The inexpensive situation offers pressured several straightforward customers uncover methods for dealing with debts they have accrued whilst holding onto their particular assets as well as living an average lifestyle. Among such possibilities is becoming declaring bankruptcy. In the last 12 months there is a new one-third increase in a bankruptcy proceeding filings, and also this improve wasn’t simply due to organizations and corporations. Several straightforward consumers that were thought to be average income families also have obtained this specific high risk yet at times needed step. Nevertheless filing for bankruptcy is certainly not simple and you will need to comprehend the most critical elements as well as the affect it’s going to have on your own credit score situation.

Bankruptcy isn’t always a predicament whenever you or perhaps your business provides unsuccessful or expenses outgrown earnings. A bankruptcy proceeding has changed into a instrument with regard to regrouping and restructuring own stock in a way that safeguards your own assets. This can be so called Chapter 13 a bankruptcy proceeding which allows people to make certain that they don’t really shed their assets such as houses, cars and personal things if they are with debt.

Chapter 13 personal bankruptcy, often known as Often known as Personal Debt Modification enables you aren’t a typical cash flow to spend his / her obligations inside a 3-5 12 months time period without stopping any one personal assets. In those times the one that declared personal bankruptcy is legitimately protected against creditors accumulating their own costs. Whenever looking for Chapter 7 bankruptcy bankruptcy, the average person in contrast may well get rid of most of property pertaining to eliminating the invoices, except those property which can be deemed exempt (and also the concise explaination exempt resources may differ significantly from state to state).

Those who want to preserve their houses along with autos via lenders, Section 12 individual bankruptcy has turned into a practical option. But it possesses its own price particularly if you concentrate on getting or perhaps reviving itself any sort of insurance, such as automobile insurance protection.

Expect that your particular car insurance costs will probably to be lifted once you declare themselves bankrupt. Why is that? The bottomline is, individual bankruptcy affects clearly your credit history, and as everyone knows, credit rating is amongst the crucial factors when the online insurance quote your own insurance costs.

When you’re bankruptcy options your credit history declines and the report will be stored approximately Ten years. In this period it is possible to encounter improved insurance charges via firms that consider your credit score as a possible crucial portion of chance analysis. You can also come across a few organizations refusing to provide or even continue your own insurance plan following personal bankruptcy.

Bankruptcy is the same point to your credit score, as a traffic accident to your record. When you find yourself associated with a vehicle accident, your current driving history will be modified understanding that influences your own rates. The same using individual bankruptcy. Ponder over it as an automobile accident to your credit history.

Some what to bear in mind after filing for bankruptcy. First of all improve your way of settlement if the credit card or even accounts continues to be hanging as a result of a bankruptcy proceeding. It’s very important to maintain your plan productive, simply because getting a another one will set you back far more. Don’t forget, there’s no this sort of point as inexpensive auto insurance when you’ve got declared a bankruptcy proceeding.

When a creditor obtains a court judgment against a debtor, wage garnishment can be soon to follow. Most persons subjected to wage garnishment will consult a lawyer to see if it can be stopped, and many of those will file either chapter 7 or chapter 13 bankruptcy to stop the wage garnishment. While stopping a garnishment through an immediate bankruptcy filing is often a good idea, care must be taken to avoid filing bankruptcy too soon.

This might sound a bit strange — after all, if one’s wages are being garnished, and if filing bankruptcy will put an end to this hemorrhage of dollars into the creditor’s pocket, shouldn’t the bankruptcy lawyer be asked to sprint to the courthouse with the bankruptcy petition? Wouldn’t a speedy bankruptcy filing bring the paycheck right back to where it should be? Yes, but often there more to this question than meets the eye.

Section 522(h) and section 547 of the bankruptcy law allows a debtor to recover money involuntarily taken from him or her in the ninety days preceding the bankruptcy filing. These sections apply to wage garnishment, and they are often used to recover money garnished before a bankruptcy filing. Of course, this results in a happy bankruptcy debtor, who has just discovered that he or she actually made money, in a sense, by filing bankruptcy and the recovering the garnished funds.

However, there is a catch: section 522(h) and section 547 can only be used in this way if $600.00 or more was garnished before the bankruptcy filing. To put it another way, if $600.00 or more was garnished before the bankruptcy was filed, then all the funds can be recovered by the debtor; if less than $600.00 was garnished before the bankruptcy was filed, then the creditor gets to keep the money.

As you can now see, this is where the bankruptcy debtor needs to get the timing right. It might be a mistake to file the bankruptcy right now if, for example, $550.00 has been garnished from the paycheck, because then the debtor will be unable to the money back. Often, in this example, if the debtor can stand to wait until one more paycheck is garnished, then the total garnished before bankruptcy can be manipulated legally into a figure exceeding $600.00. This will often allow the debtor to recover every penny of the garnished funds.

