meet several conditions. One of the most important is that they have a viable product or service and a viable plan to trade their way back out of debt and back to profitability. A Chapter 11 filing is not an attempt to have all debts discharged; it is designed to give a business owner a temporary break in debt repayments so that they can reorganize their affairs.

Generally speaking, a committee is formed with the seven top creditors represented. This committee agrees on the restructuring plan that the business owner puts forward. If a business is classified as a small business, this committee may not be called for. In fact, a small business can fast track their way through the process if they have a good product and a strong restructuring plan.

Chapter 11 is a complex bankruptcy process. Consult an attorney who specializes in business bankruptcies before starting. They may be able to prevent any nasty surprises.

Generally speaking, taxes are exempt from discharge through bankruptcy. However, in some cases you can discharge an IRS debt using a Chapter 7 bankruptcy filing. The only IRS debts that can be discharged are those that are over three years old. There are certain conditions that must be met first.

The first condition is one that is attached to most debts. This relates to fraud and, in the case of taxation, tax evasion. Debts that arise out of fraud or tax evasion cannot be discharged through bankruptcy.

Other conditions include when you filed the tax return for the debt. Your return must have been filed at least two years prior to seeking relief through a Chapter 7 filing. There is also a “240-day rule” that has to be taken into consideration.

The “240-day rule” states that the tax debt in question must have been assessed by the IRS at least 240 days before you filed your bankruptcy petition, or it must not have been assessed as yet. Once your petition for bankruptcy under Chapter 7 has been processed, your debt to the IRS will be discharged.

This effectively wipes out your personal obligation to pay the debt, and prevents the IRS from going after your bank account or garnishing your wages. There is one exception to this – if the IRS has recorded a tax lien on your property before you filed your petition for bankruptcy, that lien will remain on the property.

Taxation can be a particularly tricky area when it comes to bankruptcy. It is important to seek legal opinion from a qualified and respected bankruptcy lawyer before proceeding with any application. Their advice could save you a lot of heartache and perhaps hundreds, if not thousands, of dollars. Seek advice if you’re not 100% sure.

A meeting of creditors is not as simple as it may sound. In most Chapter 7 and 13 bankruptcy petitions, a debtor is required to attend a meeting of creditors where they are questioned about their financial situation. This can be a rather intimidating experience – however, it needn’t be if you have an understanding of the meeting’s intentions. You are required to attend this meeting.

If you are filing for bankruptcy under Chapter 7, the meeting will try to determine all non-exempt assets. These will be sold to pay off as much of the debt as possible.

For a Chapter 13 filing, the creditors meeting will try to determine your actual disposable income – this is the income that remains after paying off essentials.

In both cases, the questioning of the debtor is done by the Trustee who has been appointed to supervise the bankruptcy filing. Their role is to act in all fairness to both sides. This means determining all fair assets to seize, for example, while leaving you with property that you are entitled to keep.

Some of the questions you may be asked include:

• Have you made any transfers of any property or given any property away within the last one year period (or such longer period as applicable under state law)?
• Are there any errors or omissions that need to be added to your submission?
• Have you listed all of your creditors?
• Are you entitled to the proceeds of any life insurance claim or inheritance as a result of a death?
• Are you owed any money? If so, can it be collected?
• Do you own or have an interest in any real estate?

These are examples and, depending on your answers, may require follow-up questions. The process is one of determining all the information required to ensure your application for bankruptcy is dealt with fairly to all parties. If you have any concerns over a bankruptcy application, seek professional legal advice.

While a bankruptcy petition may help you escape a financial melt down, you have to be aware of the ramifications. The first and most obvious is that details of your bankruptcy are listed with credit reporting agencies. These details will stay on your credit report for a period of ten years.

You should understand that your credit report is not limited to a simple reference to bankruptcy. Every discharged debt is listed, including the amount, the creditor and the fact it was discharged through bankruptcy. If you undertake the bankruptcy process, after 6-8 weeks, request a copy of your credit report to ensure all the details are listed. This is important if assets were sold and some debts (such as secured debts) are paid in full. Your credit report should show this.

Although this information is only supposed to appear on your credit report for ten years, it is not always automatically removed. After the ten year period has elapsed, request a credit report. If there are still entries related to bankruptcy, contact the credit reporting authority and request its removal. It may take a little while, but most agencies will oblige.

