Financial Mistakes That Oftentimes Leads to Filing For Bankruptcy
There are very few people in the world that can say they are living completely debt-free. Everything from student loans to hospital bills, almost everyone has had debt in their life or are currently in debt.
Debt is undoubtedly a commonality among Americans, but what’s even more common is the inability to pay off those debts. According to forbes.com, the student loan debt total for 2020 is now at $1.56 trillion. But the sad part about that debt is that college graduates aren’t even working jobs in their field of study, and 41% of them work jobs that don’t even require a college degree, according to insidehighered.com.
So, it can be absolutely devastating to acquire so much debt, especially for an education that’s supposed to provide you with a job that offsets that debt, only to still end up in debt… Unfortunately, that’s the story of most hard-working people. And it causes them to file for bankruptcy.
With bankruptcy, it’s not going to erase your student loan debt by any means but bankruptcy will indeed help you get rid of your other debts. Other debts include things like credit card debt, loans, cars, and other things you can’t afford to pay on your salary alone.
A lot of debt is acquired by our own doings and we don’t realize they’re mistakes until you realize you can’t pay your debt. Then again, some people know they can’t afford certain things but still spend money they don’t have anyway… That’s just the way debt is set up but fortunately, processes like bankruptcy are there to help you settle your debts.
The Bad Rap of Bankruptcy
For so long, and even still today, bankruptcy has such a bad rap of being an awful entity that is also a reflection of the type of person you are. The theory is that if you file bankruptcy, you’re a bad person, and that’s just not the case at all. Bankruptcy is actually a fresh new start for anyone who files.
Whether you file a Chapter 7 or 13, it’s still an opportunity for you to have a fresh start to a new financial future. But one thing to note is that if you’re going to file bankruptcy, you absolutely need to hire a bankruptcy lawyer that will best represent you and your case. That reason alone is why you want to look at the top bankruptcy lawyers in Kansas City.
In the grand scheme of things, acquiring debt is something that happens to everyone and it doesn’t mean that you’re a bad person… it just means you’ve taken on more than you can financially handle, whether it was on purpose or not. Take a look at some of the financial mistakes that cause people to file for bankruptcy.
Financial Mistakes That Cause Filing For Bankruptcy
Student Loan Debt
Student loan debt is a debt that’s not discharged by bankruptcy but you can temporarily include it in a Chapter 13 bankruptcy along with other debts to ensure you’re paying something on that debt. Once your bankruptcy is discharged, you will have to continue with regular payments to get the loan paid off.
Taking on Debt That’s Not Your Own
Caring too much and wanting to help others can get you into a world of debt sometimes. Maybe you have a friend or family member that needs a co-signer for a car or apartment… In your efforts to help them, you sign your name on the dotted line to be financially responsible if they can’t pay their responsibility.
This happens all too often. You try to help someone, they abandon their responsibilities and you’re left with a debt that’s not even yours but is held responsible for it. Depending on the amount of the debt you signed up for, it could cause you to file for bankruptcy.
Spending Money You Don’t Have
For most people living in debt, spending money you don’t have is the poster child for credit cards and secured/unsecured loans. To be fair, the world operates on credit… you honestly can’t make any major purchase without it, unless you just have 50 grand or more laying around in your back pocket.
There’s a right and wrong way to use credit cards and other forms of credit, and the key is to use it responsibly. If there’s a purchase you want to make and have the funds to pay for it in cash, use your credit card to pay for it and take the cash you were going to use to make the purchase, and pay your credit card bill with that instead.
But, if you’re like most people, you’re going to spend the $500 in credit you have, even though you don’t have $500 to pay it back with. This is what causes the cycle of debt, causing you to need a bankruptcy lawyer.
What to Do About Your Debt
As mentioned earlier, debt is something everyone has and is hard to avoid, but credit, the very thing that causes debt, is what’s needed to financially thrive… So how do you financially survive in a confusing financial world? Well, the key is to stay informed and be proactive.
If you need to file bankruptcy, find a bankruptcy lawyer and file the chapter that works best for your financial situation. While you’re going through the bankruptcy process, look into consulting with a debt consolidation specialist. They’ll be able to answer all your questions about debt and provide you with advice on how to manage your financial future and how to make smarter financial decisions coming out of your bankruptcy.
