Whether you are contemplating filing bankruptcy yourself, or know someone who is considering that option, this concise rundown will help you understand the different options within the bankruptcy code and empower you, or your friend or family member make the most informed decision to achieve financial security. If you are contemplating bankruptcy for yourself, contact an experienced bankruptcy attorney and schedule a free consultation so that you can discuss your options.
One Code, Coast to Coast
As established by the United States Constitution, the power to set bankruptcy laws rests exclusively with Congress. As a result, there is one national bankruptcy code that applies in all 50 states.
A lot of what the general public knows about bankruptcy comes from consumer debt and common remedies, like filing Chapter 7, when someone can’t pay their bills or is about to lose their house. This term, as well as Chapter 13 and Chapter 11, describes the most common options available in the bankruptcy code.
The bankruptcy code is a lot more robust than most people realize. In its modern form, bankruptcy is designed to protect both debtors and creditors. Bankruptcy can be filed by individuals or couples whose personal finances are in a downward spiral. It can also be filed by business corporations, charities, and even public institutions and government entities that are unable to meet their financial obligations.
Chapter 7: Asset Liquidation
Chapter 7 is the most frequently sought bankruptcy protection, both by individuals and by corporations. This kind of bankruptcy is described as asset liquidation. An estate is created, and a neutral trustee is appointed to oversee the sale and distribution of a debtor’s non-exempt assets.
To qualify for Chapter 7 bankruptcy, one must pass the means test which calculates whether the debtor earns too much to qualify to file Chapter 7. If a debtor’s income is above the median for their state and family size, there are some special circumstances where Chapter 7 can still apply, or they may choose to file for Chapter 13 bankruptcy and partially repay their unsecured debt.
Disabled soldiers, sailors, marines, and airmen can file for Chapter 7 even if their disposable income is well above the media. There are only two conditions for this special relief: the veteran must be at least 30% disabled from a service-connected injury, and more than half of their debt must have been incurred while they were on active duty.
Chapter 11: Restructuring Debt
Chapter 11 is designed for businesses and high-income individuals who need bankruptcy protection. This bankruptcy chapter is tailored to complex financial holdings, such as multiple mortgaged properties or a publicly-traded company with extensive obligations to creditors, bond-holders, and shareholders
For companies, filing Chapter 11 allows them to continue operating and attempt a corporate restructuring to save the business. Even if this plan fails, the shareholders and creditors usually receive more out of a confirmed Chapter 11 plan than they would if the company simply ceased operations and liquidated its assets. And many companies have been able, through belt-tightening and restructuring, to survive Chapter 11 and emerge as profitable and stable, a win for the company and its creditors.
Chapter 11 cases by private citizens only constitute a small percentage of all bankruptcies filed. When private filers seek Chapter 11 protection, it usually represents an attempt to renegotiate the mortgages on multiple properties, or a single, extremely valuable property whose worth exceeds the upper limits of a Chapter 13 filing. Chapter 11 cases require all creditors to confirm an equitable restructuring. Many lenders are willing to agree to renegotiate the balance of a property loan into a 30-year mortgage if it means the debtor won’t default. This is especially true in a weak housing market.
Chapter 13: A Partial Payment Plan
Chapter 13 bankruptcies are the second most common form of bankruptcy relief in the United States. Chapter 13 is not a liquidation action, but rather a partial repayment plan. It is most commonly used by individuals with a steady income who need time to cure arrears in a mortgage or car loan.
To qualify for this Chapter 13 you must have enough income to continue paying your priority debts (such as taxes and child support) and for any secured assets you wish to keep (like a car or a house). You must also have enough income to meet basic support obligations, like food, medical insurance, and childcare. Any remaining disposable income is used to pay your monthly Chapter 13 plan payment to the Trustee. This will cure arrears and partially pay your unsecured debt.
If you successfully make all plan payments for a period of 36 to 60 months, your outstanding debts will be discharged and you will come current with your car loan or mortgage.
Rare and Obscure Forms of Bankruptcy: Chapters 9, 12, and 15
Chapter 9: When Towns and Schools Go Bankrupt
Chapter 9 is an incredibly obscure part of the bankruptcy code. The modern American bankruptcy codes were first enacted in the 1890s. Since then, this chapter has mainly been a hypothetical, and in most states, no municipality has ever tried to request protection under the statute.
