For many people, filing for personal bankruptcy is an option that carries with it personal stigma and many unknowns. Persistent myths swirl around the process that are either half-truths or completely false. There is more than one type of personal bankruptcy filing, and each has its own rules and consequences, but the ultimate goal of each is to help a debtor out of a difficult financial situation. Here is a run-down of the top five myths about bankruptcy. (Going bankrupt can help pull you out of debt, but it’s rarely the best option. Check out Declaring Bankruptcy Is No Easy Out.)

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1. You Will Lose Your House and Car
The two most-used types of bankruptcy filings are Chapter 7 and Chapter 13. Chapter 7 is also called a “liquidation” bankruptcy, as all assets of the debtor that are not exempt are sold and the proceeds distributed to the creditors. If you have significant assets, such as a vehicle or house, you will file Chapter 13 bankruptcy instead, which allows you to keep your assets and set up a payment plan with the creditors. This way, the creditors potentially end up with higher recovery and debtors can eliminate their debts over time while still being able to continue to live and work where they have been.

2. You Will Lose Your 401(k) or Retirement Assets
Certain assets are exempt from liquidation and distribution in a bankruptcy proceeding. 401(k) plans and IRAs are including in that group. This allows the debtor to have a more secure retirement even after filing for bankruptcy. However, if money is taken out of one of these plans prior to bankruptcy, those funds are not exempt and must be included in the filing. When deciding whether to access retirement funds to try to avoid bankruptcy, this fact must be considered if there is a chance that the filing will occur at a later time. (You can defend your retirement savings from the ravages of a bear market. We’ll show you how. See Bear Spray For Your 401(k).)

3. Your Credit Will Be Ruined
Bankruptcy has a serious negative impact on your credit history – but only for 10 years. At that point, it falls off the report and is no longer easily visible to new creditors. In the meantime, however, creditors will be able to see the status of your bankruptcy proceeding. If you have been discharged and everything has been finalized, a creditor may be more willing to lend to you even during the 10-year period. Credit card companies may be the first in line to extend new credit to you after discharge.

4. You Won’t Be Allowed to File for Personal Bankruptcy
Prior to 2005, there were limitations on who was able to file for bankruptcy. Changes to the law allow all debtors to do so now. Chapter 7 filing contains a means test with income and expense limitations. If your income is high enough to pay creditors under a Chapter 13 plan, you will be barred from filing for Chapter 7 relief. However, because bankruptcy proceedings can have a large impact on your future wealth and financial status, you should always consult a credit counselor and bankruptcy specialist before beginning the filing process.

5. You Can Only Ever File Once
There are limitations on how many times you will be granted bankruptcy relief, but you can file more than once. If you are seeking Chapter 7 relief, you must not have filed another Chapter 7 in the past eight years. Chapter 13 is only available to debtors who have not been discharged from a Chapter 13 in the past two years or a Chapter 7 in the past four years. Chapter 13 proceedings may be started in these circumstances but the debtor will not be granted a discharge until the time limitations have passed.

The Bottom Line
While bankruptcy law is complex, its ultimate goal is to help those who find themselves in financial crises. Knowing the truths from the myths will help you decide if bankruptcy is the right decision for you. (Find out how to determine whether this option will help or hurt your financial situation. Check out Should You File For Bankruptcy?)

The real estate market has caused more financial disaster to families than ever before. Property values have plunged up to 50% or more in some areas and few experts predict any kind of growth for years to come. In 2010 the number of non-business bankruptcies surpassed 1.5 million reaching a 5 year high and some people expect 2011 and 2012 to have even higher numbers.

“Almost everybody knows someone who has filed (or considering) bankruptcy so it may be time to face the reality of your financial situation”

Credit card companies, real estate organizations, banks and others who have a vested interest in debt may have a different forecast but can you really even trust their opinion?

The most important element is consumer sentiment and for many people the immediate future does not look so bright without a little help. The good news is you are not alone. Bankruptcy and Foreclosure are no longer bad words but simply tools to assist with starting over. Tools that we are fortunate to have in America and one you really need to consider if your situation calls for it.

Where do you start and when do you know when to file?

Hindsight is 20/20 and there is no better example of how true this expression is then when it comes to bankruptcy. Ask any individual who has completed the process and most all will say “I should have filed a long time ago”.