The possibility of recovering garnished funds will mean that a decision has to be reached between the debtor and the bankruptcy lawyer regarding exactly when to file the bankruptcy case. Filing the case too soon would be a shame, if less than $600.00 has been garnished and if waiting a short time would enable the debtor to recover the money.

Furthermore, the strategy discussed here makes sense only if the debtor can claim the recovered funds as exempt in the bankruptcy. If no exemptions are available to allow the debtor to retain the funds, then waiting to file the bankruptcy is probably a bad idea and will result only in further suffering for the debtor. And, of course, if more than $600.00 has already been garnished, then waiting to file bankruptcy will not help the debtor either.

The point is simply this: discuss the timing of the bankruptcy filing with your lawyer to avoid filing the case too soon to meet the $600.00 threshhold, and avoid missing the chance to recover the wage garnishment.

peace is disrupted, you get headaches, and your health is impaired. You are constantly anxious
and worried and your debt problems are constantly on your mind virtually 24-7.

If any of these scenarios describe you, you should think about filing for bankruptcy. This is your right

under the law. Bankruptcy protects you from constant harassment of creditors and debt collectors. The
moment you file for bankruptcy, your creditors cannot contact you anymore. Imagine the relief! For once, when the phone rings, you will have no fear of picking it up. When you hear a knock on the door you don’t have to hide anymore.

Depending on your situation, there are a few types of bankruptcies you can file for. They are all named according to the relevant section of the bankruptcy code that govern them. These are:

•    Chapter 7 bankruptcy – for individuals to clear off unsecured debts by liquidating disposable

assets.

•    Chapter 9 bankruptcy – for municipal governments that are in debt

•    Chapter 11 bankruptcy – for business owners to reorganize business debt but this may also be

applicable to individuals of high income and net worth

•    Chapter 12 bankruptcy – for family farmers and fishermen to reorganize debts

•    Chapter 13 bankruptcy – for individuals to reorganize their debts through a payment plan

•    Chapter 15 bankruptcy – for foreign debtors to pay off their US debts

Myth 1: Under the New Bankruptcy Law, There’s No More Bankruptcy
Myth 2: Everyone Will Know You Have Filed for Bankruptcy
Myth 3: You Will Lose Everything You Have
Myth 4: You Will Never Be Able to Own Anything Again
Myth 5: You Will Never Get Credit Again
Myth 6: Filing Bankruptcy Will Hurt Your Credit for 10 Years
Myth 7: If You’re Married, Both You and Your Spouse Have to File for Bankruptcy
Myth 8: It’s Really Hard to File for Bankruptcy
Myth 9: Only Deadbeats File for Bankruptcy
Myth 10: Filing Bankruptcy Means You’re a Bad Person
Myth 11: Even If You File for Bankruptcy, Creditors Will Still Harass You and Your Family
Myth 12: If You File for Bankruptcy, It May Cause More Family Troubles and May Even Lead to Divorce
Myth 13: You Can’t Get Rid of Back Taxes in Bankruptcy
Myth 14: You Can Only File Once for Bankruptcy Protection
Myth 15: There is a Minimum Amount of Debt Required to File for Bankruptcy

Myth 1: Under the New Bankruptcy Law, There’s No More Bankruptcy

We’ve heard a lot of misinformation about this. Some of the worst falsehoods are:

• The Bankruptcy laws have been repealed by Congress.
• If you didn’t file for bankruptcy before October 17, 2005, you are no longer allowed to file.
• Only corporations can now file for bankruptcy.
• You cannot discharge credit card bills under the new Bankruptcy laws.
• You cannot discharge medical bills under the new Bankruptcy laws.
• You can only keep one car or one truck if you file under the new Bankruptcy laws.
• You will have to give up all of your vehicles if your file for bankruptcy.
• The IRS will audit all of your prior tax returns if you file for bankruptcy.
• You can only have one TV and one VCR if you file for bankruptcy and if you have a DVD it will be taken by the Trustee.
• You can no longer stop a foreclosure by filing for bankruptcy.
• If you file for bankruptcy, all of your bank records and tax records will be audited.
• An FBI agent will come to the home of every debtor and will take photographs of everything.
• Before you can file for bankruptcy, you must pass a written test. Likewise, you must pass another test to get out of bankruptcy.
• Before you can complete your bankruptcy case, you must pass a lie detector test.
• After you file for bankruptcy, you will never be entitled to another tax refund.

ALL OF THESE ARE COMPLETELY, TOTALLY, AND UTTERLY FALSE!

