Millions of tickets are dolled out every year, not to mention government penalties and fines.  Government tickets and fines are one of the most common forms of debt.  Can these be discharged through a bankruptcy filing?
In Chapter 7 bankruptcy, section 523(a)(7) of the Bankruptcy Code specifically states that fines and penalties owed to or for the benefit of governmental units are non-dischargeable.  This is a broad category, and will include anything charged by the government as a fine or penalty.

In Chapter 13, section 1328(a)(4) of the Bankruptcy Code makes it possible to discharge some, but not all such fines and penalties.  Section 1328(a)(4) excludes from discharge restitution or criminal fines included in a sentence of the debtor’s conviction of a crime.  This means that, if you have parking or traffic tickets or other types of government fines that are not the result of a criminal conviction, you may be permitted to discharge them in a Chapter 13 filing.

Of course, the problem with Chapter 13 is that you may be ordered to pay even legally dischargeable debts if the court determines that you have the disposable income to do so.  In determining what bankruptcy chapter to chose, or whether bankruptcy is right for you, it is important to talk to a qualified bankruptcy attorney, who can assess your individual situation.

I already gave up the house, why am I being billed by my HOA? As bankruptcy attorneys, we are all hearing this complaint from clients with increasing frequency these days. As counter intuitive as it may seem, we are today often asking mortgage lenders to hurry up and follow through with a foreclosure in a timely manner.  This happens most commonly in a Chapter 7 Bankruptcy in which the debtor has decided to surrender a home.

Of course, stating “surrender” in the Statement of Intentions section of a bankruptcy petition and the mortgage lender actually taking title to the property are two entirely different things. And, unfortunately, the bankruptcy debtor who surrenders his or her property in the bankruptcy case, remains the legal title owner of the property until the bank actually forecloses on the property.

This fact can cause the bankruptcy debtor the ongoing nuisance of various recurring bills associated with homeownership. The biggest source of such ongoing bills are Homeowners Association dues, and to a lesser extent, municipal water and garbage fees. Clients giving up a home in a bankruptcy must be carefully advised that such recurring fees accumulate post-petition, and precisely because they recur post-petition, they constitute new debt. And as we all know new, post-petition debt is not discharged in bankruptcy.

Three or even just two years ago, the lenders would typically foreclose right after the closing of a Chapter 7 case. More often than not, they would seek relief from the Automatic Stay and sometimes foreclose before the Chapter 7 case was closed. But today, the banks simply don’t want another property on their books.

The problem is that while the banks take their sweet time to foreclose on a surrendered property, HOA dues and city water or garbage bills continue to accumulate. In California, the record owner will remain liable for these personally until these debts are paid. Unlike property taxes, for which liability runs with the land and is not personal to the homeowner, an HOA may sue the owner for as long as the relevant statue of limitation allows, and they will usually be awarded attorneys’ fees to boot. Sadly, there is nothing the debtor or the debtor’s bankruptcy attorney can do to compel the mortgage lender to take title to the property so as to cut off this ongoing source of liability.

Where does this all leave the bankruptcy debtor who must surrender his or her property? In a Catch-22 to be sure. The lender may not foreclose and take title for months, if not longer, after a Chapter 7 bankruptcy is filed. Homeowners Association Dues, however,  continue to accrue on a monthly basis. Frequently, the debtor has moved along and cannot easily rent the property given the impending foreclosure.

This problem would not arise if mortgage lenders would foreclose in a timely manner in the context of a bankruptcy debtor who surrenders a home. We as bankruptcy attorneys can literally beg that lender to foreclose already–or, better yet, accept a deed-in-lieu of foreclosure, but if they do not want the property on their books, the lender will simply not accept a deed-in-lieu.

What advice to give this client?  The options are few. If the debtor can hang on until the property actually forecloses prior to filing bankruptcy, this would eliminate the problem. But such a delay is not an option for most bankruptcy debtors who may also be facing law suits, wage garnishments, vehicle repossessions and other urgent problems. If putting off the filing is not an option, the bankruptcy client should probably continue to live in the property and to pay his or her HOA dues and municipal services, or if the property is a second home, for example, attempt to rent the property to cover these ongoing costs, while disclosing the situation to any short term renter, of course.