Finances play a significant role in your health and the stress of dealing with debt collection agencies, credit card collection departments, mortgage companies and others is simply not worth it. Numbers are black and white. If you are borrowing month after month to save your home, pay your car insurance bill or simply keep food on the table then maybe its time to at least have a real discussion with someone who can provide advice. Finding a trustworthy attorney may be a tougher process than making the decision to pursue a clean slate but there are many around and when you find that right person it’s very possible to start sleeping again.

What are the Top 5 things you should do before filing bankruptcy?

Contact an Asset Protection Lawyer

Finding an asset protection lawyer is your first step. There are many items exempt from creditors such as retirement plans, life insurance policies and more. Even certain types of bank accounts for married couples can be flush with cash and not a single creditor can ever touch the money depending on where you live. Most asset protection lawyers know or work with bankruptcy attorneys and even if you don’t end up filing there are valuable things you can learn to protect your assets from judgments and debt collectors.

Get your Taxes in order

A mandatory requirement of filing bankruptcy is having your taxes prepared for the prior year. Without tax returns you cannot file so its imperative to stay current. If your lawyer advises you to file bankruptcy and you have an opportunity to discharge all of your debt and get a fresh start do you really want tax returns holding you up?

Educate Yourself

Many attorneys are great counsel but there are also some sharks who have a nice smile and passed the bar exam. Never assume your attorney knows everything. Read forums, ask questions, speak to other people who filed and make sure your attorney answers all your questions. Bankruptcy may be an everyday event to him but you are the one filing and any mistakes or missing items will only cause more headaches down the road.

Take Advantage of being Married – You may not have to file jointly

This is huge. In some states married couples can file separately and marital assets are protected under state law. What this means is that some couples have an opportunity to file individually and maximize the amount of assets they get to keep. The husband files one month, then the spouse files a few months later. Always ask about the advantages of filing individually if you are married.

Embrace Bankruptcy

Do you remember all the sleepless nights with debt collection agencies calling you at 9pm? Relax and focus on the filing, not on the debt. Change your phone number if you need to – banks contract agencies well known for harassment (another reason to not feel guilty about filing) and there is little you can do to avoid this. Focus on the end game and soon a fresh start will be there.

Financial problems happen to the best of us and even if some people enjoyed a little living beyond their means when the real estate market was booming its no reason to suffer for eternity. In fact, for every single person filing bankruptcy today there is most likely someone much more famous, richer and higher in another courthouse doing the same thing.

No one is immune to financial problems but the only way to a good night’s sleep is to embrace your situation and take steps to fix it – not steps to avoid it.

Foreclosure rates in the U.S. have skyrocketed since the housing market crash. Last year, more than 2.5 million homeowners received foreclosure notices, a 2.5 percent increase over the previous year and more than 23 percent increase over foreclosures in 2008. New York  has remained one of the states hardest hit, with Queens New York ranking second only to Kings County  as the city with the highest foreclosure rate in the nation. If you’re one of these homeowners, you may be asking yourself what you can do with mortgage loans in bankruptcy.

For some people, foreclosure may be the best way to rid themselves of mortgages they can no longer afford, but for others, foreclosure is not the only option. For those who want to keep their homes but cannot afford it, filing for bankruptcy may be a reasonable solution with less damaging financial consequences than other courses of action, such as sitting at home waiting for the sheriff to show up on your doorstep.

While both foreclosure and bankruptcy will remain on your credit report for seven years, a foreclosure can have a much harsher impact on your ability to secure credit in the future. In comparison, those who file for bankruptcy may begin receiving offers for credit cards within one to two years of completing bankruptcy – because creditors know you’re now debt-free – and you may be eligible for a new mortgage within as little as four years, depending, of course, on your individual circumstances.
Exempting Your Home in Chapter 7 Bankruptcy

What follows is a simplistic analysis of home exemptions in chapter 7 and chapter 13 bankruptcies. Your individual circumstances will definitely play a role in what you ultimately decide to do.

If you want to keep your home and do not have much equity in it, chapter 7 bankruptcy may be your best bet. Under Queens New York law, homeowners who file for chapter 7 are allowed to exempt up to $150,000 in equity in their primary residence under the homestead exemption. (You must, however, generally continue to make mortgage payments if you wish to keep your home in chapter 7 bankruptcy.)