Just make sure you have a positive mindset about bankruptcy. Don’t look at it as you’ve hit “rock-bottom”… Look at it as a new beginning to a fresh financial future. Your bankruptcy lawyer will be the person to help you reach your new financial future.
Five Reasons To Hire A Personal Bankruptcy Lawyer
Filing for bankruptcy is a situation that you hope never to end up in. However, as life unfolds, it is possible to end up in a situation where you are declared bankrupt. The process of filing for bankruptcy can be scary, emotional, and intimidating. Considering the stigma that may be surrounding the process, you may consider going through it on your own. However, due to reasons such as inadequate knowledge and understanding of the legal process, it is advisable to hire a bankruptcy lawyer who will walk you through the process together. Although you may be hesitant to hire a lawyer due to your already strained financial situation, working without one may cause more harm than good. Below are the reasons why hiring Chicago bankruptcy attorneys at Chicago Consumer Law is a favorable decision.
Check out the five options
They May Have A Better Option
Ideally, bankruptcy is always the ultimate solution after you are out of options on how to clear your debts. However, although you may be sure that this is the last option, there may be other ways out that you had thought about. With the help of your bankruptcy lawyer, it is possible to visualize such possibilities and come up with the best idea. In this case, the lawyer will advise of a more manageable way to clear your debt. If you are in a situation where your debts have become unmanageable, then the lawyer will recommend you to file for bankruptcy and direct you on how to go about it.
You Get Expert Advice
As mentioned above, filing for bankruptcy is a steep path. There are many legal steps to follow, not to mention the stress of the financial strain. In the course of these processes, any mistake that you make could make the situation more complicated. Therefore, you will need a bankruptcy lawyer who has experience in the area to take you through the process. The attorney will advise on some of the common mistakes made that you need to avoid. On the other hand, an excellent personal bankruptcy lawyer will help you determine the most beneficial path based on your financial situation. They protect you from making mistakes that could cost you a fortune, such as failing to disclose an asset.
Helps You With Your Paperwork
As you go through filing for bankruptcy, large amounts of paperwork to be filled is inevitable. The act of avoiding any of the documents that you need to fill or giving the wrong information will make the process more complicated. Additionally, it would help if you gathered different kinds of supporting documentation to accompany your application. When you have a good lawyer, they will help you fill these documents and do it in the right way. On the other hand, a bankruptcy lawyer will help you gather all the materials needed for evidence. Therefore, when you have a lawyer, then you merely process the gathering and preparing all necessary evidence.
You Increase Your Chances Of Acceptance
When filing for bankruptcy, you don’t need to have a lawyer. However, when you have a lawyer, then you have better chances of acceptance. That is because the lawyer will help you prepare your case to increase your chances of winning. Additionally, the lawyer is knowledgeable and experienced in bankruptcy law. Therefore, they will ensure that you file for the right bankruptcy based on your financial situation. Although it is still possible to win the case even when you are working without a lawyer, having a lawyer by your side will be way better.
Protect You From Harassment
One of the issues that you could be dealing with making you consider bankruptcy is harassing phone calls. That is primarily from the creditors whose debts you are unable to pay. Luckily, when you have a lawyer, they can protect you from repossessions or wage garnishments. Your attorney will contact your creditors on your behalf and save you the stress and pressure. Additionally, you can direct all calls or messages to your lawyer, and they take to them instead of harassing you. This way, you can concentrate on the process of filing for bankruptcy without pressure.
Filing for bankruptcy is a long process that will drain you, especially if you are going through it yourself. With the continually changing bankruptcy laws and procedures, getting help from a lawyer will help you avoid making a mistake that will lead you to a bigger financial hole. Above are ways through which you will benefit by hiring a bankruptcy lawyer when filing for bankruptcy.
Should I File For Bankruptcy? An Orlando Lawyer’s Guide
Choosing whether you should file for bankruptcy is a major decision in your life since it will have an impact on your credit and finances for many years into the future. While over the past few years the number of filed bankruptcies has dropped, over 700,000 people filed in 2019 in the USA, which shows that it’s still a common course of action.