When cities have attempted to file bankruptcy, their cases have become national scandals, mired in allegations of mismanagement and betrayal of city employees whose pensions and benefits are at risk in such an action. Detroit’s 2013 filing was one of the most dramatic bankruptcies in modern history; Detroit’s art museum was nearly forced to liquidate its priceless collection, and retired city employees had to accept pension cuts and cost-of-living freezes.
Chapter 12 – Family Farmers and Fishermen
Yes, farmers and fishermen have their own chapter of the bankruptcy code. Under the Bankruptcy Code, family farmers or fishermen are individuals who earn more than half of their annual gross income from farming or commercial fishing.
A Chapter 12 bankruptcy is similar to a Chapter 11 restructuring. It simply offers more protections to boats, farm equipment, and farmland so that family-owned farms and fishing boats can continue to operate during their bankruptcy. These protections are available to family farms only, not commercial operations, and the debt in question has to come from the operation of the farm or fishing boat.
Chapter 15 – International companies
This section of the bankruptcy code touches on international law. When a foreign company seeks bankruptcy protection, tradition and international law (specifically, the United Nations Commission on International Trade Law’s Model Law of Cross-Border Insolvency) allow it to seek bankruptcy protection in any other nation where they have business assets. Chapter 15 regulates these requests.
Chapter 15 was recently invoked by Alitalia, Italy’s flag carrier. While the Italian government approved a massive bailout for the airline, it was at risk of losing its lease on a terminal at JFK International Airport. By filing under Chapter 15, the airline was able to keep operating flights from New York until the bailout was complete.
Tackling the Bankruptcy Code
You now have a basic understanding of what bankruptcy options are available and how they are implemented. With this new knowledge, you can more confidently navigate the process, or help another to do so. Remember to contact an attorney for a free consultation – especially now after you have learned a bit about how bankruptcy works.
Veronica Baxter is a writer, blogger, and legal assistant operating out of the greater Philadelphia area.
Recent reports have suggested that as many as 20 million Americans could benefit from filing for bankruptcy. But despite this, only about 500,000 people do it every year.
Are you thinking about filing for bankruptcy right now? Before you do it, you should consider the pros and cons of filing bankruptcy to see if it’s really right for you.
Let’s take a closer look at some of these pros and cons to find out if bankruptcy would be the best option for you based on your current financial situation.
Pro: Gets Creditors Off Your Case Almost Immediately
Do you have creditors calling you almost every day and sending you letters in an effort to collect on a debt that you owe? This can take a huge toll on you and make it difficult for you to go about your normal business.
Once you find out how to file bankruptcy, this won’t be an issue anymore. You’ll notice that the collection calls will stop almost right away once you’ve filed for bankruptcy. This is because most, if not all, of your debts will be discharged once you file.
This can give you some sense of hope for the future. It can also eliminate a lot of the stress you feel at the moment as a result of your financial issues.
Con: Doesn’t Cover Every Kind of Debt
Some people are under the impression that bankruptcy will wipe away all of their debt. But there are certain types of debt that will stick around even after you file for bankruptcy.
Some of the debt that will linger includes:
- Debts owed to the IRS
- Student loan debts
- Mortgage-related debts
A good bankruptcy lawyer can break down which types of debt will stick around after you file bankruptcy and advise you on whether or not bankruptcy would make sense for you.
Pro: Allows You to Rebuild Your Credit Over Time
If you’re able to discharge some of the debts you owe, it’ll put you in a better position to rebuild your credit over the years. You can put yourself back on the right track by eliminating debts that will be impossible to conquer.
Although bankruptcy will knock your credit score way down, there’s a good chance that your debt has already done a number on it. By knocking it down a little further and getting rid of debt at the same time, you can start the rebuilding process.
Con: Makes It Difficult to Get Loans in the Short Term
Bankruptcy will stay on your credit report for anywhere from 7 to 10 years. That means that, for the next decade or so, it’s going to be very hard to get a mortgage, a car loan, or even a credit card.