Equity is the difference between what the home is worth and what is owed on the home. For example, if you own a home worth $350,000, but you still owe $300,000, then you have $50,000 in equity in the home, putting you well within the homestead exemption.

However, if you have more equity in the house than the exemption amount, chapter 7 may not be the right fit for you. In a chapter 7 bankruptcy, the court will assign a trustee to collect any non-exempt property you own to sell it to repay some of your debts. This includes any equity in your house above the exemption amount.

For example, if your house is worth $350,000 and you owe the bank $100,000, then you have $250,000 in equity in the home – well above the exemption amount. In this example, the bankruptcy trustee can force a sale of your home and take any amount from the sale over $150,000 to repay your creditors.

In cases such as this, the better option may be to file for chapter 13 bankruptcy.

Catching Up on Your Mortgage in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is another way you may be able to keep your home out of foreclosure. In chapter 13 bankruptcy, you will work with the bankruptcy court and trustee to create a payment plan to pay off a portion of your secured debts within three to five years. This repayment plan can include missed mortgage payments, giving you an opportunity to make up late payments and get current on your mortgage.

The catch about chapter 13 bankruptcy, however, is that it only works if you have enough disposable income to make the payments every month, on time, throughout the entire three to five years of your repayment plan (this is why chapter 13 is also known as “wage-earners” bankruptcy, though why that is remains somewhat a mystery – it’s not like those who file for chapter 7 don’t have jobs). If you can do this, then unsecured debt, like credit cards and medical bills, will be discharged after you have successfully completed your chapter 13 repayment plan.

If you are unable to keep up with the repayment plan, then you may have the option of converting your bankruptcy to a chapter 7 filing; however, the conversion will not save your house from foreclosure if you own more than $150,000 in equity in the home, or if you cannot otherwise make your mortgage payments. If you do not convert to chapter 7 and do not complete the repayment plan, including keeping current on your mortgage, then the lender can take steps to foreclose on your house.

Stripping a Second Mortgage

If you are like thousands of other homeowners who owe more on their mortgage than the home is worth (you’re “underwater”), you may be able to eliminate, or “strip,” a second mortgage through chapter 13 bankruptcy.

In some cases, you can strip your second mortgage so long as it is wholly unsecured. This means that the value of your house must be equal to or less than the amount owed on your first mortgage. For example, if you owe $200,000 on your first mortgage and $50,000 on your second mortgage, but your home is valued at $198,000, there is not enough value in your house to secure the second mortgage. As a result, you are eligible to strip the second mortgage off what you owe.

A second or subsequent lien on your property can only be stripped once you have completed the chapter 13 repayment plan. This means making all of the payments for the entire repayment period, which includes staying current on your first mortgage.

The Next Step: Contact a Bankruptcy Attorney

If you have received a home foreclosure notice or have fallen behind on your mortgage payments, talk to a bankruptcy lawyer before you do anything else. Whether you want to keep your home or are ready to let it go, learn about selecting a bankruptcy attorney who can explain your legal options and help you get back on track.

Stripping a Second Mortgage in a Chapter 13 Bankruptcy

One of current problems in the real estate market is the number of “underwater” mortgages, where the value of the properly has declined below the outstanding value of the mortgage. Banks have been extraordinarily resistant to the concept of loan modifications, where that modification would lower the principal value of the loan and bring it in line with the market value.

Most people are trapped in these houses, as they cannot sell them for a high enough price to allow them to pay off the mortgage. The U.S. Bankruptcy Code generally does not permit the loan value to be lowered or “crammed down” during a bankruptcy to the current market value of the property.

Second Mortgage

If you have a second mortgage or home equity loan, on the other hand, you may be able to discharge this debt through a Chapter 13 bankruptcy if the value of the property has fallen below the outstanding balance on the primary (or first) mortgage.

In this case, the second mortgage holder is no longer a secured creditor, as the property is no longer valuable enough to serve as the security interest the loan was originally based on. In essence, the second mortgage is unsecured, and it is akin to credit card debt. In a Chapter 13 proceeding, the mortgage holder’s lien can be stripped from the estate and they will receive a pro rata share of the amount paid to unsecured creditors. Hence, the term “lien stripping.” For example, if there is a $50,000 second mortgage on the property, the entire lien can be removed for 10 cents on the dollar ($5,000). The homeowner will save $45,000 and can have the remaining amount discharged. They will not have to pay it back.

