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Your Legal Rights During and After Bankruptcy

Making the Most of Your Bankruptcy Discharge

About Bankruptcy

Bankruptcy is a choice that may help if you are facing serious financial problems. You may be able to cancel your debts, stop collection calls, and get a fresh financial start. Bankruptcy can help with some financial problems, but does not guarantee you will avoid financial problems in the future. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won’t ever need to file bankruptcy again!

How Long Will Bankruptcy Stay on My Credit Report?

The results of your bankruptcy case will be part of your credit record for ten (10) years. The ten years are counted from the date you filed your bankruptcy.

This does not mean you can’t get a house, a car, a loan, or a credit card for ten years. In fact, you can probably get credit even before your bankruptcy is over! The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems?

Debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with the credit reporting agency if this information is not correct.

Which Debts Do I Still Owe After Bankruptcy?

When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them.

However, certain types of debts are NOT discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:

* Alimony, maintenance, or support for a spouse or children.

* Student loans. Most student loans are not canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.”   Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled. There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them. For more information, look at the NCLC Guide to Surviving Debt or go to the Student Loan Borrower Assistance Project website at

* Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt.  You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees.

* Most taxes. The vast majority of tax debts cannot be discharged. However, some older tax debts can be discharged. This can be a complicated issue, so if you have tax debts, you will need to discuss them with your lawyer.

* Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.

* Drunk driving injury claims.

Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?

Yes and No. The term “secured debt” applies when you give the lender a mortgage, deed of trust, or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.

Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.

But, and this is a big “but,” the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on your home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.

For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.

What Is Reaffirmation?

Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt. If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.

Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.

Do I Have to Reaffirm Any Debts?

No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, remember you can always say no.

Can I Change My Mind After I Reaffirm a Debt?

Yes. You can cancel any reaffirmation agreement for sixty days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.

Also, remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.

Do I Have to Reaffirm on the Same Terms?

No. A reaffirmation is a new contract between you and the lender. You should try to get the creditor to agree to better terms such as a lower monthly payment or interest rate. You can also try to negotiate a reduction in the amount you owe. The lender may refuse but it is always worth a try. The lender must give you disclosures on the reaffirmation agreement about the original credit terms, and any new terms you and the lender agree on must also be listed.

Should I Reaffirm?

If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t. The reaffirmation agreement must include information about your income and expenses and your signed statement that you can afford the payments.

If you have any doubts whether you can afford the payments, do not reaffirm. Caution is always a good idea when you are giving up your right to have a debt canceled.

Before reaffirming, always consider your other options. For example, instead of reaffirming a car loan you can’t afford, can you get by with a less costly used car for a while?

Do I Have Other Options for Secured Debts?

You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan. This is your right under the bankruptcy law to “redeem” the collateral.

Redeeming collateral can save you hundreds of dollars. Because furniture, appliances, and other household goods go down in value quickly once they are used, you may redeem them for less than their original cost or what you owe on the account.

You may have another option if the creditor did not loan you the money to buy the collateral, such as when a creditor takes a lien on household goods you already have. You may be able to ask the court to “avoid” this kind of lien. This will make the debt unsecured.

Do I Have to Reaffirm Car Loans, Home Mortgages?

If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm. But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake. The collateral is likely to be repossessed or foreclosed anyway after bankruptcy, because your obligation to make payments continues. If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.

If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments. Sometimes lenders will do so if they think the bankruptcy court will not approve the reaffirmation agreement.


And What About Credit Cards and Department Store Cards?


It is almost never a good idea to reaffirm a credit card. Reaffirming means you will pay bills that your bankruptcy would normally wipe out. That can be a very high price to pay for the convenience of a credit card. Try paying cash. Then in a few years, you can probably get a new credit card, that won’t come with a large unpaid balance!


If you do reaffirm, try to get something in return, like a lower balance, no interest on the balance, or a reasonable interest rate on any new credit. Don’t be stuck paying 18–21% or higher!


Some store credit cards may be secured. The things you buy with the credit card may be collateral. The store might tell you that they will repossess what you bought, such as a TV, washer, or sofa, if you do not reaffirm the debt. Most of the time, stores will not repossess used merchandise. So, after a bankruptcy, it is much less likely that a department store would repossess “collateral” than a car lender.


However, repossession is possible. You have to decide how important the item is to you or your family. If you can replace it cheaply or live without it, then you should not reaffirm. You can still shop at the store by paying cash, and the store may offer you a new credit card even if you don’t reaffirm. (Just make sure that your old balance is not added into the new account.)


For Example


Some offers to reaffirm may seem attractive at first. Let’s say a store lets you keep your credit card if you reaffirm $1000 out of the $2000 you owed before bankruptcy. They say it will cost you only $25 per month and they will also give you a $500 line of credit for new purchases. What they might not tell you is that they will give you a new credit card in a few months even if you do not reaffirm. More importantly, though, you should understand that you are agreeing to repay $1000 plus interest that the law says you can have legally canceled. That is a big price to pay for $500 in new credit.



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Using Credit Wisely After Bankruptcy

Beware of Credit Offers Aimed at Recent Bankruptcy Filers

“Disguised” Reaffirmation Agreement

Carefully read any credit card or other credit offer from a company that claims to represent a lender you listed in your bankruptcy or own a debt you discharged. This may be from a debt collection company that is trying to trick you into reaffirming a debt. The fine print of the credit offer or agreement will likely say that you will get new credit, but only if some or all of the balance from the discharged debt is added to the new account.