Of all the pros and cons of filing bankruptcy, this is probably the one you should spend the most time thinking about. You need to be mentally prepared to live without credit for up to a decade once your bankruptcy goes through.
Weigh the Pros and Cons of Filing Bankruptcy Before Making a Decision
Does bankruptcy sound like it might be a good move for you?
As long as you’ve weighed the pros and cons of filing bankruptcy, you should pursue it further. Talk to a lawyer about the process of filing for bankruptcy and all that it entails.
Read our blog for tips on finding the right lawyer to help you along the way with bankruptcy.
Normally, when someone files for Chapter 7, all of the funds left in their personal accounts can be protected by bankruptcy exemptions. This is a function of bankruptcy protection, which is meant to equitably satisfy creditors without taking the shirt of a debtor’s back. There is just one loophole to this protection: the right of offset.
Many people are under the mistaken impression that once they file bankruptcy, their assets are completely safe from further collection efforts. Bankruptcy protections do include a stay of further collections. This protection has the power of a court order. It can prevent repossession of a vehicle, take a home scheduled for sheriff’s sale off the auction block, or even freeze a divorce proceeding. There is one entity that the stay of collections can’t block: banks.
Chapter 5 Bankruptcy
Under Chapter 5 of the Federal Bankruptcy Code, banks and other lenders have a right of offset–that means they can freeze assets sufficient to satisfy any outstanding debts to that institution by the holder of the account. People who try to file bankruptcy on their own often fall into this trap and lose access to their funds shortly after filing, but no bankruptcy lawyer would allow his client to make this mistake.
There is a simple way to avoid the issue of offset: create a checking account at an institution to which you don’t owe money, and transfer what’s left in your checking account there. As long as this account is included in your bankruptcy estate, there is nothing fraudulent about such a transfer.
Money frozen under the right of offset is unlikely to be unfrozen in any reasonable amount of time. If your bankruptcy was planned poorly, or if you tried to file bankruptcy without the help of an attorney, this can leave you with no access to any of your bank accounts.
Under offset, banks can freeze some or all of your assets in their institution. Most banks will only freeze funds up to the value you owe Some banks will freeze more, and Wells Fargo (formerly Wachovia) has a policy of freezing all assets of a bankrupt customer until the bankruptcy trustee takes control of the funds.
Offset in Action
You Owe Money to the Bank that Holds Your Checking or Savings Accounts
Let’s look at the case of “John Smith”, a middle-aged man filing bankruptcy. John keeps his checking and savings accounts at PNC, with $1,000 between the two.
John also has a personal loan through PNC for $3,000 that he thought would help him pay off his debt; instead, he has fallen behind on that payment too.
When you owe money to a bank at the time your bankruptcy is filed, they can treat the debt as a lien against their client’s checking or savings account. They can apply the frozen money to whatever fines, fees, or debts you owe them. This right is an exception to both your automatic stay and your federal exemptions. Even if John claimed that money in his bankruptcy filing under a wildcard exemption, the bank’s lien has priority; he is unlikely to see that money again.
If PNC asserts their right of offset, they could freeze all of John’s remaining money to protect their interest in his loan. However, if John had more money in his accounts than he owed to the bank, they would only freeze his funds up to his liability with the bank. Say the situation was reversed; John had $3,000 total at PNC but owed the bank $1,000. They would freeze $1,000, leaving John without 2/3rd of his remaining assets.
To prevent losing money to the right of offset, you should transfer funds out of any bank to which you owe a debt before filing bankruptcy. You should also cancel any direct deposit you have set up, such as work or school reimbursement, or risk losing it to the bank.
You’re an Authorized User on Another Account
By filing bankruptcy, you can cause other people’s accounts to be frozen. This happens when you are an authorized user on another person’s account and owe money to their bank. Even if you have never deposited into that account, banks might freeze any accounts you are authorized on as a precautionary measure. They will wait for the trustee to decide who’s money is who’s and if they are entitled to claim any funds in the account under the right of offset.
If you ever deposited funds into that account, the situation could get even uglier. The bank will likely claim the right of offset and attempt to freeze what you owe from that authorized account. Sorting that kind of situation with your bank and trustee could become a lengthy and expensive process. In the meanwhile, someone who trusted you enough to give you access to their bank account now has no access to their money and might be struggling to pay their mortgage or certain medical bills.