Bankruptcy law never contemplated this situation. The last time that such a significant number of homeowners were this far “underwater” on their home mortgages was during the Great Depression. Similarly states’ statutes governing homeowners’ associations have always presumed that sufficient equity would exist in the average home to cover HOA liens through foreclosure by the HOA. Today, with most surrendered homes encumbered by a first mortgage, a Home Equity Line of Credit, and perhaps an HOA lien third in line, there is most often not sufficient equity to pay off even the first loan. A remedy under the Bankruptcy Code to compel mortgage lenders to take title to surrendered real property would be ideal, but we can safely say the likelihood of such a legislative solution is remote indeed.

In the meantime, before we counsel Chapter 7 clients about surrendering a home in bankruptcy, it is imperative that we investigate whether the property is subject to an HOA and carefully explain to our clients that HOA dues, water, garbage, and potentially other recurring bills may continue to burden the client long after the bankruptcy discharge.

Many people don’t realize, until it’s too late, that they’re on the slippery slope to financial ruin. BankRate.com says there are many signs you are flirting with it.

Late-night cable TV advertising offers “debt settlement” for a fraction of amounts owed, but this is a scam that can leave you in a deeper hole. The only legitimate sources of help (besides bankruptcy lawyers who charge large just to get started) are the National Association of Personal Financial Advisors (tulsaworld.com/napfa or 847-483-5400) to find “fee-only financial planners” and the National Foundation for Credit Counseling, (tulsaworld.com/nfcc or 800-338-2227) for low-cost credit counseling.

Paying late fees, juggling bills: Always running up late fees has two causes: paying late because you can’t pay on time or paying late fees just because you’re lazy. A more serious symptom of financial distress is juggling monthly bills by making payments big enough and frequently enough to keep services flowing, but never paying balances on time and in full – causing debt to worsen every month as balances grow, says the BankRate website.

Windfalls: Basing financial plans on future payoffs – inheritances, run-ups in home value, big tax refunds – can put your finances in dire straits. This is symptomatic of a bigger problem: rationalizing debt and not following a logical payment plan. You’re planning on a bonus that never materializes, or you pull more equity out of your property.

Multiple credit card hocus-pocus: Credit cards are a convenience to buy without carrying cash and to earn rewards. Use them for groceries, gas, eating out, hardware and online buys but only if you pay them off at the end of each month. If your card debt is rising and you’re unable to make more than the minimum payments, your balance will continue rising. Failing to make minimum payments for more than 60 days gets you a rate increase and makes your financial condition even worse.

Finance fighting with partners: Couples have occasional fights over debt, but if they regularly fight about money, it’s a sign there’s not enough disposable income to finance their spending habits. Seek nonprofit credit counseling.

Overdraft fees: Always getting overdraft fees means you are on the brink of financial disaster. “Non-sufficient funds” notices are like hurricane warning flags – they’re not so much warnings as they’re declarations that a real problem is here now. Regular overdraft fees indicate serial overdrafting by people who don’t have the income to cover their debts.

Borrowing retirement funds: Borrowing from a 401(k) is common to those in financial distress. Taking 401(k) loans is always a bad idea under any circumstances, and when you have taken out more than one, it’s a sign you’re not managing your cash flow very well. It lessens the beneficial effects of compounding that makes retirement funds grow.

Home a piggy bank: Using your home equity as a financial crutch is especially ominous. Home equity loans for frivolous things – cars, vacations, 3-D TVs, etc. – and amortizing it over 15 to 20 years makes no sense.

Counseling services help manage debt

Got debts? The Credit Counseling Centers of Oklahoma’s got solutions.

Credit Counseling Centers of Oklahoma Inc., 4646 S. Harvard Ave., (918-744-5611 in metro area or outside the Tulsa metro area at 800-324-5611, or email customerservice@cccsofok.org) is an “educational, not-for-profit agency offering money management and credit education through confidential counseling sessions and community workshops.” Its services include budget and credit counseling, debt repayment plans, housing counseling, pre-bankruptcy credit counseling, pre-discharge personal financial management courses, etc. Visit the agency online at tulsaworld.com/cccodnn

Any member of the community may use its services. It does not pre-screen clients for eligibility. No one is denied services for inability to pay the fee, and there is no fee for the initial budget and credit counseling session. Clients participating in its “debt management plans” are charged a $25 monthly administration fee as a part of the plan. Its Pre-Bankruptcy Credit Counseling and Pre-discharge Personal Financial Management Courses are $50 each.

