In the vast majority of bankruptcy cases, debtors are able to keep all of their real and personal property. It is the rare exception that property is taken.
Bankruptcy law allows debtors to use certain exemptions to protect property, both real and personal. Most debtors are able to keep the property they own because its value or available equity in the property falls within available exemption limits. The exemptions available to a debtor are determined by a number of factors including what state you live in, and how long you have resided there.
Debtor’s concerned about losing specific property in a Chapter 7 should consider Chapter 13, which allows individuals to keep property that would otherwise be sold for the benefit creditors in a chapter 7, provided a general rule is adhered to. As long as the debtor contributes to their unsecured creditors, a dollar amount equal to the “non exempt” value of the asset, the law says the debtor can keep the asset. For example, lets assume you have an asset that is worth $10k, and all the available exemptions have been maxed out, such that the $10k asset is non exempt. In a chapter 7 bankruptcy, this asset would be taken by the trustee, sold, and the money used to distribute to your creditors on a pro rata basis. Under chapter 13, however, as long as you pledge an equal $10k to your unsecured creditors over the course of your chapter 13, you can keep the asset. A knowledgeable bankruptcy attorney would be able to tell you what property, if any, is subject to liquidation for the benefit of creditors, before filing, so an informed decision can be made as to how best to proceed in your particular situation.
Yes, however it is imperative that you discuss the pro’s and con’s of these other options with a qualified consumer attorney before jumping into anything. While there are many ways to address unsecured debt absent a bankruptcy filing, the following 2 options are the most common:
Debt Consolidation: Debt consolidation is a process whereby creditor’s generally agree to reduce interest rates and accept a smaller monthly payment so that all creditors can be dealt with in a single payment. The benefit here is obviously a consolidated debt load and reduced interest. The downside is that in order for this to be an effective tool, all of your creditors must agree to participate or else you could be left having to deal with individual creditors outside the consolidation process. Many of these consolidation companies are extensions of the credit card companies designed to squeeze out of you your last few dollars. It is recommended that anyone seeking the services of a debt consolidator who is not an attorney, ensure that they are a non-profit organization.
Debt Settlement: Debt settlement is a process where each creditor is contacted individually in an attempt to settle the account for less that the full balance. In order to effectively participate in debt settlement, the consumer must have access to lump sums of cash. Whereas in debt consolidation creditors are paid with monthly payments, with debt settlement, the best settlement offers you will receive involve lump sum offers. While payment plans here maybe an option, they will uniformly require a higher overall percentage of the balance. It is also recommended that your accounts be delinquent before pursuing this option because if money is being paid to the creditor on a monthly basis, the less incentive they will have to settle. Debt settlement may be a better option than bankruptcy in the situation where an individual would lose significant property by filing bankruptcy or if there income is such that filing bankruptcy would force them to pay a higher dividend to creditors than the debt could be settled for. The benefit here is that you are reducing the principal balance of what you owe. The downside is your credit will reflect the account was settled for less than the full balance, which is a derogatory mark on your credit. Also, creditors will issue you a 1099-C at the end of the year for the forgiveness of debt if the amount forgiven is in excess of $600.00. The debt forgiveness is treated as taxable income requiring that taxes be paid on the forgiven amount. Depending on the amount of debt you reduce, the taxes could be significant. It is recommended that you consult with a professional to determine whether this is a good fit for your current financial situation.
One of the common myths about filing for bankruptcy is that it ruins your credit for many years. The answer is “it depends.” It depends on a number of factors including your current credit score, your debt load, and your previous credit history. As surprising as it sounds and contrary to mainstream beliefs on the subject, a bankruptcy can actually improve your credit. Let me say that again: A BANKRUPTCY CAN ACTUALLY IMPROVE YOUR CREDIT. Compare the following:
Debtor “A” is a cashier who makes $32k per year, and as a result of being out of work off and on for the last year, has accumulated $86k in unsecured credit card debt. He has not had the money to maintain his credit cards and consequently has many 30, 60, and 90 day delinquencies on his credit report. This persons credit is in the dumps.