The Sign of the Stagecoach
If you bank with Wells Fargo, your accounts will be frozen after filing bankruptcy. It’s a corporate policy. You don’t have to owe a single dime to Wells Fargo. Their official corporate position is that they have a legal duty to protect the assets until a bankruptcy trustee can decide what belongs to who. It’s an unusual reading of the laws, and Wells Fargo is the only American bank to assert a perceived “duty” to freeze the accounts of clients who file for bankruptcy. They call it an administrative freeze.
Citizens bank originally used this tactic in the 1990s as a way to force bankrupt clients to pay as much of their debt to the bank as possible. In a case which eventually landed before the Supreme Court, Citizens Bank argued that the right of offset entitled them to $3,500 from the accounts of a man who had fallen behind on a $5,000 loan. He initially argued that the funds were protected under the rules of the automatic stay; Citizens retorted that they were not collecting the money (yet), just placing it in administrative hold until the bankruptcy concluded and they could claim the right of offset. Thus it was not a collection action, and not prohibited under the law. The Supreme Court agreed.
Wells Fargo uses this reasoning and takes it even further; if the bank can administratively freeze a portion of an account without invoking the right of offset, they can freeze the entire account until the trustee decides who has a right to the funds. At a purely legal level, this does make it easier for bankruptcy trustees and eliminates the possibility of fraud. On a practical level, Wells Fargo is just punishing customers for filing, as the vast majority of people seeking Chapter 7 do not have funds exceeding the federal bankruptcy exemptions.
Armed With Knowledge
You now have a decent grasp of how banks can seize your money during a bankruptcy proceeding. Talk to an experienced bankruptcy attorney to devise the best defense against the banks that are holding your savings.
Veronica Baxter is a legal assistant and freelance writer located in Southern New Jersey.
It is important that while you are on the verge of falling bankrupt, you also know what kind of filing you are dealing inside the courts, as to how your bankruptcy lawyers (in Ontario CA/ https://lglawoffices.com/bankruptcy ) dwell on the matter in the court.
According to Stroock & Stroock & Lavan LLP (2010), in their Stroock: A Guide to Bankruptcy Law in the United States, there is this part in bankruptcy filing wherein debtors or applicants must identify the type of filing they are giving the courts, and there are two (2) types:
1. Voluntary Filing
According to the abovementioned authors, “A voluntary bankruptcy case is commenced when the debtor files a petition under the particular Chapter of the Bankruptcy Code under which it wishes to proceed. The filing of the petition bring about the stay that is automatic (and constitutes the order for relief under the Chapter under which the petition is filed(11 U.S.C. §§ 301, 362(a)).The entry of such order for relief, however, is not a binding determination of either a debtor’s eligibility to be a debtor under the Bankruptcy Code or any other substantive matter.”
2. Involuntary Filing
For the second type of bankruptcy filing in the court, it is the Bankruptcy Case that is involuntary, which according to Stroock, et.al, “may be commenced only under Chapter 11 or 7 and only against a person that is eligible to be a borrower covered by the selected Chapter, unless the person is a farmer or a corporation that is not a business or commercial corporation. If a borrower has more than twelve creditors, an involuntary case begins by filing a petition by more than three bodies holding undisputed and non-contingent allegation against the debtor, provided that such claims agglomerate $14,425 which is higher than the value of any lienor property of the borrower that secures such claims. If a borrower has less than twelve creditors which excludes employees, however, the petition that is not voluntary can be brought by more than one body holding undisputed and non-contingent allegations contrary the debtor as long as such claims agglomerate $14,425 higher than the cost of the collateral. (11 U.S.C. § 303(b). The automatic stay can be triggered by the filling of a petition that is involuntary (discussed below in Chapter V.C.).11 U.S.C. § 362(a).”
Finally, we recommend that you check out the book made by the author mentioned in order to extract the full details with regard Bankruptcy cases. Additionally, it is a must for any client with similar concerns as in this article to be assisted by an expert and effective lawyer from your place, or just like the LG Law Firm that has records of wins in bankruptcy cases. At the very least, this article only aims to give you a glimpse of how bankruptcy procedural cases works, for basic educational purposes.