The nonprofit agency is funded by client fees, creditor contributions, Tulsa Area United Way, community grants and private donations. The agency has been in operation as a nonprofit educational agency for 40 years and has three other community-based offices to better serve clients: Claremore (104 S. Missouri, Suite 205); Sapulpa (19 N. Main) and Broken Arrow (317 S. Main St.).

It is a National Foundation for Credit Counseling member, ensuring it has the highest standards for credit counseling services. It is accredited by the independent Council on Accreditation and submits to annual independent audits of all financial records. It has a volunteer board of directors representing the communities served (including this writer).

It is a member-agency of the Tulsa Area United Way and undergoes its annual review measuring the effectiveness of its services, as well as its fiscal responsibility and accountability.

CCCO has been in operation here since 1968, was incorporated in Oklahoma in 1970, first appeared in Better Business Bureau inquiry records in 1993 and has been a “BBB Accredited Business” since 2002. It maintains an “A+” bureau rating with no complaints reported – tulsaworld.com/cccobbb

Whether you’ve lost your job, are carrying an excessive amount of credit card debt, or have big medical bills and are dealing with mounting debt, you may have considered filing for bankruptcy to get a fresh start with your finances.

A recent FindLaw.com survey revealed that one in eight Americans, or 13% of us, have considered filing for bankruptcy protection. And in 2010 alone, 1.5 million U.S. consumers declared bankruptcy, according to the American Bankruptcy Institute.

While filing for Chapter 7 or Chapter 13 bankruptcy can be a way to help you reduce unmanageable debts, not everyone’s case is accepted by bankruptcy courts.

Your bankruptcy filing can be rejected for a number of reasons – often due to mistakes or omissions in your paperwork. That’s why it’s important to educate yourself on the rules and limitations of each type of bankruptcy, and also to consider working with an experienced bankruptcy attorney to assist you with the process.

Here are a few reasons why your bankruptcy filing could be rejected:

1. You don’t pass the “means” test in court.

In order to initially qualify for a Chapter 7 bankruptcy, where most of your unsecured debts are eliminated – or “discharged” in legal speak – you must pass a “means” test imposed by the court. In a nutshell, a means test is a way for the court to determine how much disposable income you have. If you’re deemed to have too much money, a court may reject your Chapter 7 bankruptcy request.

A good attorney should be able to review your situation and provide you with a free, initial consultation, including advising you whether or not you’ll likely qualify for Chapter 7. If you don’t qualify, or if your bankruptcy petition is rejected because you don’t pass the means test, you can still consider filing Chapter 13.

2. You fail to provide requested tax documents or show up at the creditor meeting.

To get bankruptcy protection, you’ll need to provide a series of financial documents to support your case and prove that you really don’t have the money to pay all your creditors. Among those documents are your income tax returns.

The court may reject or “dismiss” your bankruptcy case if you misrepresent your tax information or fail to provide tax documents altogether. In years past, you didn’t have to file tax records in order to pursue bankruptcy. But ever since bankruptcy reform passed in 2005, this has become a requirement.

With a Chapter 13 bankruptcy, you must file all tax returns for the four years prior to your bankruptcy filing. If you don’t supply the court with your tax records, your Chapter 13 repayment plan will not be approved. In Chapter 7 bankruptcy cases, you must also provide requested tax documents to the court, or else your debts won’t be eliminated.

For many people, the requirement to file your taxes is increasingly a barrier to getting a bankruptcy discharge, especially in this tough economy where many individuals may not have filed their taxes for a variety of reasons.

Exactly when you have to submit your tax records – and to whom – can vary from state to state. In my home state of New Jersey, for example, you don’t have to file tax returns with the bankruptcy court. But you do have to provide your tax records to the appointed trustee.

In the Garden State, your tax returns should be supplied to the trustee in either a Chapter 7 or Chapter 13 case within seven days of the so-called “341 meeting of creditors.” In layman’s terms, that’s the get-together you must have with the bankruptcy trustee and your creditors where you answer questions under oath about your assets and liabilities. You’re required to attend that meeting. If you don’t show up, your bankruptcy petition can be dismissed.