In fact, nothing could be further from the truth. The truth is that you can do almost everything under the NEW law that you could do under the OLD law. And we’re busier than ever. In some ways, the new law actually increased the benefits of filing bankruptcy.

Myth 2: Everyone Will Know You Have Filed for Bankruptcy

Unless you’re a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors and the people who you tell. While it’s true that your bankruptcy is a matter of public record, so many people have filed�about 2 million during 2005 alone�unless someone is specifically trying to track down information on you, there is almost no likelihood that anyone will even know you filed. However, telling someone that someone else filed bankruptcy is good gossip…just like telling a someone you heard so-and-so is getting a divorce. So, if you don’t want everyone you know to know you filed bankruptcy, you need to keep the information to yourself. As for newspapers, my experience is that very few papers include information about private individuals who filed bankruptcy, and even if they did…who would be interested enough to read that stuff?

Myth 3: You Will Lose Everything You Have

Nothing could be further from the truth. The fact is that most people who file bankruptcy don’t lose anything except their debts.

First, while laws vary from State to State, every State has exemptions that protect certain kinds of property. Using Maryland as an example, there are exemptions to protect such things as your household goods and furnishings, IRAs, retirement plans, the cash value in life insurance and personal injury claims. There is even a “wildcard” exemption of $11,000 per person that can be applied to whatever you want. Most states even have “homestead exemptions,” which protect some or all of the equity in your home. In those rarer situations where you have more property than can be protected by available exemptions, there is Chapter 13. In a Chapter 13, you keep everything you have in exchange for paying your creditors some or all of what they are owed.

Filing bankruptcy does not generally wipe out liens. Therefore, if you want to keep a car, truck, home or business equipment that is collateral for a loan, you need to keep your payments current. If the payments are current and there’s no equity (or you can exempt the equity), you can rest assured you will be able to keep these items.

Myth 4: You Will Never Be Able to Own Anything Again

A surprising number of people believe this….but it is completely false. In the future, you can buy, own and possess whatever you can afford. Virtually all of my clients receive pre-approved car loans and credit cards as soon as they receive their discharge, and many of my Chapter 13 clients with homes are able to refinance while in their bankruptcy. Assuming they don’t run into new credit problems after their bankruptcy, many of my clients are able to qualify for a regular FHA mortgage at regular interest rates two years after their discharge.

And if you want to check out what some very famous people did after they filed for bankruptcy (and, yes, they owned a whole lot of things afterwards), look at the list of Famous People Who Filed Bankruptcy.

Myth 5: You Will Never Get Credit Again

Quite the contrary. Filing bankruptcy gets rid of debt, Getting rid of debt puts you in a position to handle more credit, and this makes you look more attractive to would-be lenders. In my clients’ experience, once you get your bankruptcy discharge, you will be deluged with offers for new credit cards, car loans, etc. I have had many clients refinance their homes a couple of weeks after they get their discharges, or even in the middle of their Chapter 13 cases.

This isn’t always a good thing. I don’t want you to get right back in debt again. At first, the would-be lenders will want more money down and will want to charge you higher interest rates. However, over time, if you are careful, and keep your job, and start saving money, and pay your bills, and do things that will put good marks on your credit report, your credit scores will get higher, and the terms you can get will improve. In my experience, if a client has not re-established good credit in 2 to 4 years�sufficient to buy a car or even a house�it’s not because they filed bankruptcy. It generally means that something else has happened after the bankruptcy to hurt their credit.

Myth 6: Filing Bankruptcy Will Hurt Your Credit for 10 Years

Not true. Here, two completely different concepts are being confused with each other. The fact that bankruptcy is reported on your credit report for 10 years is getting mixed up with the effect that reporting will have on your credit. Just because something is reported on your credit report does NOT necessarily mean it will have a negative effect on your credit standing. In fact, most people’s credit score improves after they file!

Here’s why. By the time you need to make an appointment to see a bankruptcy attorney, your credit is usually pretty trashed, messed up and maxed out. This being the case, you have no credit for bankruptcy to hurt. As I usually tell people, “You can’t wet a river.”

Furthermore, as I mentioned above, in my experience if you have not re-established good credit in 2 to 4 years after you file bankruptcy, most likely it has nothing to do with the fact that you filed bankruptcy…and it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy.

Myth 7: If You’re Married, Both You and Your Spouse Have to File for Bankruptcy

Not true. In cases where both husband and wife have a lot of debt, it makes sense and saves money for them to both file….but it is never a requirement. In fact, most of the cases we file where our client is married, only one spouse files. And if you don’t have any joint debt, your filing will have no impact on your spouse’s credit.