In this scenario, a bankruptcy would likely improve this persons credit score. This is because it stops additional derogatory marks from hitting your existing credit accounts and ultimately eliminates the unsecured debt load. About a third of your credit score is based on your “debt to income” ratio and the bankruptcy discharge helps to balance that ratio which improves the score.
Debtor “B” is a mechanic who makes $53k per year and has accumulated $40k in credit card debt over the last several years. He has always been able to make the minimum monthly payments on his accounts, however the balances never seem to decrease due to the high interest charged. This debtor has no 30, 60, or 90 day lates on his credit report. His credit score is good.
In this scenario, the debtor has a much lower “debt to income” ratio and has been paying his bills on time to maintain his good credit score. A bankruptcy filing here would have the opposite effect on the debtor’s credit compared to the Debtor “A” case. As funny as it sounds, the better your credit is at the time of the bankruptcy filing, the more it will be effected negatively as a result post discharge. The worse off your credit is at the time of filing, the more likely it will improve as a result of the discharge.
So what’s the deal with getting credit after a bankruptcy is filed? Surprisingly, there are options available. Once your case is discharged, you will likely begin to receive new offers of credit. The reason is twofold. First, the credit card company knows you have already filed for bankruptcy so that if you default in the future, you will be unable to claim bankruptcy protection for a number of years. Second, you are more likely to repay your bills moving forward because of your desire to make the best of the fresh start the bankruptcy has provided. You are a better credit risk at that point.
For the small group of individuals who still have trouble obtaining credit after bankruptcy, a secured credit card is always an option. With a secured credit card, you give a bank between $200-$500 and they will give you a secured credit card for $500-$1,000. This is a good way to begin to re-establish your credit. My advice to all debtor’s seeking to re-establish their credit after a bankruptcy, is to get ONE credit card and use it only for two things; Food and Gas. These are two expenses you are going to have no matter what. You have to eat, and you need to put gas in your vehicle. Charging these two expenses and paying them off each month in full is a great way to quickly begin to put you on the road to financial recovery. Also, www.lifeafterbankruptcy.com is a website that has some helpful information for debtor’s seeking to re-establish their credit post bankruptcy.
Once a creditor has obtained a judgment against you, chances are they will likely attempt to enforce it. There are many collection tools available in this regard depending on whether collection is sought against a business or individual.
The following are the most common ways a judgment creditor will seek to satisfy a judgment:
1) Wage Garnishment: If you are employed as a W-2 employee, a judgment creditor can attempt to garnish your wages to pay off the judgment amount. Under a wage garnishment, your employer is served an order to withhold your pay. The creditor is generally limited to 25% of gross wages per pay period. Wage garnishments are not very effective on self-employed individuals since it is difficult to force someone to withhold and turnover their own wages.
2) Bank Account Levy: If a creditor has obtained a judgment against you and knows where you bank, a bank levy can be an effective tool. Unlike a wage garnishment where your employer is served and you are provided notice, with a bank levy, you aren’t notified until after the levy has already taken place. The reason is obvious. Many judgment debtors would remove the money from the account if they were notified beforehand. Additionally, wage garnishments are ongoing orders to withhold wages, whereas a levy order is a “one time shot” taking whatever is in the account at the time of the levy. Each subsequent levy requires a separate order.
3) Liens: The purpose of a lien is to secure payment by attaching or linking it to property. It is the best chance of guaranteeing payment on a judgment at some point in time. The most common example is a lien placed against real estate. The lien attaches to the real estate and collects interest at 10% per year. Once the property is sold, foreclosed or refinanced, the liens are paid off in the order they were placed against the property.
If you are facing any of the above, bankruptcy can help by stopping the garnishments, reversing recent levy’s, and removing existing judgment liens against your property.