Orlando has its own fair share of filed bankruptcies. In 2018 alone there were 1203 Chapter 7 bankruptcies filed in Orlando’s bankruptcy court, as well as 529 Chapter 13 cases and 26 Chapter 11 cases. So, how can you decide whether filing for bankruptcy is the right choice for you?
If you’re feeling as if your debt or bills are too much to handle at the present time, it’s something that you’re probably considering.
Here are some questions to ask yourself
Is Bankruptcy Going To Help My Situation?
This may appear to be an obvious question, yet you have to be completely certain that the place you’ll find yourself in after you’ve declared bankruptcy will be better than the place that you’re in now.
Bankruptcy has a serious impact on many elements of your daily life, so you need to be certain you know your goals and what you need to accomplish in your life after bankruptcy should this be the route you choose to go down.
Is There A Different Option?
Since bankruptcy has such an impact on your long-term finances, it should really only be used as a last resort. Before you declare bankruptcy, consider whether there’s another way of getting out of your current financial situation. Could you possibly get a second job? Work longer hours? Reduce your living expenses? Refinance your debts? Create and stick to a lower budget? If the answer to all of these questions is no, then bankruptcy could be the right choice for you.
There are some alternatives to bankruptcy – debt consolidation, selling property, restricting your mortgage, borrowing some money from friends or family – however if you try to avoid bankruptcy using any of these options and get it wrong you could end up worse than if you’d filed. In fact, many people who file for bankruptcy see improvements in their credit scores more quickly than those who tried to bring their debt level debt without going to court.
Will I Qualify For Bankruptcy?
Not everyone is eligible to file for bankruptcy. Eligibility heavily depends on your income and how much debt you have. Most bankruptcy filings in the USA are Chapter 7 bankruptcies. This is because the process is shorter at just 3 – 6 months, involving liquidating some property to pay off debts while most debts of other types are eradicated. If you have an income that doesn’t come close to pay your debt obligations, you may find Chapter 7 a good choice. An online means test for bankruptcy will help to determine whether you can qualify. Of course, you’ll find your credit score takes a severe hit that will take years to build back up, however, if you’ll be in a better place after you’ve filed for bankruptcy, it could be worth it. The Chapter 13 process is much longer at 3 – 5 years. It is an option for people who have sufficient income to pay off their debts but need more time to do so. Chapter 13 bankruptcy delays foreclosures and debts so you have more time to make your payments.
What Else To Consider?
Before embarking on a bankruptcy process, you should consider a few other things. Which debts are going to be paid off? Will following the process be worth it in the end? What will happen when you’ve filed for bankruptcy in Orlando? What happens to your home and property? How do you even go about filing? It couldn’t be more important to get legal advice, and Suncoast Law Orlando’s bankruptcy lawyer can help you to make this difficult decision.
With the right lawyer on side, you can make a well-informed choice about whether filing for bankruptcy in Florida is really the right option to meet your needs.
The Last Resort: Bankruptcy Chapters Explained
Do you feel like you’re crushed by debt and can’t find a way out? It can weigh on you heavily and severely disrupt every aspect of your life.
There is light at the tunnel, though. You could consider filing for bankruptcy. Over 750,000 businesses and consumers filed for bankruptcy in 2018.
If you want to explore filing for bankruptcy, you should start by knowing the different types of bankruptcies.
Keep reading for the different bankruptcy chapters explained.
Chapter 7
Chapter 7 is for individuals who have a lot of consumer debt with no way to pay it back. You may have a lot of credit card and medical debts and faced a loss of income or job loss.
In this case, you can liquidate your debt and undergo financial counseling to resolve your debts. Some of your assets may be liquidated to pay the debts off.
Can you keep your home and your car in a Chapter 7 bankruptcy? In most cases, you can.
Chapter 11
Chapter 11 used by businesses or by high-net-worth people with a lot of tangible assets. Chapter 11 is a reorganization debt, rather than completely liquidating debts.
With this form of bankruptcy, businesses still have control over the operations of the businesses. A trustee is assigned to your case to plan how you will repay your debts.
Your debts are usually paid off over a three to five year period, giving you more financial flexibility. Some of your debts may be discharged.
Chapter 13
Chapter 13 can be used by individuals to resolve their debts. In this case, you can restructure your debts and get a plan to pay them off. Some of your debts, like credit cards, may be discharged and you’re on a payment plan for the rest of the debt.