Although this meeting may sound intense, consumers and bankruptcy attorneys say it’s not that eventful. Creditors usually don’t show up at all, mainly because most people seeking bankruptcy protection are broke and don’t have any major assets. If you have a lawyer, he or she will attend the meeting with you. During the meeting, you’ll mainly be asked – by the trustee – to confirm your identity, show your tax returns, and verify the basic information shown in your bankruptcy filing. The whole process typically takes five to 10 minutes.

Since this creditor meeting usually takes place about a month after your bankruptcy petition is first filed, if you want to prevent tax issues from blocking your bankruptcy case from proceeding, it’s always best to have your tax returns completed before you seek bankruptcy protection.

3. You submit a proposed repayment plan that’s not feasible.

With a Chapter 13 bankruptcy filing, you repay some of your debts over a period of three to five years. If you file for Chapter 13 bankruptcy and set up a repayment plan, your proposed plan must be feasible in order to be accepted by the courts.

The courts will review your current income, debts and assets to determine whether you can realistically pay back your creditors under the Chapter 13 plan. If not, they can reject your case.

You may be able to file again with a more feasible repayment schedule. But to avoid this hassle, make sure your initial proposed repayment plan is realistic and can be achieved over the required three-to-five-year time frame.

4. Someone challenges your bankruptcy request.

Once you’ve filed for Chapter 7, you’re still not totally in the clear since someone could challenge your right to have your debts wiped out.

At the end of the Chapter 7 process, the goal is to get a “discharge” of your debts. A discharge is a permanent court order that relieves you of any legal liability to pay things like medical bills or credit card debts.

For those filing Chapter 7, a discharge is granted nearly automatically. However, this may not happen if a creditor or the bankruptcy trustee challenges your discharge. A “challenge” – where an individual tries to prove you’re not eligible for a bankruptcy discharge – typically occurs if someone believes you were dishonest, or committed fraud, in some way.

For instance, if you hide assets, make false statements about your circumstances, or even just fail to appear to take mandatory credit counseling, any of these reasons could result in a challenge.

In such instances, that challenge could lead to your Chapter 7 discharge being denied or revoked. To avoid this scenario, be as honest and thorough as possible with all information you supply the court, and follow all court instructions. Again, a skilled attorney should be able to help you successfully navigate all the complexities of the bankruptcy system.

Remember also that while bankruptcy should be a last-ditch option, it’s not the end of the world. If you have no other alternatives but to file for bankruptcy, take heart in knowing that you can rebuild your credit, finances and emotions after bankruptcy – perhaps faster than you might think.

A question I get quite often from clients thinking of filing for bankruptcy is how long the actual bankruptcy case will last. The answer to that question depends on what type or chapter of bankruptcy you will be filing. Chapter 7 bankruptcy cases are relatively short matters that are wrapped up in a few months whereas chapter 13 bankruptcy cases can last anywhere from 3 to 5 years. In the following paragraphs I will go over a typical timeline for a chapter 13 and a chapter 7 bankruptcy case.

Chapter 7 Bankruptcy

A chapter 7 bankruptcy case begins when a bankruptcy petition is filed with the bankruptcy court. After the bankruptcy petition is filed a Meeting of Creditors is held approximately 30 days later. The Meeting of Creditors is an opportunity for the bankruptcy trustee to ask you questions about the documents you filed with the court.

Subsequent to the Meeting of Creditors you will be required to complete a credit counseling class. Approximately 2 to 3 months after the Meeting of Creditors the bankruptcy court will enter your discharge. The discharge order is issued by the bankruptcy court and is the formal document that eliminates your debts. In most chapter 7 cases the discharge effectively ends your bankruptcy case.

Chapter 13 Bankruptcy

While chapter 7 bankruptcy is a complete discharge of your debts, a chapter 13 bankruptcy is more of a personal restructuring of your debts. Because of this a chapter 13 case will take anywhere from 3 to 5 years to complete. The chapter 13 bankruptcy case begins just as the chapter 7 bankruptcy with the filing of a bankruptcy petition. Like the chapter 7 case, a chapter 13 case also requires you to attend a Meeting of Creditors with your trustee approximately 30 days after your cases filed.