“Bankruptcy is synonymous to financial losses…and that is a fact!” A very disdaining thought that many people perceive about the term bankruptcy, unless given the right supplemental thought that ‘Filing for Bankruptcy’ only with additional two pre-words, makes the concept a whole lot positive than the former one. Does bankruptcy or filing for one, results to one’s losses? In this article, we would like to present the different types of bankruptcy, and finally, give the general thought of every kind to the one filing it.
According to the book with the title, The Bankruptcy Book: The Truth About Ending Your Bill Problems And Getting Back The Good Credit You Deserve, written by Christopher McAvoy in 2010, he highlighted the types of bankruptcy commonly used in the United States, they are the following:
- Chapter 7, also known as straight bankruptcy. This is the fastest, easiest, and least expensive kind of bankruptcy.
- Chapter 11 reorganization is used primarily by businesses but also by people with substantial debts and assets.
- Chapter 12, which is used solely by family farmers as a way to reorganize their finances.
- Chapter 13 is the personal version of Chapter 11. Individuals with a regular source of income can put together a payment plan in exchange for keeping all of their property. It’s used heavily by people who are looking to save a home from foreclosure or a car from repossession.
Plus two (2) types of reorganization bankruptcy:
Chapter 11 bankruptcy can be filed by businesses who are struggling financially to restructure their affairs. It is also applicable to individuals. However, Chapter 11 bankruptcy is costly and it consumes so much time, it is commonly filed only by those people or businesses whose credit exceeds the limitation of Chapter 13 bankruptcy or who own considerable assets that are non-exempt such as some real estate properties. If you are considering Chapter 11 bankruptcy, you will need an assistance of a lawyer.
Chapter 12 bankruptcy is almost the same with Chapter 13 bankruptcy. But the difference is that, to be qualified for Chapter 12 bankruptcy, it should be minimum of 80% of your debts must appear from the operation of a farm owned by a family. Chapter 12 bankruptcy has higher debt margin to cater the extensive debts that may come with farm operation, and it offers the borrower more control to terminate several types of charges. Only few people use Chapter 12 bankruptcy; you will need an assistance of a lawyer to file Chapter 12 bankruptcy..”
If you have read the claims of Mr. McAvoy, you will notice that these types of bankruptcy have commonality, that is, to solve one’s financial dilemma or debts, and lessen the burden on the debtor/in-debted person.
Now, do you still believe that bankruptcy causes a multitude of losses? It is all about the mind-setting that one must impose in him/herself, for a better result/s. Nevertheless, one must also be assisted by a great mentor or bankruptcy lawyer such as the KT Bankruptcy Lawyer which caters the Best Bankruptcy Attorney in Irvine, or other law firms that has records of winnings in bankruptcy cases.
No matter how prepared you may think you are, bankruptcy can still impact your business, family, and personal life. While it is a stressful and intimidating procedure to go through, it is better to look at it as a necessary step towards moving on from financial trouble. It’s will protect you in the long run.
If you have found yourself faced with a possible bankruptcy and are looking for some clear answers, here’s everything you need to know so you can move forward:
Hire a Lawyer
This is the most important tip we can provide you with and is one that we highly recommend you follow.
Handling a personal bankruptcy is incredibly stressful and nearly impossible to battle all alone. Despite the costs, bringing on legal help will ultimately give you a much better outcome than if you were to proceed alone.
During the bankruptcy process, your financial scenario is very vulnerable. When you hire a bankruptcy lawyer, you’re fostering a relationship with some that has experience dealing with your exact situation. They are prepared to commit to your unique situation and help you every step of the way.
Once you have hired on help, you need to establish who will be handling what. During the bankruptcy process, there are many loose ends that need to be tied up, and lucky for you, some law offices will take all matters into their own hands.
With that being said, ensure that you are part of the process and know how and when things are being completed. Don’t hand your legal matters over and then think you can kick back and relax. You want to make sure your finances are cared for.
Amount You Currently Owe
While the legal help you hire will be able to aid in this process, you will need to compile a definitive amount of what you owe and how far your debt extends.