“Secured” Credit Card

Another type of credit marketed to recent bankruptcy filers as a good way to reestablish credit involves “secured” credit cards. These are cards where the balances are secured by a bank deposit. The card allows you a credit limit up to the amount you have on deposit in a particular bank account. If you can’t make the payments, you lose the money in the account. They may be useful to establish that you can make regular monthly payments on a credit card after you have had trouble in the past. But since almost everyone now gets unsecured credit card offers even after previous financial problems, there is less reason to consider allowing a creditor to use your bank deposits as collateral. It is preferable not to tie up your bank account.

Credit Repair Companies

Beware of companies that claim: “We can erase bad credit.” These companies rarely offer valuable services for what they charge, and are often an outright scam. The truth is that no one can erase bad credit information from your report if it is accurate. And if there is old or inaccurate information on your credit report, you can correct it yourself for free.

Avoid High Cost Predatory Lenders

Don’t assume that because you filed bankruptcy you will have to get credit on the worst terms. If you can’t get credit on decent terms right after bankruptcy, it may be better to wait. Most lenders will not hold the bankruptcy against you if after a few years you can show that you have avoided problems and can manage your debts.

Be wary of auto dealers, mortgage brokers and lenders who advertise: “Bankruptcy? Bad Credit? No Credit? No Problem!” They may give you a loan after bankruptcy, but at a very high cost. The extra costs and fees on these loans can make it impossible for you to keep up the loan payments. Getting this kind of loan can ruin your chances to rebuild your credit.

Mortgage Loans

If you own your home, some home improvement contractors, loan brokers and mortgage lenders may offer to give you a home equity loan despite your credit history. These loans can be very costly and can lead to serious financial problems and even the loss of your home. Avoid mortgage lenders that

* Charge excessive interest rates, “points,” brokers’ fees and other closing costs;

* Require that you refinance your current lower interest mortgage or pay off other debts;

* Add on unnecessary and costly products, like credit insurance;

* Make false claims of low monthly payments based on a “teaser” variable interest rate;

* Include a “balloon” payment term that requires you to pay all or most of the loan amount in a lump sum as the last payment;

* Charge a prepayment penalty if you pay off the loan early;

* Change the terms at closing;

* Make false promises that the rate will be reduced later if you make timely payments;

* Pressure you to keep refinancing the loan for no good reason once you get it.

Small Loans

It is always best to save some money to cover unexpected expenses so you can avoid borrowing. But if you are in need of a small loan, avoid the following high cost loans:

Payday loans

Some “check cashers” and finance companies offer to take a personal check from you and hold it without cashing it for one or two weeks. In return, they will give you an amount of cash that is less than the amount of your check. The difference between the amount of your check and the cash you get back in return is interest that the lender is charging you. These payday loans are very costly. For example, if you write a $256 check and the lender gives you $200 back as a loan for two weeks, the $56 you pay equals a 728-percent interest rate! And if you don’t have the money to cover the check, the lender will either sue you or try to get you to write another check in a larger amount. If you choose to write another check, the lender gets more money from you and you get further into debt.

Auto title loans

For many years, pawn shops have made small high-interest loans in exchange for property. A new type of “pawn” is being made by title lenders who will give you a small loan at very high-interest rates (from 200 percent to 800 percent) if you let them hold your car title as collateral for the loan. If you fall behind on the payments, the lender can repossess your car and sell it.


By renting a TV, furniture or appliance from a rent-to-own company, you will often pay three or four times more than what it would cost to buy. The company may make even more profit on you because the item you are buying may be previously used and returned. And if you miss a payment, the company may repossess the item leaving with you no credit for the payments you made.

Tax refund anticipation loans

Some tax return preparers offer to provide an “instant” tax refund by arranging for loans based on the expected refund. The loan is for a very short period of time between when the return is filed and when you would expect to get your refund. Like other short-term loans, the fees may seem small but amount to an annual interest rate of 200 percent or more. It is best to patient and wait for the refund.

What You Can Do to Avoid Problems

* If you don’t want it, don’t get it. If you have doubts about whether you really need the loan or service, or whether you can afford it, don’t let yourself get talked into it by a salesperson using high-pressure tactics. You can always walk away from a bad deal, even at the last minute.

* Shop around. You may qualify for a loan with normal rates from a reputable bank or credit union. Don’t forget that high-cost lenders are counting on your belief that you cannot get credit on better terms elsewhere. Do not let feelings of embarrassment about your past problems stop you from shopping around for the best credit terms.

* Compare credit terms. Do not consider just the monthly payment. Compare the interest rate by looking at the “annual percentage rate,” as this takes into account other fees and finance charges added on the loan. Make sure you know exactly what fees are being charged for credit and why.

* Read before you sign. If you have questions, get help from a qualified professional to review the paperwork. A lender that will not let you get outside help should not be trusted.

* If you give a lender a mortgage in a refinancing deal, remember your cancellation rights. In home mortgage refinancings, federal law gives you a right to cancel for three days after you sign the papers. Exercise these rights if you feel you signed loan papers and got a bad deal. Don’t let the lender talk you out of cancelling.

* Get help early. If you begin to have financial problems, or you are thinking of consolidating unmanageable debts, get help first from a local non-profit housing or debt counseling agency.

Ten Things to Think About Before Getting a New Credit Card

1. Don’t apply for a credit card until you are ready.

Unfortunately, bankruptcy may not have permanently resolved all of your financial problems. It is a bad idea to apply for new credit before you can afford it.

2. Avoid accepting too many offers.

There is rarely a good reason to have more than one or two credit cards. Having too much credit can lead to bad decisions and unmanageable debts, and it will lower your credit rating. This can make it harder for you to get other lower interest rate loans. Avoid accepting a credit card just to get a discount at a store or a “free” gift.