Be careful when applying for credit once you have been discharged from bankruptcy. Credit is difficult to obtain and failed applications will also appear on your credit report. A history of failed applications together with your bankruptcy discharge will compound your ability to obtain credit. Try to rebuild your credit rating slowly.

Consult a bankruptcy lawyer prior to taking that final step as it will have ramifications for at least the next ten years.

A previous post – Can You Include Credit Card Debts In Your Petition? – dealt with some of the issues relating to credit cards and bankruptcy. Today’s post looks purely at discharging a credit card as opposed to seeking a longer payment period.

Totally discharging a credit card debt is generally undertaken using a Chapter 7 filing for bankruptcy. Under a Chapter 7 filing, a means test is applied to determine whether or not you have the financial capability to service the debt. If you don’t then you will be granted relief and the debt discharged. This means, in simple English, that the debt is wiped away.

Once a Chapter 7 petition has been granted, the credit provider has 60 days to write off that debt. The credit card issuer can challenge the discharge of the debt, however, the onus is on them to prove an irregularity. Credit card providers can challenge based on the following:

• An increase in credit card use just prior to filing
• Large cash advances just prior to filing
• Use of the credit card for recent travel and/or vacations
• Using one card to make payments to other credit cards
• Constantly exceeding the credit limit
• Using the card when clearly not in a position to make payments such as when unemployed
• Charges made after consulting a bankruptcy lawyer

Some of these reasons can be argued against. If you have frequently exceeded the credit limit with the credit provider either not taking any action, or actually increasing your credit limit, they may be considered part of the problem and their challenge denied.

On the other hand, if you become unemployed and continue to use your credit card even though you are not in a position to make repayments you may find their challenge accepted and you will then need to repay the debt.

Nothing is clear cut in these issues. For example, although you may have become unemployed, if there was a reasonable expectation of re-employment that didn’t eventuate, you may have a counter argument. This is one of the reasons why you should consult a bankruptcy lawyer as soon as possible if bankruptcy is becoming a serious option. Every case is different so a specialist lawyer will examine your situation and offer advice. Don’t wait if debt is becoming a burden.

Bankruptcy laws are there to protect everyone – debtors and creditors. There are times when the burden of debt becomes so great that you just cannot meet all the demands being made on you. You may find there are garnishes on your wages and/or bank account, debt collectors knocking on your door at all hours, and even scrupulous debt collectors trying to remove property (often illegally). You are entitled to consumer protection even though you are well overdue on repayments.

Your first step should be to consult a lawyer who is well versed in bankruptcy law. It may sound strange, adding the cost of legal assistance to your list of debts. However, the money they may save you in the long run will well and truly repay the costs. If you are eligible, a lawyer’s first act will most likely be to file a petition for bankruptcy under either a Chapter 7 or Chapter 13 clause.

There are two real benefits to filing a petition for bankruptcy.  Having too many debts is often caused by poor financial planning. Part of the bankruptcy process is to undertake financial counseling. More importantly, while undergoing the bankruptcy process, you cannot take on any further debts. It effectively stops any poor spending habits.

Filing a petition for bankruptcy will have also have other immediate effects on your life. For one,  it should stop, or at least slow down the harassment you have been receiving from creditors.  In fact, once the bankruptcy process has commenced, creditors are no longer permitted to harass you. If they wish to contact you it should be done through a trustee who will be appointed by the courts.

Individuals who are in financial difficulty are still entitled to consumer protection. Seeking legal help can often bring to a stop any harassment – even if a bankruptcy application isn’t proceeded with. Lawyers can help to negotiate alternative arrangements until you are in a position to resume normal payments. Seek advice rather than letting it all get to you.

The Bankruptcy Abuse Prevention and Consumer Protection Act provides a set of guidelines that must be followed in order to seek protection under a Chapter 7 or Chapter 13 bankruptcy petition. This is especially true for Chapter 7 applications. Part of the process involves a means test to determine whether or not you are eligible for protection.

The means test takes into account your total income and your total debts. For Chapter 7 petitions, there needs to be a determination that your income will not be sufficient to repay any of your debts. For a Chapter 13 petition, the means test will determine how much you can put towards repaying some or all of your debts.

Many individuals try to petition the court for a Chapter 7 application only to find that their income is too high to qualify. Generally speaking, (although not always,) if you are employed then your application for Chapter 7 will be denied and you will be referred on to a Chapter 13 application.

The information you need to reveal includes ALL income and ALL expenditures including food, accommodation, medical, transport and, of course, your debts. All income means income from any source.