Myth 8: It’s Really Hard to File for Bankruptcy

No, it’s not….at least not in the hands of an experienced bankruptcy attorney. In the hands of an experienced bankruptcy attorney, filing bankruptcy is easy. The decision to file may be hard, but once the decision is made, the filing part is easy.

Myth 9: Only Deadbeats File for Bankruptcy

Not true. The vast, overwhelming majority of the people who file bankruptcy are good, honest, hard-working people, just like you and me, who file as a last resort. They have spent months or years struggling to pay the bills left over from some life-changing experience, such as a serious illness, the loss of a job, separation or divorce, a failed business venture, or some family emergency…or because they honestly and mistakenly fell into debt at a young age before they knew better…before they knew anything about budgeting or how to manage money.

A recent study by Professor Elizabeth Warren of Harvard Law School found that over half of all bankruptcies are related to illness, and 75% of those people who end up filing because of medical bills have health insurance.

In my experience, almost all of my clients want to repay their debts…they just can’t. And the credit card companies, collection agencies, mortgage companies and other bill collectors aren’t willing to work with them so that they can.

Myth 10: Filing Bankruptcy Means You’re a Bad Person

Not true. There’s a reason over 2,000,000 Americans filed for bankruptcy relief in 2005, and it’s not because they’re bad people. Lots of good, honest, hard-working people fall on hard times. Let’s face it�life can be brutal, and sometimes the money’s just not there. The bankruptcy law were created with this in mind�to make sure you have a way, if need be, to get free from the burden of debt so that you and your family can have a second chance at a “fresh start”.

Far from being immoral, the origins of the modern bankruptcy code are in the Bible. Look at the “Sabbatical Year” and “Jubile Year” and forgiveness of debts found in Leviticus 22, Deuteronomy 15 and other sections of the Old and New Testaments. In fact, “Chapter 7″ comes from the forgiveness of debts every 7 years found in the Sabbatical Years. In the Lord�s Prayer, the disciples are taught to ask God to �forgive us our debts, as we also have forgiven our debtors� (Matt. 6:12).

And morality is a two-way street. What about the obscene interest rates being charged for credit cards, the one-sided loan terms required by lenders, or the abusive and illegal tactics followed by many collection agencies?

You can read a detailed discussion of “Bankruptcy and the Bible” by clicking here.

Myth 11: Even If You File for Bankruptcy, Creditors Will Still Harass You and Your Family

This is NOT true. In fact, nothing could be further from the truth. The minute you file bankruptcy, the Bankruptcy Court issues an order telling all of your creditors to leave you alone. No more phone calls. No more collection letters. No more lawsuits. No garnishments. No repossessions. No foreclosures. Nothing. This order has a name. It is called the “Automatic Stay”; and it is issued pursuant to Title 11 of the United States Code, Section 362. The Automatic Stay prohibits your creditors from taking any collection actions against you or your assets. Once you file bankruptcy, the creditor is not even allowed to talk to you or send you letters. In addition, the creditor must stop any collection attempts already started. The Automatic Stay is very powerful, and puts the full weight of the United States Courts to work for you, to make sure your creditors leave you alone. If a creditor violates the Automatic Stay, you have the right to bring the creditor before the Court for Contempt of Court, and to be compensated accordingly. This is not a hollow right�Bankruptcy Court Judges do not take kindly to creditors who ignore their Order�the Automatic Stay�and these Judges have been known to punish creditors severely. Very simply, once you file for bankruptcy, creditors must leave you alone or suffer the consequences.
Myth 12: If You File for Bankruptcy, It May Cause More Family Troubles and May Even Lead to Divorce

This is NOT true. Usually, it works just the opposite. Filing bankruptcy is not the problem. The problem is not being able to pay your bills. All good, honest, hard-working people feel a strong desire to pay their bills, and not being able to do so causes them tremendous stress. Unless you do something to relieve this stress, it can build to the breaking point….and in some cases, the breaking point of your marriage. Bankruptcy is designed to get you out from under the heavy weight of debt and collectors, to protect your property and to lower your stress level. If your experience is like that of other couples, you will find that filing bankruptcy and lowering the stress level can be a crucial first step in bringing the love and caring back into your relationship….which, in turn, gives your marriage a fighting chance.

Myth 13: You Can’t Get Rid of Back Taxes In Bankruptcy

We have gotten rid of millions of dollars of back taxes for our clients. Most federal, state and local income taxes more than 3 years old, inheritance taxes, and personal property taxes can all be discharged. Under the law, there are several qualifications that have to be met, but once these are met, these taxes are gone. There is one major exception for business owners: Filing bankruptcy does NOT get rid of withholding or sales taxes, no matter how old they are.