3. Remember that lenders are looking for people who run up big balances, because those consumers pay the most interest.

You may find that credit card companies are pursuing you aggressively by mail and phone even though you filed bankruptcy. Do not view this as a sign that you can afford more credit. The lender may have a marketing profile telling them you are someone who is likely to carry a big credit card balance and pay a good deal of interest. Or they may see you as a good credit risk because you cannot file a Chapter 7 bankruptcy again for quite a few years.

4. Interest rate is important in choosing a card but not the only consideration.

You should always try to get a card with an interest rate as low as possible. But it is rarely a good idea to take a new card just because of a low rate. The rate only matters if you carry a balance from month to month. Also, the rate can easily change, with or without a reason. Remember that even the best credit cards are expensive unless you pay your balance in full every month. And other credit terms can add to your cost, like annual fees, late charges, account set-up fees, cash advance fees, and the method of calculating balances. Sometimes a credit card that appears cheaper is actually more expensive.

5. Beware of temporary “teaser” rates. A teaser rate is an artificially low initial rate that applies only for a limited time.

Teaser rates are good for a minimum of six months. After that, the rate automatically goes up. Remember that, if you build up a balance under the teaser rate, the much higher permanent rate will apply when you repay the bill. This means that the permanent long-term rate on the card is much more important than the temporary rate.

6. If your rate is variable, understand how it may change.

Variable interest rates can be very confusing. Some variable rate terms can make your rate go up steeply over time. Read the credit contract to understand how and when your rate may change.

7. Check terms related to late payment charges and penalty rates of interest.

Most credit card contracts have terms in the small print and you will be charged late fees and even penalty interest rates if you make a single late payment. If you are 60 days late, the interest rate on your existing balance may even go up. Try to avoid cards with late fees as high as $25–$35 or penalty interest rates of 21–24 percent or higher. Even if you are not having financial problems, these terms may become important, because they apply equally to accidental late payments.

8. Get a card with a grace period and learn the billing method.

It is important to understand how you will be billed. Look for a card with a grace period that lets you pay off the balance each month without interest. If the card does not have a grace period and interest will apply from the date of your purchase, a low interest rate may actually be higher than it looks. The terms of the grace period are also important, as it may not apply to balance transfers and cash advances. And look out for different interest rates that may apply depending upon the type of charge: these usually include a higher rate for cash advances.

9. Don’t accept a card just because you qualify for a high credit limit.

It is easy to assume that because a card offer includes a high credit limit, this means the lender thinks you can afford more credit. In fact, the opposite may be true. Lenders often give high credit limits to consumers hoping that they think will carry a bigger balance and pay more interest. You must evaluate whether you can afford more credit based on your individual circumstances.

10. Always read both the disclosures and the credit contract.

You will find disclosures about the terms of a credit card offer, usually in a box on the reverse side of the offer. Review these carefully. However, the law does not require that all relevant information be disclosed in the box. For this reason, you must also read your credit contract, which comes with the card. This will include terms such as any security interest and a description of the billing method. Since these terms are not easy to understand, you may want to call the lender for an explanation. Or better yet, refuse credit with too many complex provisions, because those terms are likely to work to your disadvantage.

Ten Things to Think About Before Using Your Credit Card

1. Establish a realistic budget.

Before using a credit card after bankruptcy, try paying cash for a while. This will help you learn how much money you need each month to pay the basic necessities. Don’t forget to budget for the payments on any debts you reaffirmed in your bankruptcy.

2. It is important not to use credit cards to make up for a budget shortfall.

Credit card debt is expensive. Sometimes credit cards are so easy to use that people forget they are loans. Be sure to charge only things you really need and plan to pay the balance off in full each month. If you find you are constantly using your card without being able to pay the bill in full each month, you need to consider that you are using cards to finance an unaffordable lifestyle.

3. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.

If you find that you are using credit cards to get through a period of financial difficulty, it is likely that additional credit will only make things worse. For example, if you use cash advances on your credit card to pay bills, the interest due will only add to your debt burden sooner rather than later.

4. Don’t get hooked on minimum payments.

Credit card lenders usually offer an optional “minimum payment” in their monthly billing. These are usually set very low (usually 1 percent of the balance plus interest and fees), barely covering the monthly interest charge. If you pay only the minimum, chances are that you will be paying your debt very slowly, and you may think you are managing the debt when you are really getting in over your head. For example, if you make only the monthly minimum payments to pay off a $1000 balance at a 17 percent interest rate, it will take over 9 years to pay your debt! If you are also making new purchases every month while making minimum payments, your debt will grow and take even longer to pay off. This means that your monthly interest obligations will increase and you will have less money in the monthly budget for necessities.

5. Don’t run up the balance based on a temporary “teaser” interest rate.

Money borrowed during a temporary rate period of 6 percent is likely to be paid back at a much higher permanent rate of 15 percent or more. Also be careful about juggling cards to take advantage of teaser rates and balance transfer options. It takes a great deal of time and effort to take advantage of terms designed to be temporary. Remember that all teaser rate offers are designed to get you locked into the higher rate for the long term, because that is how the lender makes the most money.

6. Avoid the special services and programs credit card lenders offer to bill to your card.

You are likely to get many mail offers and telemarketer calls from your credit card lender about special services such as credit card fraud protection plans, credit report protection, travel clubs, life and unemployment insurance, and other similar offers. These products are generally overpriced. It is best to throw out and refuse these offers, or at a minimum, treat them with a high degree of caution. And avoid “free trial” offers as you will be billed automatically if you forget to cancel the service.