Bankruptcy is not a process that individuals can use repeatedly so careful thought needs to go into the application. In fact, the mandatory time period between Chapter 7 filings is set at eight years for individuals.

The means test cannot be avoided since it determines your eligibility for bankruptcy. If you are considering a bankruptcy application, consult a specialist lawyer first. They can help determine whether or not you should apply for a Chapter 7 or a Chapter 13 petition.

It’s an interesting expression – cram down, yet it is actually used in relation to a Chapter 13 Bankruptcy petition and a secured car loan. A Chapter 13 petition allows the debtor to propose a payment scheme that would pay off their debts over 3-5 years, particularly if some debts where discharged. Car loans are interesting and are treated a little differently.

If you have a car loan that is more than 910 days old then you may be entitled to use the cram down method to reduce your debt. This requires a current fair assessment of the car’s worth at the time you apply for the Chapter 13 petition. If the amount you owe is more than the market price then you may be able to force the credit provider into accepting the new value. This means the value of the loan is reduced to what the current market value is.

This is known as cramming down the price of the vehicle. Be careful if you decide to use this technique since lenders will often dispute the valuation. This has been known to lead to lengthy and expensive law suits.These law suits would only add to the cost at a time when you don’t need more money issues.

There is a second bonus to cramming your car loan. Not only can you reduce your payments, but you can extend the time to pay out the debt. Payments under a Chapter 13 bankruptcy can be scheduled for up to five years (three years is the norm).  Chapter 13 petitions can be tricky. You should get an expert in this field to help you through the process to enable you to settle your affairs quickly and with the smallest disruption to your life.

Bankruptcy is a serious business and while you can download forms and even fill them in online, you cannot file for bankruptcy online. A petition for bankruptcy must be filed at the court whose jurisdiction covers your residential address. In fact, you will need to check with the court to find out exactly what documents and what information is going to be needed  to submit your petition.

There are many lawyers that now have online facilities. You could almost go through the whole process online although in reality, a face-to-face meeting with your lawyer is the ideal. Once your lawyer has assembled all the documentation and details ready for filing, it has still got to be done at the court house.

Before attempting a DIY bankruptcy application, take the time to visit your court house to determine what information is required. You will also need to check on the list of exemptions and how they relate to you. DIY bankruptcy applications often face difficulties due to factors such as selecting the wrong chapter, not include sufficient information, listing exempt debts or assets and not adhering to time lines.

If  you select a lawyer to assist you, either face to face or online, they will get you to fill in a comprehensive questionnaire before assessing  your case. If bankruptcy is the best option, they will have your forms filled out for you and then filed in the appropriate court house.

Bankruptcy is a serious event in your life and one that shouldn’t be left to amateurs. Select a professional who knows how to apply bankruptcy law and you will see the process is completed smoothly, and often faster than you imagine.

When it comes to financial difficulties for individuals, credit cards are one of the biggest issues. There have been cases where individuals have filed a bankruptcy petition, listing a dozen or more credit cards together with another dozen or more store-based cards – all maxed out.  Some petitioners are surprised when their application for bankruptcy fails. There is a major reason for this.

Credit cards are problem areas when it comes to managing finances. The bankruptcy process evaluator looks very carefully at credit use patterns particularly in relation to spending during the 40 days prior to filing a petition (20 days when it come to cash withdrawals). If there is a marked increase in spending or cash withdrawals (in other words, if the credit cards are suddenly ‘maxed out’) then the matter is reviewed for potential fraud.

If you are having financial difficulties and you are contemplating filing a petition for bankruptcy, don’t look at those credit cards as an opportunity for a big spend before your finances are tied up. There is a good chance it may backfire on you. At the very least, the court may determine that these transactions should be treated as transactions made after the petition has been filed. This means those particular transactions will not be discharged and you will still be left with those debts to pay.

Bankruptcy is a serious matter that can have long term ramifications on your life. If you feel that bankruptcy is a serious consideration, don’t add any further debts. Instead, speak to a bankruptcy professional as early as possible. They may be able to suggest alternatives that won’t affect your long term credit worthiness. Maxing out your credit cards is certainly not the best idea.

There is a mistaken belief by some that the bankruptcy process will clear away all debts. This is not the case. In fact, there is a long list of debts that are not discharged through bankruptcy and must still be paid on time. Any debts you have from this list will be taken into account when determining what, if anything, is paid to creditors during the bankruptcy process.

