Bankruptcy Basics: When should you throw in the towel?

Bankruptcy is a scary proposition. The word "bankruptcy" itself sounds so ominous. The media bombards us with nightmare tales of seemingly solid business giants going from bedrock to bankrupt. The list of the bankrupt runs the spectrum from personal to corporate bringing together the likes of Donald Trump with Enron.

And gossip columns never tire of dishing on the latest celebrity inches from bankruptcy whether it's Gary Coleman or Mike Tyson having to part with his pet tigers. You might even fear that you're a few steps from going under. After all, we live in an economy in which credit card offers clutter our mailboxes. And living in debt is an accepted norm. But, just how can you tell when it's time to throw in the towel and declare bankruptcy?

Here are a few questions to help you assess your financial danger zone:

• Do you only make minimum payments on your credit cards?
• Are bill collectors calling you?
• Does the thought of sorting out your finances make you feel scared or out of control?
• Do you use credit cards to pay for necessities?
• Are you considering debt consolidation?
• Are you unsure how much you actually owe?

Assess Your Situation
If you answered yes to two or more of those questions, you at least want to give your financial situation a little more thought. Simply put, bankruptcy is when you owe more than you can afford to pay.

To determine where you are financially, inventory all of your liquid assets. Don't forget to include retirement funds, stocks, bonds, real estate, vehicles, college savings accounts, and other non-bank account funds. Add up a rough estimate for each item.

Then, collect and add up your bills and credit statements. If the value of your assets is less than the amount of debt you owe, declaring bankruptcy may be one way out of a sticky financial situation. However, bankruptcy shouldn't be approached casually. After all, it's not a simple, easy cure-all for out-of-control debt.

Courtesy Legal Zoom

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Digging into Detroit's bankruptcy filing

Detroit has once again been in the headlines as the city and its creditors battle in court over whether the city is eligible to receive bankruptcy protection.

Municipal bankruptcy, like just about everything else that contains the word "municipal" or has anything to do with lawyers, is complicated. We checked in with Detroit lawyer Nathan Resnick, a municipal bankruptcy expert, and with his help we'll try to explain what an ongoing court hearing means, and where Detroit stands in its efforts to turn around its finances.

Didn't Detroit already file for bankruptcy? What's the purpose of the hearing?
Detroit did file for bankruptcy protection on July 18, a process that automatically protects the city against any impending action from creditors. But that doesn't mean it definitely gets to remain in bankruptcy.
Judge Steven Rhodes is hearing arguments about whether the city was, in fact, insolvent when it filed for bankruptcy, and whether it negotiated in good faith with its creditors.
Detroit seems pretty broke — $18 billion in debt. Why would anyone argue it shouldn't be able to file for bankruptcy?
Creditors, which include public employee unions and pension funds, say that the city did not try to negotiate with them before filing for bankruptcy.
They say that Michigan Gov. Rick Snyder appointed an emergency manager, Kevyn Orr, to take over city governance with the idea that Orr would force the city into bankruptcy rather than figure out a way to pay creditors. They've been asking the judge to look into who else [the Republican governor] considered for the emergency manager position before settling on Orr, who represented Chrysler in its 2009 bankruptcy, to prove that Snyder just wanted someone who knew a lot about bankruptcy.

What is an emergency manager?
Michigan has had emergency managers for a while now, but they were given more power by a law, Public Act 4, passed by the Michigan Legislature in March of 2011, shortly after Gov. Snyder took office. Public Act 4 allowed the state's governor to appoint an emergency manager to take over from elected officials in any municipality or school district in Michigan undergoing a "financial emergency."

Voters repealed Public Act 4 last November, but the Legislature passed another emergency manager law, Public Act 436, in December. There are currently six cities, and three school districts in Detroit, with emergency managers, according to Stephanie Vaught, a legal analyst with Sugar Law Center in Detroit.

What happens if the judge decides Detroit is eligible for bankruptcy?
If the judge says that Detroit is eligible for bankruptcy, a whole different set of negotiating will begin. The city will submit a plan of reorganization, which then creditors will get to weigh in on. The judge will then decide on various points of the plan.

But if the judge decides that Detroit isn't eligible for bankruptcy protection, the city will need to figure out quickly how to pay its creditors. This trial will end.

In other financially troubled cities, pensions are a big issue. What's happening with Detroit's pension obligations?
This has been one of the more complicated parts of the bankruptcy proceedings. The pension benefits of state retirees are protected by law under the Michigan Constitution. That's why some retirees argued in a separate court filing that the bankruptcy filing violated the state constitution.
But Rhodes, the judge, said he will rule on that issue, which he will address at a later date. He first is looking at the factual issues — whether or not the city is eligible for bankruptcy protection. Then he'll move on to the legal issues.