7. If you can afford to do so, always make your credit card payments on time.

Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher priority debts. Bad problems get worse fast when you have a new higher interest rate and late charge to pay during a time of financial difficulty. Most lenders will waive a late charge or penalty interest rate one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse.

8. Know exactly when the grace period ends.

The grace period usually ends on the payment “due date,” which may change every month. Many lenders do not mail bills until late in the grace period, so your payment may be due quite soon after you receive the bill. This also means that the grace period may be less than a full month, usually about 21–25 days. Try to mail your payment well before the due date so there will be no question it gets there on time. Paying credit cards on time not only saves you interest and late fees but is a good way to improve your credit rating after bankruptcy.

9. Beware of unsolicited increases by a credit card lender to your credit card limit.

Some lenders increase your credit limit even when you have not asked for more credit. Avoid using the full credit line as your debt can easily spiral out of control. If the credit card company asks you whether you want the right to go over the limit, it is dangerous to say yes, because this gives it the right to charge you high over-the-limit fees.

10. If you do take a credit card and discover terms you do not like: cancel!

You can always cancel any credit card at any time. Although you will be responsible for any balance due at the time of cancellation, you should not keep using a card after you discover that its terms are unfavorable.

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The Power Of Automatic Stay In Bankruptcy

Are you aware of its benefits and drawbacks? 

Automatic stay is considered to be one of the essential benefits of filing bankruptcy. This automatic stay is granted by the bankruptcy court and it protects the filers from further creditor harassment. The filers who are constantly harassed by the creditors to retrieve the owed amount can reap the benefit from the automatic stay.

The stay protects the filers by stopping any legal proceedings that are filed against them by the collection agencies to retrieve the owed amount. Therefore, automatic stay stops lawsuit against you and most of the action against your property by the creditors or collection agencies. So, automatic stay is one of the reasons to file bankruptcy if the debtors are evicted, being foreclosed on the property and so on.

What is the power of automatic stay in bankruptcy?

Under section 362(a) of the bankruptcy code, the automatic stay states that the honest debtors planning to start afresh may find a solution to their problems with automatic stay. If the debtor files bankruptcy and the court grants automatic stay, then it may free the individual from any collection activities. But people who owe the debt once the bankruptcy process is completed, like the student loan or tax debt, these debts can’t be collected as long as automatic stay is in place.

As a matter of fact, filers are required to know that the automatic stay isn’t permanent and it doesn’t claim that bankruptcy proceeding will be successful. The main purpose behind placing automatic stay is to provide breathing room while an individual goes for Chapter 7 liquidation or Chapter 13 repayment plan.

What are the specific use of automatic stay?

Here are some points that the automatic stay prevents:

1. Prevents Foreclosure: If the creditors plan to foreclose on your property, then the automatic stay may stop the proceedings. However, the creditor can start with foreclosure proceedings in course of time after the completion of the bankruptcy process if the debt is not paid off. In case, you’re facing foreclosure, filing under chapter 13 bankruptcy is a better option than Chapter 7 bankruptcy, if you want to keep your home.

2. Collection of overpayments of public benefits: If you receive overpayment of public benefits, then the agency is entitled to collect the overpayment out of the future checks. But the automatic stay placed due to bankruptcy prevents the collection.

3. Stops wage garnishment: Filing bankruptcy stops more than one wage garnishment. In the course of time, you can manage to discharge your debts as well as prevent collection activities.

What automatic stay can’t prevent?

Here are some of the points that automatic stay can’t prevent:

1. Tax proceedings by IRS: The automatic stay can’t stop the IRS from issuing a tax lien or seizing your property.

2. Can’t prevent support actions: You can prevent child support collection or alimony by filing bankruptcy.

3. Can’t prevent repayment of loan from a pension: Automatic stay does not prevent repayment of a loan from certain types of pensions.

Therefore, you’re considered the benefits as well as drawbacks of automatic before filing bankruptcy. The benefits of the automatic stay may overshadow its drawbacks when you file for bankruptcy.

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Stuff you need to consider before filing Chapter 7 bankruptcy

Filing bankruptcy is not at all an easy task. There is so much more to be considered that, it becomes hard for you to file one, without having the details on the same. Furthermore, you will have to consider the process which you may have to follow, in order to file bankruptcy. Now, if you are planning to file bankruptcy under Chapter 7, you will have to know all of the details in relation to it. You may also be required to take the help of a Chapter 7 bankruptcy attorney.

Things to know about Chapter 7 bankruptcy

There are various important things which you will have to know, in order to make sure that you aren’t making a mistake in filing Chapter 7 bankruptcy. In case of Chapter 7, you lose almost all of your assets in the process of getting a discharge, from all of your debts. Therefore, you will have to:

1.      Get the details of Chapter 7 bankruptcy – You need to get all kinds of details on Chapter 7 bankruptcy. Chapter 7 bankruptcy is known as the liquidation process, where the bankruptcy trustee liquidates all of your assets. This is done in order to pay your creditors and lenders, for you do not have the money to pay them.

2.      Opt for credit counseling – If you are going to file bankruptcy, it is important for you to obtain a credit counseling session. In case of Chapter 7 bankruptcy, it is a must. So, it would be better for you to get a credit counseling done, before filing Chapter 7.

3.      Determine if you are eligible for Chapter 7 – You will have to determine if you are at all eligible to file for Chapter 7 bankruptcy. Not all are eligible to file under Chapter 7. You will be required to apply for Means Test. If your income is more than that of the average income of the state you are in, you may not be allowed to file under this Chapter. Your income will have to be lower than the average income of the state you are in.