The list on debts that cannot be discharged include:

• Taxes – the tax man always gets his pound of flesh so any taxes owed to local, state or federal authorities must be paid
• Fines – legally imposed fines must be paid according to the terms of the fines.
• Fraud – credit obtained by fraudulent means cannot be discharged through the bankruptcy process
• Alimony – maintenance, child support and other payments that are part of a separation agreement, divorce decree or other order of a court of record must still be paid as agreed or ordered by the courts
• Compensation – court ordered payments for death or injury to another party must be paid according to any court order

Other debts, including those incurred after bankruptcy proceedings began and any debts that were not included in the original application, will also not be discharged.

A common misconception is that bankruptcy can help someone avoid child support and other family payments – this is not the case. The majority of bankruptcy cases involving individuals is based on consumer spending. These debts can be discharged depending on the total financial situation of the applicant at the time the petition is filed.

Future earnings are also factored into determining which debts can be discharged. Talk  to an expert on bankruptcy before making any decisions. If the bulk of your debts are in the non-discharge area then bankruptcy may not be your best option.

Filing for bankruptcy can be a complex task, however, you do not legally need lawyers to act on your behalf. You can do the research, much of it online including downloading of forms, and you can represent yourself in court. However, due to the complex nature of bankruptcy, you may be doing yourself a disservice by doing so.

For those contemplating bankruptcy, seeking legal advice is a sensible approach. Once you have sorted the advice and have a clearer understanding of where you stand, you may be in a position to handle things yourself. However, you have to be resourceful and well organized to gather all the information required.

There are some lawyers that will provide either a free or low cost initial meeting. This meeting will review your situation and the options available to you. A lawyer may be able to provide advice on alternatives to bankruptcy, or actions you can take that will help the process proceed smoothly. They will, for example, point you in the right direction for credit counseling if that is a pre-filing requirement.

Lawyers will also be able to advise you as to which assets may be at risk and which assets could be deemed exempt. This is an important aspect when considering bankruptcy. If you represent yourself you may find you are forced to give up assets that you would rather have kept. If you are aware of what is at risk from the start, you can better prepare yourself, or seriously consider alternatives to bankruptcy.

Lawyers know the law and how to proceed in your best interests. Going it alone can slow the process and cause unnecessary stress in your life. Do you need a smooth transition through bankruptcy, or a rough ride with surprises around every bend?

There is more to applying for Bankruptcy than just filling in the forms.  Individuals must undertake credit counseling from an approved credit counseling agency during the 180 day period prior to filing their petition. The counseling may be in either a group or individual setting and if a debt management plan is developed it must be filed with the court when all other documents are filed.

Counseling is normally provided by a nonprofit budget and credit counseling service.  This requirement may be waived under certain circumstances, for example, when lack of appropriate financial counselors are available.  The U.S. trustee (or bankruptcy administrator) will determine if a waiver is appropriate.

The counseling process does not stop there. For people seeking bankruptcy relief through Chapter 7 or 13, you’ll need to complete an instructional course in personal financial management. If is important if your financial difficulties are caused through consumer credit spending.

A debtor will not be discharged from bankruptcy unless a  certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling is presented to the trustee or administrator. The provision of counseling is made to educate debtors in the hope that future problems do not arise. Credit counseling will include strategies for budgeting and managing money.

If you are facing financial difficulties and feel that bankruptcy may be your only option, talk to a bankruptcy professional as soon as possible. At the very least, seek out a financial counseling service – remember, you may not be able to seek relief through the bankruptcy process unless you have completed this counseling. Don’t leave everything to the last minute – it will delay the process at a time when you don’t need delays.

A discharge in bankruptcy in simple terms is the termination of the bankruptcy process. When this occurs will depend on the type of bankruptcy and can be as short as four months for a Chapter 7 petition and as long as 4 or more years for other Chapters. Technically speaking, the debtor should be free of all debts once the discharge is granted.

For a Chapter 7 petition, the debtor is often released from all debts. This means they can restart their lives virtually debt free.  I say virtually debt free, there are some debts (such as fines and taxes) that are not discharged through the bankruptcy process.  The debtor will still be responsible for these debts and the ramification for non-payment.