This is a question I hear quite often as people contemplate filing for bankruptcy. The answer is no. The decision to file for bankruptcy relief is relative to the debtor’s financial situation. For example, it is not uncommon for someone who is living on social security or other fixed income to file for bankruptcy only owing a few thousand dollars in credit card debt.
The problem here is ridiculous interest rates coupled with people who, because of their limited incomes, are unable to make anything more than the minimum monthly payment on these debts. It creates a vicious, never-ending cycle which a bankruptcy snaps. This again comes back to the importance of seeking out and hiring an attorney who is able to competently analyze your options and help you determine the best course of action to take.
For more information please visit The Larkin Law Firm at http://www.live-debt-free-now.com
It is the exception rather than the rule that a person financing a vehicle owes less than or equal to the cars value. Unless you put at least 20% down, chances are you are upside down. Bankruptcy not only can eliminate unsecured debts like credit cards, it can also drastically reduce what you owe on your vehicle.
In a chapter 7 bankruptcy, debtors can take advantage of section 722 of the Bankruptcy Code, also known as redemption. Under section 722, a debtor may redeem personal property intended primarily for personal, family, or household use provided they pay in full to their original lender, a value equal to the price a retail merchant would charge for property in like condition. The upside of redemption is that it essentially converts secured debt to unsecured debt to the extent the value exceeds what you owe. The downside is that you have to come up with a lump sum to pay the original lender. The lump sum required will be defined as the price a retail merchant would charge for a car of that kind, considering age and condition of the property, at the time you redeem it. Often this is defined by the cars blue book listing. There are a few lenders out there who will finance people going through bankruptcy for this purpose.
Chapter 13 involves a monthly payment plan and also offers benefits for those who find themselves upside down on their vehicles. Generally speaking, if your car was purchased for you and your family’s use more than 910 days before the bankruptcy is filed, you repay only what the car is worth and not what you owe. This is called “cramdown.” The upside here is that your loan is recast up to a 5 year period reducing your monthly payment. The downside is you need to have bought your vehicle more than 910 days, or 2.5 years before the filing, unless the vehicle is primarily for business use. If that is the case then that 910 day rule does not apply. Check with a knowledgeable attorney to determine the best strategy for you.
For more information regarding redemption, keeping your personal property, or for other bankruptcy law questions, contact The Larkin Law Firm at http://www.live-debt-free-now.com
Despite what most people think, there is life after bankruptcy. GM just put out a good commercial in this regard, and its platform can be applied to individuals and businesses alike. As is the case with GM, sometimes it’s best to regroup before moving forward. Click here to see the commercial: http://www.youtube.com/watch?v=a-oEudd6AYM For more information go to http://www.live-debt-free-now.com
When a debtor receives a “Notice of Abandonment” from the bankruptcy trustee, they should not be alarmed. The title of the document oftentimes scares debtors into thinking they are going to lose the property listed in the notice, which is not the case. Basically, a notice of abandonment is the bankruptcy trustee’s way of saying that for one reason or another, the listed property cannot be liquidated for the benefit of your creditors. When a bankruptcy case is filed, real and personal property become part of a “bankruptcy estate” which the trustee is in control of. Once the trustee reviews the case and determines he cannot make any money for creditors by liquidating specific assets, they will file an abandonment notice on these items.
The most common reason the trustee abandons an asset is because it is burdensome to the estate. For example, if you have a car worth $10k but owe $15k on it, the trustee will abandon the car because if he were to sell it he would have to first pay off $15k to the vehicle lender. If the car is only worth $10k, there would be no money left over to pay any other creditors. The same is true for real estate. If you owe more than your home is worth, or if the costs of selling the home (ie. Realtor fees etc.) eat up any money available for creditors, then the trustee will abandon the asset back to you.
Upon abandonment, the property is your to do with what you choose and is no longer part of the bankruptcy process.
For more information go to http://www.live-debt-free-now.com