4.      Can you part with the assets – You will have to determine, if you are ready to part with your assets and belongings. As Chapter 7 is a liquidation process, you will have no option to save the assets. The bankruptcy trustee will take away your assets, sell those off to use the cash for making the payments to your creditors. In fact, all of your assets may be liquidated. Still, it depends on the debt amount you owe, to your creditors.

5.      Can you afford the cost of bankruptcy – You will have to find out if you can at all afford to make payments, against the cost of bankruptcy. Filing bankruptcy can cost you quite an amount, and it may not be possible for one and all to afford the same. A person already in financial hardship, may not have the money to file bankruptcy. So, the cost of bankruptcy is quite an important issue.

6.      Bankruptcy’s effect on credit – You need to consider the effect of bankruptcy on your credit. It has a hugely negative effect on your credit score. It can lower your credit score in the range of 200-350 points. So, getting back in the right form is going to take time. It won’t be possible for you to obtain any form of new credit, immediately after bankruptcy. It may take you more than 2 to 3 years to get back on track.

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NYC Bankruptcy Baron Strikes Again

Another week, another bankruptcy filing for pizza-parlor owner and real estate investor James McGown, who is quickly becoming a bankruptcy baron. On Tuesday, Mr. McGown submitted a Chapter 11 bankruptcy petition for his eight-year-old real estate firm Gowanus Inn Inc., citing assets between $1 million to $10 million and liabilities of the same amount.

Neither Mr. McGown nor his lawyer, David Leventhal, returned calls requesting comment.

The filing follows last week’s Chapter 11 petition for P.J. Hanley, a Brooklyn-based bar also owned by Mr. McGown. In fact, Mr. McGown currently has three bankruptcy cases pending in federal bankruptcy court for the New York Southern District. Last year, he also filed petitions for South Brooklyn Pizza, a five-unit chain, and East River Mortgage Corp.

According to an affidavit submitted Tuesday, Gowanus Inn was formed in 2005 in order to own and operate a bar and restaurant in the Gowanus section of Brooklyn at 555 Union St. However, that project was quickly abandoned as needed repairs to the building were deemed too expensive to undertake. (Gowanus Inn is unaffiliated with Gowanus Inn & Yard, which is scheduled to open in 2015.)

Last year, Mr. McGown resurrected the Gowanus Inc. name as a real estate entity focused on the purchase of foreclosed properties. He bought a Glen Cove, Long Island residential condominium at 22 Pembroke Dr. for $20,000, but quickly had issues with the community association—Legend Yacht and Beach Club Homeowners Association Inc. He is now suing the association.

Gowanus Inc. also bought a residential condo at 542 Laguardia Pl. in Manhattan in a “cash for keys” deal, which resulted in legal complications, according to the affidavit.

According to his affidavit, Mr. McGown claims the two condominium boards are denying him rights to his property. “The debtor believes that many of the liens on the properties can be handled in the state court action and expects to quickly get this bankruptcy dismissed.”

Mr. McGown also owns Brooklyn Buschenschank, a Carroll Gardens, Brooklyn-based pub that opened two years ago. He made headlines in 2010 as the owner of a notorious sex cave in TriBeCa.

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Types of Bankruptcy

In our society today, revisions to the bankruptcy laws and changes in consumer attitude toward bankruptcy have fostered a climate in which individuals and businesses many times regard bankruptcy as a more plausible remedy for financial problems than disciplined financial management.

A revised Bankruptcy Code, enacted in 1978, took effect on October 1, 1979. The Code consolidated some chapters of previous laws pertaining to business reorganizations and sought to streamline the administration of the bankruptcy courts, but its most sweeping changes involved personal bankruptcy. This revision made bankruptcy a more attractive option for both personal and business debtors, primarily because it increased the amount of assets that could be exempt from liquidation.

The revised Bankruptcy Code generally accommodated and regulated three primary kinds of bankruptcy: corporate, personal, and farm reorganization.

Corporate bankruptcy
Corporate bankruptcy laws are extremely complicated. For this reason advice should be sought from a qualified attorney. Generally corporate bankruptcy fits within three chapters of the Bankruptcy Code:Chapter 7, Chapter 11, and Involuntary Bankruptcy.

Chapter 7—If the bankruptcy judge does not believe a company can realistically become viable, he or she can choose to dissolve the corporation or business under Chapter 7 of the Bankruptcy Code. In so doing the business is inventoried and, under the supervision of a bankruptcy trustee appointed by the court, the business is dissolved and the assets sold to satisfy the creditors. In most instances the creditors will receive only a percentage of the original outstanding debt.

Chapter 11—This Bankruptcy Code section details how a corporation or business can file for federal bankruptcy protection and reorganization under its existing management, while it continues to operate as it works out a plan to repay its creditors. Normally a business has three to five years to repay its creditors a minimum of what the creditor would have received if the business liquidated under Chapter 7.

Involuntary Bankruptcy—The Bankruptcy Code permits creditors to file a bankruptcy petition and force a debtor business to answer in bankruptcy court. This procedure allows creditors to force a debtor who has assets but refuses to pay the creditors into court. Although involuntary bankruptcy can be forced on an individual or a business, it is more common with business bankruptcy.

Personal bankruptcy
As with corporate bankruptcy, individual bankruptcy should be filed under the advice and the direction of a qualified attorney. Individual bankruptcy generally is covered in three chapters of the Bankruptcy Code: Chapter 7, Chapter 11, and Chapter 13.