Can't the city and its creditors just negotiate something and stop spending all this money arguing?
That's another option. A mediator will also be meeting with the city and its creditors in two mediation sessions on Nov. 6 and Nov. 13. Many deals are cut in bankruptcy court, so it's possible the two sides will figure out a way to move forward without making this trial go on any longer. Without mediation, though, the trial will likely continue through early next year.

By Alana Semuels - LA Times

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Filing for bankruptcy: When and how to make use of this legal weapon

Bankruptcy is regarded as the ultimate debt relief solution – one which is chosen only when other debt elimination processes fail to revive the finances of a debt ridden individual. It is a legal process which promises fresh financial start to the consumers by eliminating their outstanding bills and dues. The federal law based judicial course of action either results in the discharge of most or all unsecured debts of an individual or reorganizes the debts with a court-approved payment plan. However, certain bankruptcy cases may also involve loss of the consumer's assets to pay off his creditors.

When can you file bankruptcy?

Bankruptcy might seem to be the best debt solution when nothing else seems to work in your favor. One or more of the following common reasons might prompt you to file for your bankruptcy.

1. You are burdened with enormous debt and not in a financial situation to pay off those
2. None of your attempts to pay off debt worked
3. You risk losing assets to creditors
4. You are unemployed or have lost your job recently

What are the two main types of consumer bankruptcy?

Bankruptcy comes along in various forms. Since bankruptcy leaves a noticeable mark on your financial history, it's extremely important to choose the right form which suits your specific situation. For this reason, it's sensible to sit with an experienced attorney for a pre bankruptcy counseling.
The two most common form of consumer bankruptcy are:

1. Chapter 7 – Straight Bankruptcy/Liquidation: This is the basic liquidation bankruptcy for individuals and businesses. Since it usually involves the discharge of debt, it's considerably a simpler and faster process.
2. Chapter 13 – Adjustment of an individual's debt: This form of bankruptcy adjusts an individual's debt in a way that his debts are repaid, as much as possible. It involves formulation of a court-approved repayment plan for individuals with steady source of income.

Why is it better to hire a bankruptcy attorney than to do it on your own?

It's not necessary that you have to appoint an attorney when you're about to file your bankruptcy. You can evidently represent yourself in the court. However, it's strongly recommended to consult one for bankruptcy help since, after the enactment of BAPCPA in 2005, filing bankruptcy have become much more complicated and time consuming. A minor mistake during the filing process or violation of the bankruptcy laws, may result in rejection of your case.

Thus, before you decide to file your own bankruptcy, check out the following list to understand how an experienced bankruptcy attorney can be a better choice.

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Top Misconceptions About Bankruptcy

Top Misconceptions About Bankruptcy

Bankruptcy law is complex and takes time to master. A basic understanding of the Bankruptcy Code and its principles is essential for effective management of the financial affairs of individuals and businesses. There are many misconceptions about bankruptcy.
  
1. The debtor must be flat broke to file for bankruptcy. Wrong. With limited exceptions, the only requirement to file for bankruptcy is that the debtor cannot pay bills as they come due. A “debtor” is an individual or entity that owes money. 

Because individuals and businesses often wait until they are flat broke to seek bankruptcy advice, this delay limits their options, some of which may help them reorganize their finances and keep part or all of their property. For example, an individual normally waits until the day before a foreclosure sale to seek bankruptcy advice; had he sought advice earlier, his chances of losing the property would have been diminished significantly.
 
2. An individual who files for bankruptcy will not qualify for credit in the future. Wrong. The fact that an individual files for bankruptcy will appear on an individual’s credit report for up to 10 years, which may seem draconian but is not permanent.

Any individual considering filing for bankruptcy probably has poor credit already. Filing for bankruptcy may be the best bet to “get good credit” again, because when a debtor files for bankruptcy under Chapter 7 of the Bankruptcy Code and receives a discharge (a court injunction relieving the debtor of the obligation to repay most debts and preventing creditors from collecting for the same), the debtor cannot receive another discharge under Chapter 7 for at least six years.

3. An individual who files for bankruptcy cannot buy a house. Wrong. Like all lending institutions, mortgage lenders are willing to take risks with a debtor as long as the lender has enough security. This generally means charging higher interest rates and requiring personal guarantees. If a person who had filed for bankruptcy in the past applies for a mortgage and can fund a sufficient down payment, most banks will approve a mortgage loan.