Myth 14: You Can Only File Once for Bankruptcy Protection

The truth is, you can only file for a Chapter 7 bankruptcy once every 8 years. After 8 years, if need be, you can file a Chapter 7 again. As for filing a case under Chapter 13 of the Bankruptcy Code, there are no such restrictions; you can even file a “Chapter 20,” which is a Chapter 7 followed in short order by a new Chapter 13. Hopefully, however, you will never need to file more than one bankruptcy.

Myth 15: There is a Minimum Amount of Debt Required to File Bankruptcy

Fact: Theoretically you could file bankruptcy even if you only have $10 in debt, although you would need to have your head examined, since it costs $299 in Court costs to file a Chapter 7. But we have had clients with little or no income who have filed for amounts that would be very manageable for those with higher income, but are completely unmanageable for these clients. There is no minimum.

by Brett Weiss, Maryland Bankruptcy Attorney

When Vince Johnson started looking for a way to keep his home amid financial difficulties, his attorney steered him toward a Chapter 13 bankruptcy plan. But a second mortgage Johnson had on his property in Zimmerman complicated things.
“If we walked away from this house, where were we going to go?” Johnson said in a recent interview. “I didn’t know what we were going to be able to do.”
His attorney, Tim Theisen, filed a plan that would strip the second mortgage off Johnson’s list of debts, giving the bank in question a small portion of the money owed. When the bank didn’t file an objection to that plan, Johnson was able to structure a Chapter 13 plan that allowed him to stay in his house.
While that might sound relatively simple, Johnson’s bank could have played tough and objected to his plan. Now, after a recent appeals court decision in a similar Chapter 13 case, Minnesotans in the same circumstance as Johnson are expected to have an easier time wiping second mortgages off their balance sheet.
“This is one of the few things a bankruptcy attorney can use to help people with second mortgages and help them keep their house,” said Theisen, who works in Anoka.
In an economy where many homeowners are still dangling near the edge of foreclosure, the change could make it easier for people still earning a paycheck to stay in their homes.
The case that changed the law in the 8th Circuit Court of Appeals started with Michael Fisette of Cottage Grove, who filed for bankruptcy in the spring of 2010. He listed assets of $189,000 and liabilities of $347,000 – with most of the debt stemming from mortgages on his home.
Fisette’s attorney, Craig Andresen, prepared a Chapter 13 case, which is a bankruptcy filing for debtors who still have a job and some income. Such plans allow the filer to begin debt repayment without giving up property.
Most Chapter 13 cases are partial payment plans in which a homeowner commonly continues to make existing house and car payments. The remaining debts are usually put together as a package in the Chapter 13 plan and the homeowner makes monthly payments. Those payments usually run three to five years.
When Andresen took Fisette’s case to court, he filed a plan that stripped off the second mortgage on Fisette’s home. The bank that held the loan didn’t object. Still, the bankruptcy judge in the case – Dennis O’Brien – denied confirmation of the plan in December 2010.
O’Brien had noted at an earlier hearing that “the law in this jurisdiction clearly does not allow the debtor to strip the second or third mortgage,” according to court documents.
APPEALS JUDGES THINK DIFFERENTLY
The ruling led to Fisette’s appeal, and – two months ago – an appellate panel in the 8th Circuit disagreed with the bankruptcy court and let Fisette’s filing go through.
The appellate panel of six judges noted that bankruptcy laws don’t bar the stripping of a second mortgage – “a position that has been adopted by all Circuit Courts of Appeal to address this issue.”
So why was the 8th Circuit different? Essentially, because a case hadn’t ever gone through the appeals process. Some attorneys, though, had figured out a way to get second mortgages removed.
In previous cases he’s handled, Theisen – the attorney for Vince Johnson – said that banks have worked with him to allow a debtor to get rid of a second mortgage in Chapter 13.
In two other instances – where banks holding a second mortgage refused to let it go – Theisen filed appeals with the 8th Circuit appellate panel, he said. And both times, that prompted the banks involved to back off.
BANKS WORRIED
Why?
“Banks have been trying to avoid having an appeal because it was fairly certain it was going to be approved,” said David Kelly, a Minnetonka bankruptcy attorney who also handles Chapter 13 cases.
In cases like Theisen’s, banks were willing to let one homeowner walk away from a second mortgage, as the banks were worried an appellate court decision would “open the gates on the dam for all the other Chapter 13 cases with a second mortgage,” Kelly said.
The 8th Circuit includes courts in Minnesota, Iowa, Missouri, Arkansas, Nebraska and North and South Dakota.
But