However, in a chapter 13 case you are required to make monthly payments to your bankruptcy trustee. This is done based on a plan that is submitted to the court at the time your case is initially filed. After the Meeting of Creditors is held, your creditors will have an opportunity to provide input on the plan you proposed to the bankruptcy court.

Anywhere from two to six months after the Meeting of Creditors your bankruptcy trustee will issue a recommendation as to whether your plan should be approved by the court or not. This recommendation is essentially a punch list of items the trustee would like you to address prior to having your plan confirmed by the bankruptcy court. Confirmation of the plan simply means that the bankruptcy trustee and the bankruptcy judge have approved a plan.

Once your bankruptcy case is been confirmed your job is to simply continue making the monthly payment to the trustee who will then distribute the funds to your creditors. Whether your case is a three-year case or a five-year case depends on your monthly income at the time the case was filed.

Those families filing for bankruptcy whose household income is below the average income in Arizona for a family of their size will have the option of completing a three-year plan. However, if your household income is above that of the typical family of your size in Arizona, you will be required to complete a five-year chapter 13 plan.

I will regularly get the question of whether a chapter 13 plan can be paid off early. Generally the answer to this question is no. If you begin to get additional income during your chapter 13 case, you will be required to turn over any increase in disposable income to the bankruptcy court that will then pay those funds to your creditors.

I offer a free bankruptcy consultation where we can discuss your specific situation and determine if bankruptcy is a good option for you

Foreclosure. It is still a source of pain and fear for homeowners who are struggling financially. It is still a damper on the housing market here.

With all the attention that the foreclosure crisis has received from The Rep and other media since the housing crisis began, you might think that there is little more to be said. But several guests of our editorial board made it clear to us last week that they believe too many Stark Countians still don’t know what to do if they fall behind on their mortgage payments, or if there’s even a chance that this will happen.

To address these concerns, today we’ll give you some information prepared by the staff of Community Legal Aid in Akron, whose executive director, Attorney Sara E. Strattan, was one of our guests last week. We hope it will be helpful for you or someone you know.

Myth 1 — I should not seek help until I miss a mortgage payment.

Although a home can be saved even if a foreclosure lawsuit has been filed, the earlier a homeowner seeks help, the better the chance to keep the home.

The homeowner who anticipates a hardship should immediately seek help, as lenders are willing to work with homeowners even if a payment has not been missed.

Myth 2 — I must pay someone to help me try to keep my home.

Housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) provide foreclosure prevention assistance involving all loan types.

These free services range from contacting the lender about a lower payment to finding a solution to bring the home loan current.

These agencies are also aware of federal, state and local homeowner assistance programs. You can locate a HUD-approved counseling agency at www.hud.gov.

If a homeowner wants to try to keep their home without involving community assistance, and a foreclosure lawsuit has not been filed, the homeowner should contact the lender directly and ask for “loss mitigation” (the department that is designed to avoid foreclosure). If a foreclosure lawsuit has been filed, it is best to contact the plaintiff’s lawyer and ask to apply for a loan modification.

Myth 3 — I can now resume making my home loan payment, but I cannot keep my home, as I do not have the money to make up missed payments.

The lender will usually not require the homeowner to have all the missed payments to resolve the matter. In fact, the federal homeowner assistance program Making Home Affordable does not require any of the missed payments to be paid up front to resolve the matter.

Myth 4 — I must move immediately because I was served with foreclosure lawsuit paperwork.

The receipt of foreclosure lawsuit paperwork does not mean anyone has to immediately move from the home. In fact, the homeowner can defend against the lawsuit, and the foreclosure process takes several months to complete even if the lender is successful.

The law allows the occupants to remain in the home, even if no payments are being made, until the property is sold, the court confirms the sale and the sheriff orders the occupants to leave. Any order to move from the sheriff will be posted at the home, giving the date and time the occupants are expected to be out.

Myth 5 — I do not have to respond to a foreclosure lawsuit, since I am working with a HUD-approved housing counseling agency.

The foreclosure process will continue unless and until an agreement is reached to stop it. Therefore, the homeowner needs to respond timely to the foreclosure lawsuit to preserve their legal rights in case the matter is not resolved.

A HUD-approved housing counseling agency cannot assist in this process.

Myth 6 — I have been served with a foreclosure lawsuit, so now court personnel and potential buyers can come into my house.