Chapter 7—The purpose of a Chapter 7 bankruptcy is to allow a person to obtain a fresh start, free from creditors and free from the pressures of overwhelming debt. Basically Chapter 7 is a plan for personal financial dissolution. As with a business Chapter 7 bankruptcy, a court-appointed trustee takes possession of all nonexempt property and assets, converts them to cash, and distributes the funds to creditors. Exempt items include specified items, a certain amount of money dictated by the trustee, and some personal effects. Most debtors are able to keep property they need to get on with their lives. After filing for relief under Chapter 7, an individual debtor might, as dictated by the trustee, receive a discharge.

A discharge permanently prohibits creditors from attempting to collect those secured and unsecured debts listed in the bankruptcy filing. These could include past due mortgage or rent payments and penalties, credit card debt, medical bills, or consumer loans. However, some debts are non-dischargeable. These could include some federal and state taxes, school loans, alimony and child support, criminal restitution, or debts for death or personal injury caused by driving while intoxicated from alcohol or drugs. If individuals receive a discharge under Chapter 7, they cannot receive another discharge under Chapter 7 for the next six years.

Chapter 11—Although individual debtors can choose to file a Chapter 11, this type of bankruptcy is extremely complicated, plus there may be advantages to filing under a different chapter. A qualified attorney should be able to advise whether Chapter 11 is judicious.

Chapter 13—Chapter 13 of the Bankruptcy Code is intended to allow individuals to reorganize and operate under court protection from their creditors. Individuals are eligible for Chapter 13 if their debts do not exceed certain dollar limits set forth in the Bankruptcy Code and if they have a steady income.

Under a Chapter 13 bankruptcy filing, a debtor must promptly file a repayment plan and get the court’s approval of the plan. Any creditor may object to the plan. The debtor, along with the court-appointed trustee, must work out any objections to the plan before the court will approve it. The typical repayment term of a Chapter 13 plan is three to five years. The debtor makes regular payments to the trustee, and the trustee then distributes these monies to creditors according to the terms of the plan.

After completion of the plan, the debts listed in the bankruptcy are discharged except for some taxes; alimony and child support payments; student loans; certain debts, including criminal fines and restitution and debts for death or personal injury caused by driving while intoxicated from alcohol or drugs; and certain long-term secured obligations.

Farm reorganization
Chapter 12—The Chapter 12 bankruptcy law was created to help family farmers who need to reorganize their debts, while keeping and working their land. This type of bankruptcy is meant to assist farmers who have the potential to reorganize and to allow them relief from heavy debt burden and at the same time allow farmers to pay their creditors what is deemed reasonable.

The rules for Chapter 12 bankruptcy are modeled closely after those of Chapter 13 bankruptcy. A Chapter 12 case may be filed only by certain family farmers and businesses. A trustee is appointed, but the farmer usually remains in possession of the farm while formulating a plan. A farmer may choose to convert a Chapter 12 case to a Chapter 7.

God’s Word clearly says that believers should be responsible for their promises and repay what they owe. “When you make a vow to God, do not be late in paying it, for He takes no delight in fools. Pay what you vow! It is better that you should not vow than that you should vow and not pay” (Ecclesiastes 5:4-5). But in the meantime individuals or businesses may be faced with no alternative other than to seek court protection from creditors. However, court protection is the last alternative. A Christian must be willing to accept the absolute requirement to repay every debt. Even after discharge, if the creditor allows the debt to be paid, the debtor needs to arrange to pay off the debt, even if it takes an entire lifetime to satisfy the debt.

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This Won’t Stop A Collector During Bankruptcy

MINNEAPOLIS — The banks need another bailout and countless homeowners cannot handle their mortgage payments, but one group is paying its bills: the dead.

Dozens of specially trained agents work on the third floor of DCM Services here, calling up the dear departed’s next of kin and kindly asking if they want to settle the balance on a credit card or bank loan, or perhaps make that final utility bill or cell phone payment. The people on the other end of the line often have no legal obligation to assume the debt of a spouse, sibling or parent. But they take responsibility for it anyway. “I am out of work now, to be honest with you, and money is very tight for us,” one man declared on a recent phone call after he was apprised of his late mother-in-law’s $280 credit card bill. He promised to pay $15 a month.

Dead people are the newest frontier in debt collecting, and one of the healthiest parts of the industry. Those who dun the living say that people are so scared and so broke it is difficult to get them to cough up even token payments. Collecting from the dead, however, is expanding. Improved database technology is making it easier to discover when estates are opened in the country’s 3,000 probate courts, giving collectors an opportunity to file timely claims. But if there is no formal estate and thus nothing to file against, the human touch comes into play.

New hires at DCM train for three weeks in what the company calls “empathic active listening,” which mixes the comforting air of a funeral director with the nonjudgmental tones of a friend. The new employees learn to use such anger-deflecting phrases as “If I hear you correctly, you’d like…” “You get to be the person who cares,” the training manager, Autumn Boomgaarden, told a class of four new hires.

For some relatives, paying is pragmatic. The law varies from state to state, but generally survivors are not required to pay a dead relative’s bills from their own assets. In theory, however, collection agencies could go after any property inherited from the deceased.  But sentiment also plays a large role, the agencies say. Some relatives are loyal to the credit card or bank in question. Some feel a strong sense of morality, that all debts should be paid. Most of all, people feel they are honoring the wishes of their loved ones.

“In times of illness and death, the hierarchy of debts is adjusted,” said Michael Ginsberg of Kaulkin Ginsberg, a consulting company to the debt collection industry. “We do our best to make sure our doctor is paid, because we might need him again. And we want the dead to rest easy, knowing their obligations are taken care of.”