attorneys say that the bankruptcy courts in most of those states besides Minnesota have case law on the books that supports the stripping of second mortgages in Chapter 13 cases – making Minnesota a bit of an outlier even within the 8th Circuit.
Even though the appellate panel’s decision is being appealed to the full 8th Circuit Court of Appeals, attorneys say they expect the panel’s decision to stand, as it mirrors decisions in other circuits.
In the meantime, the appellate panel’s decision is the law. The change is so new that county recorders are still trying to figure out exactly how the stripped mortgage will be recorded on titles to property.
“All I’m going to care about is what has the court determined,” said Wayne Anderson, the Ramsey County examiner of titles, who’s aware of the change in law. “Give me a court order from bankruptcy.”
A committee of Minnesota Bar Association members is putting together a process of how to record the newly stripped mortgages.
UNDERWATER SURVIVAL
Chapter 13 plans are “the positive side of bankruptcy,” because the debtors need to have a job and regular income, and they’re trying to pay their creditors and keep their homes, said Jasmine Keller, a Chapter 13 trustee who represents the government in cases in the Twin Cities area.
Filers with second mortgages are common, she said. Their first mortgages are typically “under water,” owing more on their home than it’s worth.
“We’re kind of surprised when they have any equity in the house,” Keller said. “Most people are here because they’re losing their homes or have huge medical bills.”
And Chapter 13 plans, though still a relatively small piece of the personal bankruptcy pie, are growing in number.
Currently, there are 6,400 active Chapter 13 cases in the Twin Cities, Keller said, with debtors making payments. In the last year, 2,009 Chapter 13 cases were filed, an 8 percent increase over the previous year.
HOPING TO HANG ON
In Vince Johnson’s case, he and his wife had paid $166,000 for their house in 2004 and later taken out two additional mortgages, each for a little less than $20,000.
The additional mortgages were “just for bills and stuff,” he said. “Every time there’s a death in the family, a wedding, it’s a lot of money. It just seems like everything fell apart.”
During the housing bubble, the Johnson home had a taxable value well over $200,000, which made it easier to get the second and third mortgages.
Today, Johnson says the home is probably worth about $130,000.
The bad news for Johnson, 48, is that the manufacturing firm he worked for shut down recently and he’s been out of work for a few weeks. Chapter 13 plans only work if debtors can stay on the court-ordered payment plan, and Johnson is putting all his energy into a job search, he said.
“I’m hoping we can keep doing what we’re doing,” Johnson said. “I feel bad for my creditors. This economy, it just stinks.”

If your car is worth less than what you owe on it, you may be able to use a Chapter 13 bankruptcy “cramdown” to reduce the balance and interest rate on your car loan. Read on to learn what a cramdown is and how it works in Chapter 13 bankruptcy.
What Is a Car Loan Cramdown?

After you buy a car, it begins to depreciate (lose its value) very quickly, especially if it was new. This means you may end up with a car loan balance that is greater than what your car is worth. However, you may be able to reduce your loan balance down to the value of your car through a Chapter 13 bankruptcy. This is referred to as a cramdown.

How Does a Cramdown Work?
Cramdowns are available in Chapter 13 bankruptcy only — you cannot cram down a car loan in Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, you propose a repayment plan to pay back your creditors over a three to five year period. (To learn how Chapter 13 bankruptcy and the repayment plan work, see the articles in our Chapter 13 Bankruptcy topic area.) In your plan, you have the ability to propose that your car lender receive only the value of your car instead of the entire loan balance if certain conditions are met.

For example, say you took out a $30,000 loan to buy a new car in 2008. Now it is 2011 and the car you bought has depreciated in value to $10,000 but your loan balance has only gone down to $20,000. This means that only $10,000 of the loan is “secured” because if the lender repossessed your car and sold it, it would only receive $10,000 (this is the car’s replacement value). This is where a cramdown can help you.

In your Chapter 13 plan, you can propose to pay only the replacement value of the car to your lender. So in the above example you can cram down the balance of your loan to $10,000 (the value of your car) and tell your lender this is all you are going to pay.

What About The Remaining Balance of My Car Loan?
What happens to the unpaid portion of your loan? It will receive the same treatment in your Chapter 13 plan as your other nonpriority unsecured debts such as credit cards and medical bills. Since most Chapter 13 plans pay little or nothing to these creditors, this means that your car lender will likely receive nothing or pennies on the dollar on the remaining balance of your loan. At the completion of your plan, any unpaid balance of the loan will be discharged and wiped out and you will own the car free and clear.

Additional Benefits Of A Cramdown
When you cram down a car loan in Chapter 13 bankruptcy, the law also allows you to lower your interest rate on the loan. The interest rate will be determined by your specific bankruptcy court but it will generally be the prime rate plus a little extra. In most cases, this will be lower than your original car loan rate.