Chapter 13 is usually for people who have a steady income, but they also have a lot of debt.
Are you better off restructuring your debts or liquidating them? It really depends on your personal situation. You want to talk to bankruptcy specialists who can look at your debts, your assets, and help you determine the best course of action.
Chapter 9
It may be hard to fathom, but municipalities can go bankrupt. The City of Detroit was the largest municipality to file for bankruptcy. Other than that, this is a rarely used part of bankruptcy law.
This allows towns to reorganize their debts, similar to a Chapter 13 bankruptcy. Debts are restructured and are on a schedule to be paid without cutting back on too many services for residents.
Bankruptcy Chapters Explained
No one ever wants to file for bankruptcy. However, it can be a way to get a fresh financial start and give you peace of mind.
These bankruptcy chapters explained will help you understand how bankruptcies work and how you can use them to get relief from crushing debt.
Do you want more legal advice? Check out this site often for more legal tips.
A Small Business Owner’s Guide to Bankruptcy
If you are a small business owner and feel that your income is insufficient to deal with your debt, you are likely considering filing for bankruptcy protection and relief. But will bankruptcy help you achieve your goals for the business? If so, which type would be best? This article sets forth the available options for you so when you meet with your bankruptcy attorney, you are prepared to discuss a course of action.
Three Questions You Must Answer when Considering Business Bankruptcy
First, What Are Your Goals for Your Business?
This comes down to one question: Do you intend to close and liquidate the business, or do you intend to continue to operate your business?
What you plan to do once your debt is discharged will help you decide whether bankruptcy is the best option and, if so, which type of bankruptcy you should file.
Second, Are You Personally Liable for any Business Debt?
If your small business is a sole proprietorship or general partnership, you are personally liable for your business debts. Also, if you personally guaranteed any business debt regardless of the type of business entity, you are personally liable for that debt.
Whether you are personally liable for business debt will factor into your decision on whether and what Chapter to file. Many small business owners find they must file two bankruptcies – one for their business, and one for themselves personally.
Third, How is Your Business Structured?
The way you organized your business dictates what bankruptcy options are available.
The Three Types of Business Bankruptcy
Chapter 11 Business Bankruptcy
Sole Proprietorship Chapter 11
Chapter 11 is available to both individual and business debtors. It is used by individual but rarely, because the requirements to file Chapter 13 are fewer and Chapter 13 is easier to navigate.
LLP, LLC, Corporation Chapter 11
Chapter 11 is the only type of bankruptcy available for businesses organized as anything other than a sole proprietorship, and that wish to continue operations rather than liquidate.
Chapter 11 bankruptcy can be filed by both major corporations and small businesses. Although small businesses must follow most of the same rules and procedures as the large corporations, if the business owes less than $2.5 million dollars, the business can file as a “small business debtor” which streamlines the process somewhat.
Even if your business qualifies as a “small business debtor,” filing and succeeding with a Chapter 11 bankruptcy proceeding is complicated. In order to file under Chapter 11 a business must be well-organized – you must produce the most recent balance sheet, statements of operations and cash flow, and federal tax return. With the help of your attorney, you must also develop a reorganization plan showing how your business will recover, make monthly payments to creditors, and endure strict oversight by the Chapter 11 Trustee for the duration of your plan.
Chapter 13 Business Bankruptcy
Chapter 13 business bankruptcy is not available, but because sole proprietors are considered the same entity as their business, a sole proprietor may file under Chapter 13 and use Chapter 13 bankruptcy protection to retain non-exempt assets, renegotiate secured debt, discharge both business and personal debts, and pay off past-due obligations such as sales tax over time. This will be done through the Chapter 13 plan over 3 to 5 years, depending upon the amount of debt owed and the amount of income the business has.
Sole proprietors can continue business operations after they complete their Chapter 13 plan and receive a discharge.
Chapter 7 Business Bankruptcy
Sole proprietors can file an individual Chapter 7 bankruptcy case and protect business assets using state or federal exemptions.
Chapter 7 bankruptcy is also available to corporations, partnerships, and LLCs. These business entities can liquidate the company, but they do not qualify for exemptions (the laws that take property out of the bankruptcy state, making it unavailable to the Trustee or creditors).