When you are researching this amount, you must ensure to include all lines of credit that you have and the amount that has accumulated on each line. You must have documentation to prove these numbers and to use throughout the entire process.
Another tip regarding your lines of credit: We recommend that you contact each company that you are a part of to ensure that the credited amounts are correct and accounted for.
Additionally, some companies will offer a little leeway in certain circumstances. If you reach out to a credit company, and they see that you are faced with bankruptcy, there is a chance that they will offer forgiveness and excuse whatever amounts you may have owed.
While this happening is relatively rare, it is worth it to take the time and contact the companies from each line of credit under your name.
Length of Time
The biggest issue when facing a personal bankruptcy is understanding that it will impact you for years to come. Again, hiring on legal help early on is your best bet in having as smooth a process as possible.
When filing for bankruptcy, ensure that you know how long the report is going to affect your credit. It will likely be at least a few years before the bankruptcy can drop off of your name, so be prepared to take the time to rebuild your credit under different circumstances.
Additionally, bankruptcy will almost always impact your ability to go through with large purchases. Understand that buying a house, car, or any other large investment may prove to be incredibly difficult during this time.
It is not impossible to recover quickly, though it usually takes years to rebuild your credibility in the eyes of most banks and credit companies.
Overall, bankruptcies are not ideal. That being said, there are many circumstances in which they become necessary. If you find yourself facing bankruptcy, we highly recommend that you hire expert help to guide you through the process. You don’t have to go through this stressful and exhausting experience the right guidance.
If you’re struggling with your finances, you’re not alone. Last year, 779,828 households filed for bankruptcy in the United States. Many of these people found themselves in financial trouble due to circumstances that weren’t entirely their fault.
Unfortunately, couples often find themselves in dire financial straits after filing for divorce. Others suffer losses from failed business ventures or have their savings wiped out by unexpected medical bills. Whatever the reason for your financial woes, you’ll be happy to know that bankruptcy isn’t the only solution.
Before you give up, check out these five tips for preventing bankruptcy and getting your financial life back on track.
1. Set (and Stick to!) a Super-Strict Budget
Keeping track of where your money goes is really the only way to dig yourself out of debt. To do this, you’ll need to set a super-strict budget and write down exactly what you spend every day.
Make sure you have enough money to pay your rent or mortgage and necessary expenses like electricity and food. Beyond that, plan to put every penny you can towards paying off your outstanding credit card and loan balances.
2. Sell as Much as You Can
We often don’t realize how much stuff we have until we take an honest look around. If you truly want to get out of debt, make it your priority to sell everything you can. Start with higher-value items like electronics, handbags, and furniture you don’t necessarily need.
Depending on how serious the situation is, you might need to make big moves like selling jewelry, your car, or even downsizing your home.
3. Increase Your Income
Cutting expenses is only half the equation. Finding ways to earn more money will also help you get your finances back on track.
Take an honest look at your current job and decide whether it’s feasible to ask for a raise. If not, consider looking for a job that will pay you better or resign yourself to picking up a second job or side gig.
4. Seek Help from a Bankruptcy Professional
If you can’t see the light at the end of the tunnel, seek the advice of a financial advisor who specializes in bankruptcy prevention. He or she will help you determine whether you have the potential to dig your way out.
If things don’t look good for you, remember that filing for bankruptcy without a lawyer is a dangerous move. Spend the money to work with a professional so you don’t end up making things worse.
5. Rebuild Your Credit
Digging yourself out of a potential bankruptcy is no easy task, but it can be done. If you’re starting to get back on track but notice that your credit has suffered, you’ll want to work on building it back up.
Companies like CardGuru can help you find the best credit card offers for poor credit. Use your new card at least once a month and pay it off right away. This will help you re-establish yourself as a responsible borrower.
Talk to a Bankruptcy Lawyer Before It’s Too Late!
When your finances start to spiral, being proactive can make a huge difference. Before things get too bad, search for a bankruptcy lawyer near you and schedule a consultation. This is a case where it’s well worth the time and effort to fully analyze your situation before making any major decisions.
In my years as a workout officer for the largest SBA lender in the country, borrowers filing for bankruptcy was par for the course. Whenever you combine lots of money owed with little chance of paying it back, the prospect of bankruptcy in one form or another is always lurking.