Finally, of course, some of those who pay a dead relative’s debts are unaware they may have no legal obligation. (emphasis added) Scott Weltman of Weltman, Weinberg & Reis, a Cleveland law firm that performs deceased collections, says that if family members ask, “we definitely tell them” they have no legal obligation to pay. “But is it disclosed upfront — ‘Mr. Smith, you definitely don’t owe the money’? It’s not that blunt.” DCM Services, which began in 1999 as a law firm, recently acquired clients in banking, automobile finance, retailing, telecommunications and health care; DCM says its contracts preclude it from naming them. The companies “want to protect their brand,” said DCM’s chief executive, Steven Farsht. Despite the delicacy of such collections, he says his 180-employee firm is providing a service to the economy. “The financial services industry is under a tremendous amount of pressure, and every dollar we collect improves their profitability,” he said.

To listen to even a small sample of DCM’s calls — executives played tapes of 10 of them for a reporter, electronically edited to remove all names — is to reveal the wages of misery, right down to the penny. A man has left credit card debt of $26,693.77, the legacy of a battle with cancer. A widow says her husband “had no money. He pretty much just had debt.” Asked about an outstanding account of $1,084.86, a woman says the deceased had no property beyond “some tools in the garage” and an 18-year-old Dodge.

Not everyone has the temperament to make such calls. About half of DCM’s hires do not make it past the first 90 days. For those who survive, many tools help them deal with stress: yoga classes and foosball tables, a rotating assortment of free snacks as well as full-scale lunches twice a month. A masseuse comes in regularly to work on their heads and necks. Brenda Edwards, one of DCM’s top collectors, spoke with a woman in New Jersey about her mother’s $544.96 credit card bill.  “She had no will, no finances, nothing,” the daughter said. “Nothing went to probate.” The $200 in the checking account was used for funeral expenses. But the woman also said the family “filed a form with the county,” indicating that perhaps there was a legal estate after all. “Is anyone in the family in a position to pay this?” Ms. Edwards asked, adding: “I’m not telling you it needs to be paid at all.” The woman reached a decision. “I will talk to my brothers and sisters and we will pay this,” she said. Ms. Edwards has a girlish voice that sounds younger than her 29 years. “If you plant a seed and leave on a good note, they’ll call back and pay it,” she said.

DCM started a Web site called to provide the bereaved with information, tools and, some day, products. “We will never sell death. But it’s O.K. to provide things that could be helpful to the survivor,” Mr. Farsht said. Death will be the end of one customer relationship but the beginning of another. Some survivors are surprised, and a few are shocked, that they are hearing from a collector. Eric Frenchman, an online consultant, said a DCM agent inquired about his late father’s $50 Discover card balance before the bill was even due. Since Mr. Frenchman had been planning to pay it anyway, he emerged from the experience vowing never to get a Discover card himself.

The major deceased-debt firms say such experiences are rare. Adam Cohen, chief executive of Phillips & Cohen Associates of Westampton, N.J., said his team of 300 collectors “are all trained in the five stages of grief.” If a relative is more focused on denial or anger instead of, say, bargaining, the collector offers to transfer him to the human resources company Ceridian LifeWorks, where “master’s level grief counselors” are standing by. After a week, the relative is contacted again. DCM executives say some of the survivors not only gladly pay but write appreciative notes. They offered up a stack, with the names deleted, as proof. One widow wrote that a collector “was so nice to me, even when I could only pay $5 a month a few times.” Saying that money was “so tight” after her husband died, she added: “It was very hard for me, and to get a job at my age. Thank you.”

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Is Bankruptcy a Good Idea for You?

Is Bankruptcy a Good Idea for You?

There are many factors that should be taken into account when considering filing for bankruptcy.

1. Figure out what bankruptcy options you have. There are types of bankruptcy most commonly used by individual filers in the United States:

  • Chapter 7 bankruptcy is a bankruptcy proceeding that can wipe out many of your debts in a three to six month period. However, you may lose some of your personal property. You can find out more by looking at Bankruptcy Overview: Chapter 7.
  • Chapter 13 bankruptcy is a bankruptcy proceeding that can be more complicated than Chapter 7 bankruptcy. In Chapter 13, you will be required to make a repayment plan based off of your income, showing how you will pay off your debts in the next three to five years. You can find out more by looking at An Overview of Chapter 13 Bankruptcy.

2. Consider your alternatives. Bankruptcy is not for everyone. Indeed, many unnecessary bankruptcies are filed each year. You should sit down with your financial documents and consider your situation carefully before making a decision. You may find that you do not need to file bankruptcy because you are judgment proof, or that you can fix your financial woes with a few simple changes.

3. Ensure that you are eligible to file for the type of bankruptcy you want to file. There are certain requirements that you must meet in order to file for certain types of bankruptcies. For example, you may not be able to file for Chapter 7 bankruptcy if your income is high enough to pay off your debts through Chapter 13. Also, if your income is too low, or your debts too high, you may not be able to file for Chapter 13 bankruptcy because you cannot show that you are able to meet your repayment plan.

4. Find out what debts will and won’t be forgiven. There are certain types of debts, such as child support, alimony and tax debts, that cannot be wiped out through a bankruptcy proceeding, no matter whether you file Chapter 7 or Chapter 13. Be sure that the debts that you have are types that can be addressed in bankruptcy before you file. It won’t do you any good to file only to find out that bankruptcy will afford you no protection.