Valuation

An important factor in this process is having a proper valuation of the property listed in the Chapter 13 plan. A creditor who fails to object to the valuation is bound to it once the plan is confirmed by the court.

Valuation can be a complex issue, often requiring the use of experts. However, with the widespread decline in real estate values, in many circumstances, it should be possible to verify the new value with an appraisal.

Underwater?

If your mortgage is deeply underwater and you have a second mortgage or home equity loan, you should contact an experienced bankruptcy attorney. He or she can review your outstanding loans and advise a strategy to obtain effective debt relief.

Q: What kind of situation would make a person a good candidate for bankruptcy?

A: The typical client for Chapter 7, the most common form of bankruptcy, would be a person who lost their job, was many months behind on their mortgage payments and was in foreclosure, and had a significant amount of credit card debt. This is a person who has no viable alternatives other than bankruptcy to get back on their feet. Remember, Chapter 7 bankruptcy allows the client to have a fresh start in life; keep most, if not all, of their basic assets such as their home, vehicles, furniture, clothing, jewelry and retirement funds and pay nothing to any of their creditors.

Q. In your experience, what are the main reasons people are filing for bankruptcy? Have the reasons changed over the years?

A: Before the recession it was often medical debt incurred by people without health insurance, a divorce or the death of a spouse that would lead to bankruptcy. Now, virtually every bankruptcy filing can be traced directly to the economic downturn, with loss of a job, a cutback in work hours, a reduction in commissions and bonuses, and a steep decline in customers for small businesses.

Q. How much do you charge someone to file for bankruptcy, and how long does the process typically take?

A: While every situation is unique, a typical Chapter 7 bankruptcy for an individual might cost between $1,900 and $2,900, depending on the variety and kind of creditors, the type and location of assets, and the income and expenses of the client. A typical Chapter 7 bankruptcy takes about three months from beginning to end.

Q: Is it necessary to hire a lawyer to declare bankruptcy?

A: It is not required that a person hire a lawyer to file for bankruptcy, but once they see the large amount of paperwork involved and the complex and sometimes arcane rules that apply, most people back away from representing themselves. At the very least, you should meet with a bankruptcy lawyer to go over the process before making the decision to proceed on your own.

Q. What are some alternatives to bankruptcy?

A: Some of the alternatives include the short sale of a house, a loan modification, a voluntary credit card debt workout, a deed in lieu of foreclosure, or perhaps even a lawsuit against one’s lender for violation of the Truth in Lending Act or other state and federal consumer protection statutes. Sometimes credit card companies are willing to make substantial discounts, both in amounts owed and interest rates, to avoid having a customer file for bankruptcy. It is at this point, just prior to filing for bankruptcy, that the consumer has the most leverage over the creditor.

If you or someone you know is facing overbearing financial obligations and have considered declaring bankruptcy, it is important to understand the processes and consequences of bankruptcy and any feasible alternatives in order to make the most informed decision.

Declaring bankruptcy, or legally stating one’s inability to pay off debt, can provide a homeowner with relief from creditors and—if faced with foreclosure—protection from a lender’s deficiency judgment. However, it can also leave the individual with lasting financial and emotional wounds. While declaring bankruptcy may temporarily halt foreclosure proceedings and allow for the reorganization of debt, in most instances the homeowner will be forced to vacate the property and foreclosure will be imminent.

Bankruptcy can remain on one’s public record for seven to 10 years. This lowers one’s credit score significantly, showing lenders and future employers a history of financial challenges and low creditworthiness. Declaring bankruptcy is ranked among the top life-altering negative events one can endure and it can negatively affect one’s emotional and psychological state, making recovery a challenge.

Perhaps the most damaging misconception about bankruptcy is that it is a “get out of debt free” card. It cannot erase the financial obligations of taxes, student loans, child support or alimony. In addition, bankruptcy is not a solution for everyone. Each situation is unique, laws vary by state.