Nobody can come into a house just because foreclosure lawsuit paperwork is served on the homeowner.

Even if the lender wins the foreclosure lawsuit and the property is advertised for sale, the lender, court personnel and prospective purchasers cannot come into the home unless the home has been abandoned.

Myth 7 — I am no longer responsible for the home if I move.

Leaving the keys on the counter or with the bank for whatever reason (cannot make the payment, owe more on the home than it is worth, foreclosure lawsuit has been filed, etc.) does not mean that the homeowner has eliminated their legal obligations as a borrower and homeowner.

The lender(s) must agree to allow the home to be sold for less than what is owed (short sale) or agree to take the home back (deed-in-lieu of foreclosure).

Normally, the lender wants the homeowner to attempt to sell the home for a period before it will consider a deed-in-lieu of foreclosure. A deed-in-lieu of foreclosure is likely not an option when the home loans are neither owned nor serviced by the same company.

Staying in the home and maintaining it prevents it from being vandalized, helps maintain property values and may reduce the money the homeowner may owe the lender if the home sells in foreclosure for less than what was owed on the loan. Therefore, staying in the home has multiple benefits.

Myth 8 — If my home is sold in a mortgage foreclosure lawsuit for less than what I owe on the loan, the lender who filed the lawsuit may collect the balance from me for the rest of my life.

If the property sold at sheriff’s sale was your primary residence and the property does not have dwellings for more than two families, the lender has only two years from the confirmation of the sale of the home to collect the deficiency.

Myth 9 — I will automatically lose my home if I file bankruptcy.

Bankruptcy can be a way to prevent the home from being lost in foreclosure, by freeing up money to pay the lender or by giving the homeowner the opportunity to repay missed mortgage payments and other debts over time.

Myth 10 — I cannot afford to remain in my home, even though it is paid off, because I cannot afford the property taxes, insurance and maintenance.

If you are age 62 or older and the home is your primary residence, you may be able to convert the equity in your home into a stream of income to pay your home-related expenses and other bills. This is commonly know as a “reverse mortgage loan.” For additional information, go to www.hud.gov.

New York’s economy is struggling through a perfect storm caused by the implosion of the construction and real estate industries and exacerbated by record high unemployment. Many people can barely pay their daily living expenses, and in some cases, they must choose between paying an “upside down” mortgage or their living expenses. For some, bankruptcy can provide much needed relief, but often they choose to avoid bankruptcy or they simply wait too long to take action.

Misconceptions abound about

bankruptcy, as well as bankruptcy alternatives such as short sales and loan modifications, which can make matters worse and serve as mere preludes to an eventual bankruptcy filing.

Here are five of the most common myths about bankruptcy:

Debtors who file for bankruptcy usually can keep their homes as long as they remain current on their monthly payments. In fact, a debtor can often go through a bankruptcy, reaffirm his primary mortgage, fully discharge his second mortgage, and come out still owning his home and immediately building equity. This can be the key to getting back on track to financial success.

2. I should try to work with my lender to modify my loan.

Lenders are quick to offer a loan modification program for two primary reasons: they often receive a fee from the federal government for each loan modification they make and the loan “modification” typically involves keeping intact the first and second mortgages, which temporarily reduces the monthly payments and adds years of extra payments to the end of the loan. In many of these cases, the lender merely extends the life of the loan (thus collecting additional interest) and receives a check from the federal government for doing so.

In addition, lenders will almost always require a borrower to go into default for up to three months prior to considering a loan modification request. Because the borrower is then in default, the lender has the right to start a trustee’s sale to sell the borrower’s home in the event the loan modification request is denied. Clients bring us stories of this troublesome situation all too often, thinking they were in the middle of a loan modification process and therefore the lender could not foreclose on their home. Unfortunately, the lender is within its legal rights to do so.

3. If my lender approves a short sale, my mortgage debt will be forgiven.

A “short sale” is the sale of a house for less than the amount owed on the mortgage or mortgages. A short sale requires the lender’s permission. The standard short sale agreement proposed by most lenders is typically not fully understood by the borrower. In a short sale transaction, without proper documentation and legal counsel, an otherwise unenforceable deficiency claim can become a significant liability. Obviously, this is exactly the opposite result sought by people going through a short sale and, in the end, may actually force the borrower to file for bankruptcy.