If you are facing an SBA loan default because you or your business can’t afford the payments, chances are that bankruptcy has crossed your mind. Today, I’d like to cover the most common questions that borrowers ask when it comes to an SBA loan default and bankruptcy.
Can an SBA loan default be discharged in bankruptcy?
Yes, I’ve seen plenty of chapter 7 BK filings as a workout officer. As a consultant, I’ve also had my fair share of clients who retained me to after a BK. The reason they retained me was because despite having their personal guarantee released, the lender still had a lien on their home.
Wait, A Bankruptcy Doesn’t Get The Lien Released?
So while a personal guarantee can be discharged, a lien on your personal residence will remain intact if there is equity in your home. This is an important fact to know, as I’ve received calls from more than one upset borrower who only learned that the lien stayed in place AFTER they went through the BK.
For many borrowers with equity in their home, but without much else in the way of personal assets, each of these scenarios may result in a similar cost:
- File a BK, then negotiate a lien release after the fact, or
- Negotiate an SBA loan default Offer In Compromise (OIC) and have a release of the lien be included as part of the OIC.
If it’s going to cost the borrower the same, most people would just as soon avoid having a BK on their record.
When’s the best time to seek a lien release following a bankruptcy?
I generally believe that the sooner you do it, the better. There are a couple of reasons why I recommend this:
- While the real estate markets can experience declines here and there, over the long term real estate has historically increased in value over time. If your home is worth $300K today, it’s likely to be worth more 5 to 10 years from now. If you attempt to negotiate a lien release when your home is worth more, there will be more equity and therefore it will cost you more to have that lien released.
- As long as you continue to pay down your mortgage, you will continue to build equity in your home (assuming the value of your home increases or stays flat). As in the point above, the less you own on your first mortgage, the more equity in the home.
The bottom line on lien releases is this: the more equity you have in the home, the more the bank will demand from you in order to release it. In general, equity increases over time due to rising prices and paying down your mortgage, which means the longer you wait, the more it’s likely to cost you to negotiate a lien release. Lenders negotiate based on equity that exists today, so you should use that to your advantage.
Jason Milleisen is the founder and owner of Distressed Loan Advisors (JasonTees.com). Since 2009, DLA has helped hundreds of small business owners through the SBA Offer In Compromise process, resulting in over $50 Million saved. Jason is a former workout officer for the largest SBA lender in the US, where he oversaw a $400 Million portfolio of delinquent SBA loans.
Are you considering filing bankruptcy?
If so, you’re not alone. Over 700,000 people file bankruptcy a year in the United States.
If you’re having serious financial issues, don’t file your own bankruptcy. Check out five of the most dangerous pitfalls of filing bankruptcy without a lawyer.
1. Understanding the Paperwork
When you’re filing bankruptcy on your own, you may struggle to properly understand and complete all the necessary paperwork. The paperwork is quite lengthy and you want to ensure that it’s all done correctly.
Without an attorney, you will be left to figure it all out on your own. Having someone who understands these proceedings like a lawyer will make sure that you file the proper paperwork right away. If you don’t file all the paperwork correctly, you risk your case being dismissed.
2. You’ll Receive More Oversight From the Courts
When you don’t have a lawyer while going through bankruptcy proceedings, you can expect extra attention from the courts. The trustee and others associated with your case will want to make sure that you have correctly presented everything.
With that being said, you can expect the process to take longer when you file pro se.
3. Knowing How to Handle Contested Disputes
When filing bankruptcy without an attorney, you may not understand how to correctly handle contested disputes.
You want and need an attorney like https://rodneyokano.com/bankruptcy-lawyer-las-vegas/ that you can trust to handle these disputes. You will not receive special treatment just because you are representing yourself, therefore you should have proper representation.
If you experience these disputes, you need an experienced lawyer who can defend you through the proceedings.
4. Using Bankruptcy Exemptions Incorrectly
Bankruptcy exemptions are items that a debtor can usually keep. Items such as household items, reasonable clothing items, and pensions. It’s important to know what exemptions you can and cannot claim.