Limitations On Using a Car Loan Cramdown
In order to prevent people from buying new cars and cramming down their loans shortly thereafter, Congress has placed an important restriction on when you are allowed to cram down a car loan. To take advantage of a car loan cramdown, you must have purchased the car at least 910 days (about 2 ½ years) before you filed for bankruptcy.

At least the graduate in the picture has a job. Being that is involves wearing a chicken suit, it might not produce enough scratch to pay off his share of the more than $1 trillion dollars in student loan debt now owed in our country.

The issue is on this site because now, more than ever, it is difficult to get student loans discharged in bankruptcy. My colleague Chip Parker wrote here about student loan dischargeability in Chapter 7 bankruptcy.

There is a student loan bubble, comparable to the housing bubble, the bursting of which splattered us all. The short version, as the government subsidized the cost of college, more and more, unsurprisingly, more and more folks went to college on the easily borrowed dime of the taxpayer.

To check out the status of the student loan crisis in your state, check the projectonstudentdebt.org site. Click here: student loan crisis.

Being that they were not spending their own money, the colleges had no problem increasing tuition by way more than the rate of inflation. It appears most of the increase went to: more and higher paid administrators.

Australia has a different student loan policy: each student has “x” amount of dollars for undergrad education. You use it up, it is gone. You can get more for grad school. This way, the colleges do not just raise the rates knowing the government will just up the loans it grants.

Make no mistake: whether or not the bankruptcy laws are changed to make student loans dischargeable, the trillion dollars out there will NOT be repaid.

As it is, we have sold college grads a bill of goods. “To get a good job, you need a good education.” Putting to one side the question of what is a good education, a generation has gone into hock big time, only to come out to jobs wearing chicken suits. If they are lucky.

They cannot buy houses because they have to repay the loans, so they go back to live with mom and dad.

The President’s student loan program, as per usual, is laughable, saving the average grad less than $10 per month.

This will change, but how?

You want to file bankruptcy but you are not sure if you are eligible to file again. There is a quick an easy way to see if you MIGHT be eligible to file and receive a discharge. On the top line of the image above choose the case that you have filed in the past. Then come down and choose the current case you wish to file on the left hand side of the image. This will provide you a preliminary idea of whether or not you may file another case and receive a discharge.

Is this a hard and fast rule? No, and that is why you should always contact a qualified bankruptcy attorney to seek legal advise if you are considering bankruptcy. Can you file even though you are not eligible for a discharge? It depends. Let’s stay you are being hounded by creditors and you want to stop them for a moment. Can you do that? Yes you can.

Let’s run through an example. Will you receive a discharge if you have filed a case and received one within the past 14 months? No, but the advantage of filing a new Chapter 13 even though you are not receiving a discharge is that you can pay what you can afford to pay to the unsecured creditors. Then later seek to either continue paying the debt at the end of the 3 to 5 year Chapter 13 or file a completely new case that qualifies for a discharge. Check with a local attorney as this is just an example and the law in your area may vary.

The key to the formula when determining if you are eligible for a discharge in a new case is whether or not you received one in your prior case. If your case was dismissed than the formula does not apply. So what is a discharge? The United States Bankruptcy Court defines discharge as:

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

Many believe that filing a Chapter 7 or 13 is cut and dry or that it is just a form plead law. This is simply not true. There many advantages to filing a Chapter 7 or 13 that you may not be aware of. In that same notion if you are filing a Chapter 7 or 13 yourself (known as a “pro se” debtor) or filing with an attorney who does not know the bankruptcy code you just might be filing a case that is not eligible for a discharge.

Regardless of whether you receive a discharge, every time you file for bankruptcy relief the filing is reported to credit bureau. In turn each filing reflects initially in a negative way for your FICO score. These are strange and confusing times where everyone is looking to save any pennies they can. However filing bankruptcy without the advise of legal counsel may have dire consequences. Use the chart above to do a preliminary check of whether you might be eligible for an additional bankruptcy but do not end your inquiry there. Contact a qualified bankruptcy attorney so that you may take advantage of all the opportunities that might be available to you under the Bankruptcy Code.

Remember that knowledge is power. The more knowledge you have about whether or not you are eligible for a discharge, the more power you will have to determine whether or not filing an additional bankruptcy case is right for you.

We are a country of do-it-yourselfers. I fix my own car, build my own furniture, and even write my own articles. A couple of things I won’t do is prescribe my own medicine or do my own legal work.

I am willing to take a chance on a lot of things. If I mess up a minor car repair I can do it over again. If the bookcase I’m building doesn’t turn out well, I can build another one. When it comes to writing articles, they have all been rewritten more times than you can imagine. It is easy to tell when things have not been done right. The car won’t start, the book case falls over, and the article doesn’t make sense.