4. I should pursue a “strategic” foreclosure.

I frequently hear cases where a person strategically allowed their home to be foreclosed. In reality, there is nothing “strategic” about such a decision. A foreclosure is, in my opinion, always a less desirable alternative than bankruptcy. In fact, in evaluating a person’s creditworthiness, a foreclosure on a credit report generally is worse than a bankruptcy or a tax debt. In my experience, a lender would prefer to work with a borrower who filed for bankruptcy protection, rather than with one who has a foreclosure on his or her record.

5. It is better to settle my credit card debt than to discharge it.

A common pitfall for people with credit card debt is to try to negotiate relief on their own or through one of the debt relief agencies advertising on late-night television. These debt relief agencies generally charge a hefty fee, and may not accomplish the desired result. Even when the debtor or debt relief agency successfully negotiates a compromise settlement, the debtor may be subject to income tax liability on the canceled or forgiven debt. In a bankruptcy proceeding, however, a debtor can frequently eliminate all credit card debt without incurring tax liability.

If your home is going though foreclosure and you are going through Chapter 7 bankruptcy, there is a way to stop the foreclosure process. It will not be easy and there is a lot of paperwork that has to be done, but it is possible. You may be required to appear in court and meet with your attorney a few times. However, in the end, if you can stop the foreclosure you will be able to stay in your home.

1.  Prepare a petition for Chapter 7 bankruptcy. Get all your documents together, especially ones that have to do with the mortgage. As part of supporting evidence for your case you need to attach the mortgage loan agreement and all amendments.

2.  Put together all paperwork that has to do with this bankruptcy. Legal documents should be in your possession pertaining to the foreclosure of your home. These papers are included with all other documentation that has to do with your Chapter 7 bankruptcy.

3.  Obtain all statements that have to do with credit cards or other accounts at this time. All debts come into play when you go into bankruptcy. The courts need detailed documentation of all debts.

4.  Obtain all current statements that have to do with you bank accounts from all institutions that you may have including pay stubs and current income tax papers. Make sure all your assets and earnings are documented.

5.  Talk to a bankruptcy attorney about professionally doing your paperwork and handling the case. The forms that you need for your bankruptcy can be found online.

6.  Commence with your Chapter 7 bankruptcy proceedings. Put your petition in with the Clerk of the United States Bankruptcy Courts. It is located within the U.S District Court. Remember they do have different clerk’s offices so make sure you go to the right one. Call before you go to make sure you have enough copies of your petition and all required fees.

7.  Send off a copy of the bankruptcy order immediately to the attorney for your mortgage lender. It is a good idea to let the mortgage company know that you are in bankruptcy. An Order for Immediate Stay is what the mortgage company needs in order to stop all foreclosure proceedings.

8.  Attend a meeting of the Chapter 7 bankruptcy of Trustee’s. After filing your bankruptcy you will get a letter informing you of the Trustee’s meeting, this is when any creditors and a representative of the mortgage company will come and make an agreement.

9.  Enter into an agreement with the mortgage lender called a Reaffirmation Agreement. This will allow you to get out of foreclosure and keep your home. You will then start making mortgage payments to the company as stated in the agreement.

Over the last several years, companies have continued to file for bankruptcy protection at growing rates as a result of struggling markets and economic conditions. The good news is that bankruptcy can be a viable option for turning a company around if the proper time and planning is invested.

But how do you know if your company is headed for bankruptcy?  Steven Zalewski a partner in the Law firm of Habib and Zalewski p.c. says there are several indicators that can put  financial strain on companies and possibly lead to a bankruptcy filing.

“Significant declines in sales, trouble managing cash flow, strained relationships with vendors, and limited or no access to capital can heighten a company’s financial distress and, thus, result in a bankruptcy filing,” says Savage.

Smart Business spoke with Savage about the steps you need to take when considering a bankruptcy filing and how to prepare your company and employees for bankruptcy.

What are some key things you need to be aware of regarding bankruptcy?

First, most companies wait too long to file for Ch. 11 bankruptcy protection. Management often does not want to believe that the financial crisis is as bad as it is. This is common in every industry and in every size company. Management needs to take a true look at the company’s financial position, not what they hope it will be. This involves understanding sales forecasts, financial projections, current cash position of the company, and what access to additional capital the company has, including refinancing options to improve liquidity. The challenge is that the further a company goes down the path of financial decline, typically, the fewer the options.