Filing for bankruptcy is a legal process and you should consult with a specialized bankruptcy attorney. It is important to be aware of any potentially less-damaging alternatives. In many cases, mortgage payments represent the largest portion of an individual’s debt. It’s helpful to consider looking at one’s debt with the mortgage payment eliminated or replaced by a lower rental payment. Homeowners facing financial hardship, showing a monthly shortfall and heading toward insolvency may qualify for a short sale, in which a home is sold for less than the mortgage amount owed. A short sale is a dignified alternative to foreclosure, with less harmful effects on a homeowner’s credit score, future home loan eligibility, employment and security clearance. Short sales have become a strong and beneficial solution for homeowners, and lenders and the government are fully supporting them.

If you are considering bankruptcy because of overwhelming mortgage payments, you may not see any light at the end of the tunnel. Bankruptcy may not be right for you.

There are various “chapters” of bankruptcy and options for which an individual can file (for a greater understanding of these options, contact an attorney specializing in bankruptcy):

• Chapter 7 involves the liquidation of one’s assets.
• Chapter 11 is solely used for business.
• Chapter 13 allows the debtor to pay debt over a time of three to five years. This type can prevent foreclosure if the homeowner can make all mortgage payments during the years of the payment plan.

If you are going to default on third or fourth terms of your mortgage loan, it is time to get mentally prepared for receiving the dreaded notice of home foreclosure from your creditor. Your creditor can start the legal process of repossessing your property after 20 to 30 days after sending you a letter of notification. Very naturally it creates frustration in you as you are going to lose your home or business asset. Now in this situation, the one and only solution you can avail is filing bankruptcy. If it is your personal property then you can file chapter7 bankruptcy and if it is business property, then you should go for chapter11 bankruptcy. However, the problem is that in America we are always being told that our credit score is almost everything in our life. And the fact is that once you file for bankruptcy, the information on your credit report stays for ten long years which is a huge drawback for bankruptcy. But on the other hand, you have to try to save your foreclosing property and here your last option is appearing before the court and declaring bankruptcy.

Now, on the face of impending property foreclosure when you file chapter 7 bankruptcy, an automatic stay order is made in effect on the foreclosing process. It is done by the order of court inhibiting your creditor to proceed with his legal process or even collection activity. However, it can halt your creditor for typically three to four months. But chapter 7 does not give you the guarantee that your creditor will not be able to commence his legal process again.

If your creditor is persuasive enough he can obtain the grant of the bankruptcy court to go on with the selling process of your property at the auction. It is termed in judicial language as ‘motion to lift the stay’ order.

Chapter 11 bankruptcy is usually filed in case of business debt. Here, the benefit is that you can retain your property intact or the business process after reorganizing the pattern of your debt repayment schemes. Interest rates and late fines are waved off to reduce the pressure of debt burden from the head of a debtor. However, in some cases of chapter 11, the court may sell the debt to other company in order to save the employees from job lose.

Now, let me come to the point of post bankruptcy credit score effect. As I mentioned before that your credit score get a deep scar due to filing bankruptcy. And there are some credit repairing agencies that take just this opportunity of your hopeless condition. They bombard you with tall claims that within 30 days they will erase all your negative marking from your credit report including bankruptcy, bank lien or tax lien etc. They ask you enrollment charge even before showing you any kind of tangible performance. Sometimes, they even provoke you to invent a new credit identity. For your better knowledge, let me assure you that most of these agencies are a scam. It is better to avoid them and try to get familiar with legitimate procedure of credit repairing by yourself.

Bankruptcy can adversely affect your credit future but with patience and perseverance you can try to better your credit health. Otherwise, if you are lured by their idea, it can back fire you and strap you into more hassle.

Author’s Bio: Suzanne Collins is a contributory guest columnist, financial advisor, blogger, editor for various websites and blog including Oak View Law Group, CCHFA, CDF etc . She has completed her Post Graduation in Mass Communication from Texas and is currently working with a Media House in Texas itself. She loves to write articles during her spare time especially on topics like bankruptcy, helping women articles, monetary policies, etc.

Bankruptcy. No one wants to think about it. Unfortunately, more and more people are considering bankruptcy as a way out of their problems. I talked with William D. Schroeder Jr., a bankruptcy attorney in Colmar, to find out exactly what bankruptcy is and what someone should do if they are in financial difficulties.