Medicine and law are different.

I have been tempted to prescribe my own medication. Order a few pills off the internet to help sleep during a stressful week and skip the visit to the doctor. Get a few others to help fit into last year’s pants. The FDA has a great warning about this. Sure, we can learn all about the drug by reading on the internet. We can read all about how the pills are supposed to work. What if they don’t?

There are no do overs when we are consuming medicine. Over the weekend I read John Grisham’s latest book, The Litigators. It is a story about lawyers suing drug companies. A little internet research shows that a lot of drug companies have pulled a lot of drug off the market because they were dangerous. Sometimes they are not pulled off the market until after the FDA orders them to be removed.

I trust my doctor a lot more than I trust the drug companies. It turns out they put out most of the information that is available online. We might think we are reading a well-researched article about a medication, but often the study was paid for by the company manufacturing the drug.

Don’t be Your Own Worst Enemy
Early in my career I handled a lot of criminal defense cases. The most common reason a defendant gets convicted is their own statements. Most criminals think they are smarter than the police officers doing the interrogation. They are not. At the public defender’s office I once worked at we had a saying on the back of the business cards: “If you don’t talk, you might walk.”
You probably think you are smarter than the typical criminal. I doubt it. When it comes to “street smarts” the typical criminal is way ahead of the game. We are at a big disadvantage for one reason. Most of us are honest. We don’t stand a chance against a trained interrogator like a bankruptcy trustee.

It’s What You Don’t Know That Will Hurt You
I have only needed a lawyer a few times in my life. I know a lot about bankruptcy, estate planning, and trial work. I know very little about most other areas of law. Although I am sure I can figure out other legal problems, I would rather hire someone that already knows how. There are too many traps and secrets in the legal system for anyone to do a good job without a lot of training and experience.

The Bankruptcy Court has reported a significant increase in the number of people representing themselves in bankruptcy filings. I see some of these people at the bankruptcy hearings. The bankruptcy trustees seem to like the do-it-yourselfers. At the hearings the trustee will list off the items that need to be turned over to the trustee. Trustees are paid on a commission. That is why they like cases that have not been well planned.

Good Bankruptcy Planning Pays for Itself
Most of my cases need some planning. If I filed a typical case the day I met with my client they would lose far more than the cost of my services. Some of the people I meet with don’t need to file, some would lose too much, many need to have some planning completed before the case is filed. If these clients filed on their own they would have made mistakes that cannot be repaired, plus they would have to deal with the Court system and the bankruptcy trustee without a clue about what was about to hit them. Life is already too stressful.

Don’t Wait Until It’s Too Late
Once the case is filed it is too late for good legal advice to fix many problems. Most of the legal work needs to be completed before the case is filed. Each week I get calls from people who would like me to take over their case. They ran into problems they did not know about. I don’t take these cases. It is a firm policy. We don’t need the money bad enough to handle train wrecks. What they need is an emergency room and I don’t work that way.

No Do-Overs in Bankruptcy Court
Just like the prescription for a medicine, the bankruptcy filing is part of the treatment plan. Unless you take the right drug, at the right time, in the right amount you risk a serious problem. With bankruptcy you only file in the right way, at the right time, with the right planning or you will risk a serious problem. There are no do-overs in the bankruptcy court.

Unlike red wine, the information you provide a bankruptcy lawyer does not improve with age. Bankruptcy information is far more like fish: no longer palatable after it sits for a while.

A bankruptcy filing is a snapshot of the client’s situation on the day the case is filed. From the point when the case is filed, bankruptcy law looks backward and forward. The rights of all of the parties are driven by the passage of time.
For instance the statement of financial affairs looks back at recent financial history:
• Income year to date
• Income for the past two years
• Payments on old debts in 12 months
• Transfers or gifts in past 24 months

The means test analyzes income for the six months before the month in which the case is filed. A drop in income may make your bankruptcy filing simpler; a substantial increase may require reconsidering your choice of chapter.

Lives are fluid and when months go by between starting work on preparing bankruptcy documents, the changes can have significant consequences. Bank accounts are opened or closed; lawsuits are served; asset values change. Each of those changes can alter your rights and those of your creditors and your family.

When asset values change, what’s exempt may change. Acquire property, or just add your name to the title of someone else’s property, and the property may be vulnerable to your creditors in bankruptcy. Fail to pick up new creditors and the debt may not be discharged.

So, time may do lovely things to red wine; bankruptcy information is simply subject to spoilage.

If events or lack of funds put your bankruptcy filing on hold for a while, be prepared to revisit the information you may already have provided. While it may be tedious and time consuming to gather more information or submit to another interview with your lawyer, it is absolutely in your best interest to have the information fresh and complete.