It would be the equivalent of someone spending all the money in their checking and savings and then liquidating all other assets including 401(k), and then saying, OK, now I need help. The time to do it is when you still have some options and financing opportunities available. In fact, bankruptcy is only one of the options that a company can utilize for a successful turnaround. Today, we see less true Ch. 11 turnarounds than in the past; instead many Ch. 11 filings ultimately involve a sale, potentially a Section 363 transaction selling the company or certain assets of the company. A new surviving entity is created from the sale of assets and then the remaining components of the business are liquidated, often through the creation of a Liquidating Trust. Other business turnaround options include an out-of-court restructuring plan that could involve a refinancing, possibly tied to selling certain subsidiary companies or divesting certain operations to streamline the business.

What is involved with filing for bankruptcy?

Management should contact an attorney who is familiar with corporate bankruptcy proceedings, as well as a financial adviser, as soon as possible. An attorney and a financial adviser can advise the company on its options and what makes sense for the business.

A Ch. 11 filing typically allows the company (referred to as ‘Debtor in Possession’) to do the following to restructure its business operations, which are true advantages to filing:

• Negotiate and acquire financing/loans on more favorable terms.
• Reject certain leases and cancel business contracts. Debtors in Possession are protected from other litigation against the business through an automatic stay.
• Vendors that continue to do business with companies operating in bankruptcy have more assurance that they will be paid for their post-petition goods and services than if they continued to do business with the company without the Ch. 11 filing.

How do you prepare your company and employees for bankruptcy?

There’s a lot of work that has to be done behind the scenes. The communication strategy is absolutely critical to the success of the turnaround. Management should communicate expectations and timelines to employees, business partners, vendors and others with the intent being to clearly explain how the filing is most likely to affect them. In most cases, it’s also helpful to explain the reason why you’re taking this step to file — so you can restructure the company and return the business to financial health. That’s the most important thing to emphasize.

What preparations can you make to get the company out of bankruptcy in the future?

When companies begin to see a significant decline in financial performance, one of the challenges is that this information may not be coming quickly enough for management to react. More erosion of the business can occur before management reacts. Accurate and real-time management reporting and a good business plan are paramount for the financial improvement of the company.

What are the risks and benefits associated with filing for bankruptcy?

Bankruptcy still has a certain stigma to it, but, in reality, when handled professionally and executed with good information, a Ch. 11 bankruptcy filing can be the best thing to enable the company to turn around. It just depends on the factors that are involved with the business. It also depends on the marketplace. Some business models are just not going to succeed no matter what turnaround they attempt.

Usually, the very last thing any person wants to do is file for bankruptcy protection.

So much so that the average person will wait two years longer than he or she should have before filing.

Under a typical scenario, a person likely will have stopped answering the telephone – or jumped when it rings – for fear of bill collectors. He or she also likely hasn’t opened the mail, dreads when the doorbell rings and kept their financial secrets from friends and family as long as possible.

There is no specific rule for determining when a person should file for bankruptcy protection. But there are several indicators that suggest one should at least consider when filing a bankruptcy is probably in a person’s best interest.

Among them:

• Going through a home foreclosure or car repossession. Your credit already is ruined by those events, anyway. Also, the creditor is bound to file a lawsuit in the future after a foreclosure or repossession for the deficiency from the resale of home or car, if there is any.

• Receiving garnishments or a tax levy. If you are unable to pay a creditor unless forced to do so by a court order, that usually means then other creditors cannot be paid.

• You have stopped paying bills. If you cannot pay the debt, why leave it hanging over your head for future problems collecting interest and late fees?

• Having more debt then you can foreseeable pay off or borrowing more money to pay off loans. While your credit still may be OK, if your debt structure is to large to pay off in the foreseeable future all you’re really doing is moving furniture around on the Titanic.

Ask yourself where your ship is really going and come up with a sensible plan for dealing with it. Ignoring the problems will not make your debt go away.

The law firm of Habib and Zalewski p.c. servicing the Queens New York community can provide you with a free consultation about any of your bankruptcy needs. Call us at 718-263-6800