5. Figure out what will happen to your home if you file for bankruptcy. Before filing for bankruptcy, you should always sit down and try to figure out what will happen to your home if you do file. If you are already having problems making your mortgage payments, perhaps they will become easier if some of your other debts are forgiven. However, if you have a lot of equity already invested in your home, you may lose your home if you file for Chapter 7 bankruptcy. On the other hand, if your income is high enough, you may be able to file for Chapter 13 bankruptcy and include your mortgage payments on your repayment plan.

6. Figure out what will happen to your other property, like your car. What happens to your other property during a bankruptcy proceeding will depend upon what you have done with your property, as well as the property exemption laws that are available to you. If, for example, you put up your boat or your car as collateral on a loan, this makes that loan secured and the creditor may still be able to take your property even if you are in bankruptcy. Also, only certain types of property are protected by exemption laws in Chapter 7 bankruptcies. Before filing, study the exemption laws carefully and make sure you will keep what you need to survive.

7. Find out if your credit card debts will be wiped out. Bankruptcy has become an effective tool for wiping out credit card debt. You should figure out if your credit card debt will be wiped out by a bankruptcy proceeding before you file. If you lied on a credit card application or spent well beyond your means, bankruptcy may not be able to forgive your credit card debt.

8. Ensure that your pension plans are safe. Most pension plans and life insurance policies are protected by state laws in a bankruptcy proceeding. Before filing for bankruptcy, it would still be a good idea to find out whether your pension plan (401(k), IRA) and/or life insurance policies will continue to be protected.

9. Make sure that any co-signers are not stuck with your debt. You should go back through all of your debt agreements to make sure that no one that co-signed for any of your loans will be stuck making payments on your debt. It does no good to go through an entire bankruptcy proceeding only to find out that your brother or parents are stuck making the payments that you are unable to make. Generally, Chapter 13 bankruptcy will protect any co-signers to your debts, but Chapter 7 will not.

10. Your personal life will be invaded. Bankruptcies are notoriously intrusive into personal lives. In order for bankruptcy to work, you will have to show the bankruptcy court every aspect of your financial life. In addition, other people may find out about your bankruptcy. In Chapter 7 bankruptcy, it is likely that some of your personal property will be taken and sold in order to pay off your debts. Also, in a Chapter 13 bankruptcy, you will probably have to ask permission to spend your own money for the next three to five years.

These are some of the starting points for you to think about when asking yourself, “is bankruptcy a good idea for me?”

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Getting Your Chapter 13 Discharged

When you filed your Chapter 13 bankruptcy five years ago, the goal was to complete the plan and get a discharge.  The “discharge” is the legal determination that all of your unsecured debts that remain after the plan are gone.  The collection company or bill collector can no longer bother you or seek payment for those debts.

So, what needs to be done in order to actually get the court to issue the discharge paper?

Like so many of the bankruptcy processes, this can vary from district to district, even in the same state!

Additionally, it may make a difference to the process depending on what else occurred during the bankruptcy.   For example, if you own a home and were using the Chapter 13 to “strip” the second deed of trust or mortgage, then you want to make sure that everything is done to eliminate that debt and the lien on your property.

In most districts, you will need a specific filing to accomplish this.  In the Eastern District of California, where I practice, to eliminate the lien requires either the agreement of the lender on the Second deed of trust or an adversary complaint.

Under current law, you can also get a statement, signed by the court, that your mortgage is up to date. This is a great thing to have if you started the Chapter 13 when you were behind in the house payments.  Without that determination, the lender will often come back after the Chapter 13 plan is over and claim that you have other charges that haven’t been paid like “attorney’s fees incurred to review the bankruptcy” or “property valuation charges.”   It’s certainly better to have the court resolve those issues before closing the case rather than fight them out later.

There is a lot to consider before the case is closed.  A good bankruptcy attorney will have counseled you about these issues and be there to help you.  Make sure he or she is paying attention, and don’t just assume it all happens automatically.

A discharge and the closing of your bankruptcy is a great thing.  Make sure it is done right.

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Keep Credit Card Out Of Bankruptcy?

Can I Keep A Credit Card Out Of My Bankruptcy?

The Bankruptcy Code requires a debtor to list all creditors in his bankruptcy schedules.  However, a “creditor” is typically defined as someone to whom the debtor owes money.  Specifically, 11 U.S.C. § 101(10)(a) defines a creditor as an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.”

So, if the debtor has a credit card with a zero balance, the issuer of that card IS NOT A CREDITOR, and therefore, the debtor need not disclose his bankruptcy to that credit card company.  BUT, that’s not the end of the story.

Card issuers write very one-sided credit card agreements that seem to get modified all the time.  The Terms and Conditions always includes the following language:

Default – You and your Account will be in default of this Agreement if:  . . . you become insolvent, assign any property to your creditors, or go into bankruptcy or receivership . . .

Cancellation of your Account – We may cancel your Account or suspend your ability to use the Account at any time, with or without any specific reason and with or without prior notice to you as permissible by applicable law.

So, even if a debtor has a zero balance credit card, the issuer has the absolute right to cancel it, but how does the credit card issuer know the debtor filed bankruptcy if the debtor does not give the issuer notice of the bankruptcy?

Credit card companies use sophisticated systems, like Automated Access to Court Electronic Records (AACER), to provide virtually instant data of new bankruptcy filers.  They compare multiple pieces of debtor information with their account holder databases.  If enough pieces of a debtor’s data match an active account, the credit card issuer assumes a match.

Once the credit card company has a match, does it always close the credit account?  I honestly don’t know, but I do know that debtors often use zero balance credit cards after filing.  Maybe the card company is making the decision to keep the account open or maybe they failed to make a match.  In either case, it is important to know that, despite not listing a zero balance credit card in the bankruptcy schedules, the credit card can get cancelled.

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