This is not a time to play guessing games. Proper research must be done to make sure that you fully understand bankruptcy exemptions. Having a bankruptcy attorney can help you with this process.
5. Not Following the Rules After You File
Filing for bankruptcy involves more than just filling out the paperwork. There are certain things to do after you file bankruptcy. You will be required to attend a 341 meeting. During this meeting, you meet with the trustee and potentially your creditors to discuss the debts owed.
It’s important to know and understand that you may be required to attend credit counseling or another type of debt education course in order to receive your bankruptcy discharge.
Filing Bankruptcy without a Lawyer Isn’t Ideal
Facing your financial difficulties is not something that you should have to do on your own. Instead of filing bankruptcy without a lawyer, team up with an experienced attorney to ease your mind and ensure everything is handled properly.
Instead of wondering how to file bankruptcy yourself, hire an experienced attorney. Browse our legal category page to find the right lawyer near you.
There are many people out there who suffer from financial struggles, and their situation is so bad, that bankruptcy is required. If you’re not sure if you need to file for bankruptcy, then you might need to talk to a bankruptcy attorney. Attorney Jed Shaw can help and guide you in this matter, and will tell you all of your options. Don’t listen to people who don’t have expertise in this field, their pieces of advice might get you to a worse place.
We’ve written this article to help you understand the signs you need for filing for bankruptcy.
You have a high credit card balance
A credit card can be very useful, if you want to finance your lifestyle, but for a short period of time. And it’s easy to pay the minimum balance for a few months. But once that balance surpasses, it’s not so fun anymore. And paying the entire balance is not realistic. If your credit card balance is high and you cannot pay it off, then you might need to get contact of a bankruptcy lawyer.
Also, if you’re using your credit card to have the basics until the next month, is time to call your attorney. Once this happens, a cycle starts to happen, and it can be very hard to break it without influencing the balance of the credit card.
Many people believe that if they make the minimum payments with the credit card, then it’s not necessary to bring an attorney to the discussion. It actually is, since the majority of the payments that you make with that card cover the interest for that month. We advise you to see your attorney as soon as possible.
You swim in unsecured debt
Medical treatments are usually the ones we talk about when it comes to unsecured debt. Also, divorce, or business-related debt is subject to International Debt Collection. The reason is not that important, as it is the fact that you have a lot of unsecured debt and no money to pay it off. That’s when you know you need to talk to a lawyer. Chapter 7 can change your life in this situation.
Also, if you have lost your job, it means you have to deal with lower income – even if it’s for a short period of time, until you get a new job. You might have to get a credit card or a high-interest loan, thing that gets us to what we have discussed just above. If you’re using those to survive month to month, then you need to find a lawyer to help you.
Get money from your retirement
This is never a good idea. Don’t take money from there to pay the debt you have. You don’t really save much for retirement as it is, so it will only make things worse if you decide on this. Instead of taking all of the money – years of money – to repay your dischargeable debts, you’d better keep saving for retirement.
Repossession or foreclosure
In case you’re about to lose your house or your car to foreclosure or repossession, then you might want to call a bankruptcy attorney. After the bankruptcy petition is filed, then both the repossession and foreclosure should stop. This is known as “automatic stay” in bankruptcy.
A lawyer can save your house from this situation by making the most out of Chapter 13 – this one allows you to organize your debt and enter a payment agreement for about five years, a period of time in which creditors cannot repossess or foreclose.
You can keep your house if you catch up on mortgage payments. Under no circumstance should you wait for the last minute to talk to your lawyer.
The creditor harasses you
When creditors call you all day long, every day – because it happens a lot – and sending you threatening letters or keep harassing you about your debt, then it’s time to talk to a lawyer. If you file for bankruptcy, then you’ll stop these forms of harassments. It will stop all of the callers from calling you or sending scary letters.
If you’ve been sued, or you’re about to be sued, then you clearly need to talk to an attorney. After you don’t pay the money anymore, it’s just some time until the creditors sue you. And after you’ve been sued, the outcomes might be ugly, your bank account might be levied, or a lien might be placed on your home.
If you get a lawsuit, or a letter from the creditors telling you they’re going to file a lawsuit against you, then call your attorney as soon as possible.