The bankruptcy process provides protection for debtors once their discharge has been granted. If a creditor continues to pursue a debtor for an outstanding debt, the debtor can file a motion for the matter to be re-opened. If the debt in question has been discharged, the creditor could be found to be in violation of the discharge. In legal terms, a discharge is a permanent statutory injunction prohibiting creditors from taking any action against a debtor.

Debtors can voluntarily repay discharged debts if they so wish. There cannot, however, be any attempts made to force this voluntary payment – it must be a voluntary act. Why would you make a voluntary payment? There are times when good will may suggest it prudent to make such as payment. Family members and close friends are often the recipient of these payments.

The discharge process is, ordinarily, an automatic process. Once all terms of any agreements have been met and there are no objections raised from creditors, a discharge is granted. This is normally the conclusion of the process and the courts dealing with the debtor.

One of the most common forms of bankruptcy that people will hear about is a Chapter 11 petition for bankruptcy. You will often hear news items where a certain business has applied for a voluntary Chapter 11 petition for bankruptcy. You will also hear about involuntary petitions for bankruptcy.

Chapter 11 is used for businesses of all sizes. When a business applies for a voluntary Chapter 11 petition, the aim normally is to seek assistance to trade their way out of difficulties. Like the Chaper 13 petition, the debtor will normally offer a payment scheme to trade their way clear. In some circumstances, the court will discharge some debts and terminate burdensome contracts or leases.

Under a Chapter 11 petition, debtors are able to recover assets, call in debts and rescale their operations in order to return to profitability. A business that successfully negotiates its way through a Chapter 11 petition for bankruptcy is often stronger and more viable for the experience.

The second form of Chapter 11 bankruptcy is commenced when a group of creditors are no longer satisfied that a business will ever be in a position to repay debts. The creditors apply to the bankruptcy court and the debtor is forced to present themselves for review. Creditors can be appointed to a creditors committee. They have the task of working with the debtor to administer the case.

Creditor committees often employ lawyers to help investigate the business. This is a frequent occurrence when a business has provided documents showing them to be financially stable when, in fact, the opposite is the case. Lawyers and accountants will examine the affairs of the business for any irregularities.

If a business can satisfy the courts that a restructure is viable and a payment plan is achievable then the court will approve those plans. Once the business has met the obligations in the plan, they will be discharged from bankruptcy and able to continue their normal business activities.

Primary producers such as family farmers and family fishermen that are financially stressed are able to apply for bankruptcy under a special provision known as a Chapter 12 bankruptcy application. The Chapter 12 bankruptcy application is treated in a similar way to a Chapter 13 in that the debtor can suggest an scheme of payments to satisfy the debt.

Chapter 12 can generally only be used by family run concerns (there are exceptions – seek legal advice if you need clarification in your situation). Larger corporate entities, although engaged in primary industries, must use the Chapter 11 process to seek relief from creditors. The Chapter 12 process has been designed to be streamlined and less complicated so as to reduce any further stresses on families.

Like the Chapter 13 application, a trustee is appointed to manage the debts and repayments are made through the trustee to creditors. A Chapter 12 applicant is able to continue trading as a farmer or fisherman and will not be discharged from bankruptcy until the agreed period has expired and the debtor has bet all agreed payments.

In order to complete a Chapter 12 petition for bankruptcy, you will need to assemble the following information and documents:

• A list of all creditors and the amounts and nature of their claims;
• The source, amount, and frequency of the debtor’s income;
• A list of all of the debtor’s property; and
• A detailed list of the debtor’s monthly farming and living expenses, i.e., food, shelter, utilities, taxes, transportation, medicine, feed, fertilizer, etc.

When submitting an application, you will need to pay both a case filing and administration fee – currently $200 and $39. These can be paid in four installments with the last installment paid no later than 120 days after lodging the application.

If you are in financial stress and feel you meet the criteria for a Chapter 12 petition for bankruptcy, contact a specialist bankruptcy lawyer for more information or advice.

When seeking bankruptcy relief there are different regulations that apply depending on whether it is an individual or a business that is seeking relief (note there are regulations that go beyond just individuals or businesses). In today’s post, we will concentrate on those regulations that affect individuals. The regulations are enshrined in legislation that the courts have, over time, applied interpretations to. The legislation is broken into chapters hence you will hear references made to a Chapter 7 bankruptcy process or a Chapter 13 and so on.

Individuals seeking relief from bankruptcy will normally apply under either a Chapter 7 or Chapter 13 discharge. These two chapters deal with individuals in totally different ways. The following is a brief review of each of these Chapters – I will deal with them more fully in future posts.