The most important thing to know about Chapter 7 is that a business filing under Chapter 7 cannot continue business operations. Chapter 7 bankruptcy discharges unsecured debts and empowers the Chapter 7 Trustee to liquidate business assets and repay the business’ creditors. Again, if you are personally liable for any business debt you as an individual are not protected by your business Chapter 7 filing. Creditors can still try to collect from you or sue you, and you will be liable for that business deb after your business receives a discharge.
If you intend to continue business operations, you will not file bankruptcy under Chapter 7.
Consult With An Experienced Business Bankruptcy Attorney
If you are considering filing small business bankruptcy, know that evaluating the types of bankruptcy is complex. An experienced business bankruptcy attorney can help you weigh your options, organize and file all needed documents, and make sure that neither you nor your business experiences any unintended consequences as a result of filing.
About the author:
David M. Offen, Esq.
Mr. Offen is a Philadelphia bankruptcy attorney who attended Temple University College and Law School. Mr. Offen is licensed to practice in the States of Pennsylvania and New Jersey. He is a member of the Eastern District of Pennsylvania Bankruptcy Conference and the National Association of Consumer Bankruptcy Attorneys and maintains an active blog on all aspects of bankruptcy filing and current events.
Filing for Bankruptcy? What You Can Expect from a Bankruptcy Attorney
Many Americans are suffering financially. One in three Americans carry debt, with many people owing as high as hundreds of thousands of dollars to various money lenders. This debt can be crippling and prevent a true and happy day to day life.
When it comes to getting out of debt, filing for bankruptcy can sometimes be the most sensical way out. There is nothing like the relief the completion of a bankruptcy claim can bring. But as any bankruptcy attorney could tell you, beginning and working through the process is no easy matter.
That’s why having an attorney on your side who understands the process can be so vital. How can they help, and what services can they provide to you? Read on, and we’ll walk you through everything you need to know about bankruptcy attorneys.
Experience and the Ability to Evaluate
You’ve never had to file for bankruptcy before, most likely. That means this whole terrain is brand new for you, and you may have no idea how to navigate the process and move forward in an efficient manner.
This is also the most difficult time in your life and you may have trouble thinking straight. Having someone else to rely on during this difficult process can be essential to the completion of the task at hand and your mental stability.
Your attorney can fill in all the gaps of knowledge you may have in approaching your case. Unlike yourself, they’ve been through the bankruptcy process with clients countless numbers of times. They’ve studied the subject and should know the laws in and out.
They can be your well-experienced guide in applying for bankruptcy. This means you won’t have to worry about missing deadlines, or having to decode legal jargon on your home. The law can be complicated, but having someone who’s seen it all before can be a huge assistance.
Because of this experience, a bankruptcy lawyer will also be able to accurately gauge and explain the difficulty of your case to you. This will all depend on what kind of bankruptcy you’re filing for, whether you can sell any of your property, and whether you own a small business or not.
It can be best to try and find a bankruptcy attorney who has handled clients who have been in a similar situation to you in the past. An experienced attorney an even save you money, preventing you from paying fines for missed deadlines and other mistakes.
Services a Bankruptcy Attorney Will Provide
When you hire a bankruptcy attorney, you should expect certain services in exchange for your payment. Prime among them should be attentiveness and competence as it pertains to your case.
This means that your attorney should be able to give you reasonably sound advice on what your best legal moves would be. That includes if whether a filing is a smart choice, what to expect during the process, and how to approach bankruptcy in a way that would be most advantageous to you.
They should be able to point out any possible risks or big difficulties.
A bankruptcy attorney will also be able to take care of a great deal of paperwork that comes with the process. Not only will these attorneys understand the ins and outs of this paperwork, but many have software that can greatly simplify the process of filling it all out.
You will have to provide a good deal of information to an attorney, including your income, expense, and debt details. But they will be in charge of using this information to complete your application.
Your lawyer will also take the time to represent you at the various hearings that make up the bankruptcy process. There is a mandatory hearing for all that apply for bankruptcy, but there may be others as well depending on your situation. Your attorney can advise you on how many hearings you should expect for your particular case.
Chapter and Chapter 13 Bankruptcy Filings
One of the best things an attorney can do is help you decide what kind of bankruptcy to file for. They can help you compare and decide between Chapter 7 and Chapter 13 filing options. They will do this by examining the size of your debt, the assets you are willing to lose, and your ability to produce future income.