Beverly A. Black What is bankruptcy exactly?

William D. Schroeder Jr. It’s a court ordered protection from all creditor action, an orderly administration of your debts. There are three types – chapter seven, chapter 11 and chapter 13, but generally individuals go through chapter seven or 13.

Chapter seven eliminates all credit card debt, utility bills, medical bills, and car repossessions. You will have to pay your outstanding taxes but you get to keep your car, your pensions and other retirement funds as well as your home. Chapter 13 is more of a repayment plan for your mortgage, credit card debt and secured debt.

BAB What happens when someone files for bankruptcy?

WDS First, if you’re having trouble paying your monthly mortgage, we can force a repayment plan on the mortgage company. They must accept this. Also, upon filing a petition, all creditor action against you must stop. That means the phone calls and letters will stop, all sheriff and constable sales will cease and your mortgage company cannot foreclose on you.

BAB There are lots of common myths about bankruptcy. For instance, if you go through bankruptcy you’ll lose everything and your credit will be ruined forever. Are these things true?

WDS No. First, as I mentioned, you generally get to keep your home, you car and your retirement funds. With careful planning, you can have excellent credit and be back on your feet in two years.

BAB When should someone contact a bankruptcy lawyer?

WDS If you’re struggling, it’s never too early to seek legal advice. You should call around and find an attorney you can trust who won’t charge outrageous fees. For instance, I offer a $50 consultation and there’s no pressure to hire our firm. We also offer reasonable rates if you do decide to choose us.

BAB What, if anything, should someone bring with them to that first consultation?

WDS Copies of their bills, monthly mortgage statements, recent pay stubs and their most recent tax return. That’s a good start and will give me an idea of your economic situation.

BAB Nowadays many people are trying to do legal actions on their own. Is bankruptcy something an individual can do without an attorney?

WDS It’s not recommended. The law was changed in 2005 and there are many misconceptions out there. We’ve been doing this for a long time and know exactly what needs to be filed and how. And, it’s nice to be able to say to your creditors, “Talk to my attorney.” That way you don’t have to deal with all the hassles anymore and you don’t have to worry about the technicalities and deadlines.

BAB What about all these easy debt consolidations letters people receive? They sound too good to be true.

WDS Exactly. I’ve had many clients who came to me after they had gone through that process and lost a lot of money. I think they’re a waste of time. You might want to try to deal directly with the credit card company yourself, but for peace of mind, I still think talking to

Habib and Zalewski P.C. a Queens New York bankruptcy firm with office location in Nassau County New York, Suffolk County New York, Queens New York, Brooklyn New York, Bronx County New York and Manhattan brings you an informative article on choosing a bankruptcy lawyer.

When an individual or a company is suffering from financial related issues they should look at the best available option while filing bankruptcy. Bankruptcy laws provide individuals and organization protection from debt and help to build a financially stable future. A serious matter like bankruptcy will require skilled and knowledgeable lawyers who can provide the right kind of legal representation that you deserve. A well experienced bankruptcy lawyer in Queens New York will make sure that the bankruptcy filing process flows smoothly, when you file for either chapter7 or chapter 13 bankruptcies.

Here are a few points that can help you to hire a qualified bankruptcy attorney:

1.Certification: Verify that your bankruptcy attorney has earned any degree or certifications specific to their law practice.
2.Experience and Workload: Get information regarding how long your attorney has been practicing bankruptcy laws. How many cases has your attorney handled before and succeeded in those cases.
3.Cost: While hiring bankruptcy attorney, make sure he offers you free consultation. It will allow you to evaluate how the bankruptcy attorneys are suitable for your financial needs before hiring them.
4.Office Visit: You should also visit the bankruptcy lawyer in their own office to get a feeler regarding their practice functions and you should feel comfortable in the environment.

Apart form these you should also take advice from individuals you know who have used attorney services for filing bankruptcy. Habib and Zalewski P.C.is a leading bankruptcy law firm based in Queens New York, servicing all of New York and Nassau and Suffolk counties specializing in various types of bankruptcy related cases. They have been involved in thousands of bankruptcy matters, representing debtors. Their qualified attorneys provide the legal representation you deserve in a Chapter 13 or Chapter 7 bankruptcy in Queens New York, servicing all of New York and Nassau and Suffolk counties