Chapter 7 Bankruptcy Application

A Chapter 7 application for bankruptcy is undertaken when there is no possible chance of any debts being repaid. Under a Chapter 7 application, assets, apart from those deemed to be exempt, are liquidated and the funds distributed to creditors. Chapter 7 applicants can often be discharged within a few months of lodging an application. Chapter 7 applications are subject to a means test. If you fail the means test you will need to seek help through a Chapter 13 application.

Chapter 13 Bankruptcy Application

A Chapter 13 application for bankruptcy is normally undertaken by those who are still in employment and receiving a regular income. Under a Chapter 13 application, an arrangement is entered into to repay the debt over a certain period of time, normally 3-5 years. If you have tried to come to an arrangement and found that approach rejected by the creditor, don’t be disheartened. The Bankruptcy Court may well approve that arrangement if you can demonstrate that it is appropriate.

The biggest difference between a Chapter 7 and a Chapter 13 is that the debtor is allowed to keep their assets under a Chapter 13 application. This can be important if a major asset like your home is involved. We discuss these two Chapters in depth in a later post.

If you are in difficulties for any reason, rather than seeking bankruptcy as a way out, consider discussing your situation with your creditors. You will be surprised at how many will listen. Of course, some have a reputation for not listening at all – but you still have to try.

When communicating with your creditors, I recommend you document everything that takes place. Keep letters, including copies of letters you may send. If you attend an interview with your creditor, document the proceedings. It is particularly important to document any offers you make, and their response along with any offers they make and your response.

There are several approaches that you can take when talking to a creditor – these include:

• requesting a moratorium on all payments for a short period of time
• requesting a moratorium on paying the principal – this means you are making interest only payments for a short period of time
• requesting a renegotiation of the loan with lower payments
• requesting reduced payments for a short period of time

It should be remembered that some of these options mean that over the life of a loan, for example, you may pay significantly more than if you simply made the normal payments.

Lenders are not necessarily obliged to make any changes to the loan conditions, even on a short term basis. It is commonly considered good public relations for lenders to accept some minor short term modifications – just don’t count on them. Be sure to document everything and if you have no luck, talk to a professional. If bankruptcy is your only option, they can help you through the process.

Bankruptcy is one of those terms that most people have heard and probably feel they know a lot about. The law can be complicated so making assumptions can be dangerous. Knowing the facts can help prevent problems and may even save you money, time and stress.

In simple terms, bankruptcy is a situation where a borrower can no longer meet the repayments on their loans. This means anyone who has a loan, whether it is an individual or a large corporation, become bankrupt. The law on bankruptcy is uniform and controlled by US Congress.

Although the law is uniform across the country, it is not uniform when it comes to individual cases. For individuals, employment, assets and the number of dependents can affect the bankruptcy process. For businesses, the type of entity and the obligations placed on shareholders can affect the process.

Bankruptcy law is interesting in that it has two objectives. Naturally, one objective is to return as much as possible to creditors. However, the second objective is just as important. This objective is to provide those that find themselves in unfortunate situations a way to move on with their lives unencumbered with past crippling debts.

If you really are bankrupt – the system will work with you to repay as much as possible, wipe away the balance, and allow you to start afresh. On the flip side, those that abuse the system and make fraudulent bankruptcy claims can find themselves in a lot of trouble.

We will cover all the processes of bankruptcy through this blog in order to help you avoid the pitfalls. However, this is not legal advice and, should you find yourself in a situation where bankruptcy is a real situation, seek advice from those qualified to give it. The law is constantly evolving – what is fact today may be changed tomorrow – so get up to date advice.

Welcome to the Online Bankruptcy Blog. This blog will focus on financial topics of importance to anyone. We are here to help you avoid bankruptcy as well as to provide you with necessary information and resources regarding bankruptcy should you need it.

If you are experiencing credit problems or financial difficulties and it looks like you are headed toward bankruptcy then this blog is for you. We’ll show you how you can file for bankruptcy online for a very low, affordable price. We’ll also discuss issues related to bankruptcy – business and personal – and show you how you might steer clear of financial ruin.

Nothing on this blog should be construed as legal advice. This is for information purposes only. But you will be given opportunities to ask questions. Leave your questions in the comments of our blog posts and we’ll do our best to answer them. Feel free to subscribe to our RSS feed and stay up to date on financial information you need to stay above water.