Once you’ve landed on a specific plan, an attorney can help work you through the best possible options for your case. If you go with Chapter 7, an attorney can help you protect your assets and ensure you don’t lose anything deeply important to you.
If you go the Chapter 13 route, an attorney can help to produce a payment plan that works for both you and your creditors. They can help you land on monthly payments that won’t break the bank that will allow you to get back on track with your life.
Depending on which route you go with, you might also consider how your bankruptcy filing will affect other areas of your life. Your business, your collaborators, and even your spouse might all be affected by this decision. An attorney, like those from this law firm, can walk you through these potential impacts. They can help you navigate the complicated web of legal requirements.
What to Expect From a Bankruptcy Attorney
Running to the end of your rope can be a terrible position to be in. But working with a bankruptcy attorney can mean a lot during this very difficult period of your life. They can help you handle the long road you have ahead of you.
Have more questions about the process? Check out our bankruptcy page for more.
When Is It Highly Justifiable to File for Bankruptcy
When you find yourself either partially or fully unable to pay your outstanding debts, then bankruptcy law allows you get a NYC bankruptcy lawyer and rid yourself of those debts and give yourself a fresh start. You can find all the statutes constituting federal bankruptcy law in the United States Bankruptcy Code. There are also state laws on bankruptcy that cover areas not covered by federal law. As a debtor, you can file your case in federal bankruptcy court.
The Different Types of Bankruptcy
There are six different types of bankruptcy in the U.S. Bankruptcy Code. They all provide you with permanent relief from specific debts, although they differ from each other in their form and also the procedures involved. Most of them can be categorized as chapter 7, chapter 11, or chapter 13 bankruptcies:
- Chapter 7: This type provides for certain assets like a car or home, also known as nonexempt assets. Chapter 7 bankruptcy makes it possible to liquidate them and distribute the proceeds to creditors.
- Chapter 9: This type provides for municipalities to be reorganized.
- Chapter 11: This type is mostly used by corporations and partnerships and provides for the reorganization of the business under supervision. The debtor is also allowed to keep their business as they implement a payment plan.
- Chapter 12: This type provides for anglers and family farmers.
- Chapter 13: This type provides for the bankruptcy of an individual with a regular income. The income can be used to formulate a 3–to-5-year payment plan.
- Chapter 15: This type provides for bankruptcies across borders. It implements the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.
Is It justifiable to File for Bankruptcy?
Bankruptcy comes with its downsides, such as the adverse effect it has on your credit. You should, therefore, only use it as a last resort. Some people resort to bankruptcy because they want to put an end to creditor harassment. However, most of this harassment is due to minor debts and creditors will never sue for those debts as the legal costs are too expensive. Also, you have the Fair Debt Collections Practices Act on your side if you want to put an end to the harassment. Some state laws enable you to get collection agencies and creditors to stop harassing you.
However, there are scenarios where it makes plenty of sense to file for bankruptcy. These include a creditor threatening to repossess property that you find important, multiple wage garnishments and the need to delay a foreclosure.
How to Stop Creditor Repossession
When you file for bankruptcy, you trigger an automatic injunction on such things as collection efforts, lawsuits, wage garnishment and foreclosures. If you want to stop the creditors from repossessing your car or home and believe that your income can pay off your debts and still allow you to keep your property, you should consult a lawyer about filing for Chapter 13 bankruptcy.
If you think you might have large expenses in the future, it might be a better idea to postpone filing for bankruptcy. You can’t file for bankruptcy as often as you like since the law limits this. A Chapter 7 bankruptcy will cancel the debt you have incurred by the time you file while Chapter 13 bankruptcy may not always consider expenses in the future. Because you can only discharge debts filed, it might be a good idea to wait for substantial expenses to fall due and then include them in your paperwork to get the largest possible discharge.
Bankruptcy law is complex in general, and it is always a good idea to get yourself a bankruptcy lawyer to help you deal with your specific circumstances.
Quick Guide to Navigating the Bankruptcy Code [2019]
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.
Bankruptcy 101: What Are the Pros and Cons of Filing Bankruptcy?
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.
Banks Can Freeze Your Accounts in 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.