4. Taxes cannot be discharged in bankruptcy. Wrong. Certain taxes are dischargeable in bankruptcy, such as personal income taxes that are more than three years old. As a general rule, fiduciary taxes are not dischargeable. The Bankruptcy Code’s provisions relating to taxes are complex, and differ by chapter.

5. Student loans are nondischargeable. This is generally true, but with exceptions. If the debtor can prove certain hardship, student loans may be dischargeable. 

6. An individual can file for bankruptcy but not include certain creditors. Untrue, unlawful, and fraudulent. One principle behind the Bankruptcy Code is to treat similarly situated creditors equally. When a debtor does not list a creditor in bankruptcy and decides to pay back that creditor, that debtor is necessarily prejudicing the other creditors. When a debtor does this, the court considers this fraud, and the debtor risks losing the discharge and, in extreme circumstances, may face jail time and substantial fines.

7. Family members who loaned money to the debtor will lose out. Wrong. Although a debtor must list all creditors in the bankruptcy, in certain instances the debtor can repay certain creditors after the bankruptcy is filed. This is commonly known as a reaffirmation agreement. All reaffirmations are subject to court approval. Most debtors agree to pay back a debt they have no legal obligation to pay so as to maintain an existing business relationship. The court would probably approve the reaffirmation if the debtor lives with the creditor and may be forced to leave if he does not repay the debt.

8. Signing an agreement stating that a debt cannot be discharged in bankruptcy makes the debt nondischargeable. Wrong. Although there are extremely limited exceptions, these bankruptcy clauses are unenforceable and are a tactic used to scare debtors into not filing bankruptcy.

9. A person can lose his job if he files for bankruptcy. Wrong. The law states that if an individual can prove that an employer fired an employee solely because the employee filed for bankruptcy, the employee can sue the employer. If the debtor/employee looks for another job after filing for bankruptcy, however, a potential employer can use the bankruptcy filing as a factor (not the sole factor) in deciding whether to employ that individual. 

Laws very state to state so give us a call with your questions.  We will be glad to help.

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Debt Collectors Calling?

Bankruptcy's Automatic Stay

When a person files for bankruptcy, they usually receive immediate protection from creditors through a special court order known as the bankruptcy automatic stay.
This means creditors must stop collection efforts.

The Stay is Designed to STOP Debt Collectors

The automatic stay in bankruptcy was designed to:

• HALT foreclosure
• STOP repossession
• SILENCE creditors
• STOP many lawsuits & wage garnishments

Sound like the kind of help you need? Ask a bankruptcy lawyer if filing bankruptcy and could help you.

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Buying a Car After Bankruptcy

While bankruptcy offers an opportunity for many consumers in debt to start their financial lives anew, it may result in temporary financial uncertainty. After filing for bankruptcy, some people wonder how cautious they need to be in their future purchasing decisions.

One of the primary sources of concern for post-bankruptcy consumers is how to go about purchasing a car. The bankruptcy process may have freed them of their debts, but life after a bankruptcy may follow a different script.

To buy a car after filing, you'll likely need to take care of your credit. But the good news is that, with time, many people are able to build their credit up to higher levels than before their filing.
To get answers on how bankruptcy may affect your debt and about life after bankruptcy, speak with a us for free!

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Does Bakruptcy Help?

How Does Bankruptcy Help?

Bankruptcy is designed to provide unique help in a number of ways, but a primary benefit of bankruptcy for many filers is the potential to eliminate their debts.

Filing bankruptcy often acts as a financial cleanser, scrubbing unsightly debts from people's records and allowing them to start fresh with a clean financial slate.

In addition to debt relief, any discussion of how bankruptcy helps people in debt would be incomplete without referring to bankruptcy's ability to stop home foreclosure.

As banks and other lenders force more and more Americans out of their homes, bankruptcy's potential to prevent foreclosure has become increasingly important.

How Bankruptcy Helps Eliminate Debt

How Bankruptcy Helps Eliminate Debt

If your concerns are unrelated to foreclosure, and instead focused on solving your unsecured debt problems, Chapter 7 may be a better fit.
Through Chapter 7 bankruptcy, filers may be able to eliminate some or all of their unsecured debts, including credit card bills, medical debt, and some personal loans. In addition, Chapter 7 also provides the benefits of the automatic stay.
While the automatic stay can stop foreclosure, it may also:

• Stop wage garnishment
• Prevent an eviction
• Put an end to creditors' harassing phone calls and letters

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How does Bankruptcy help stop foreclosure?

How Does Bankruptcy Help Stop Foreclosure?

There are two common types of personal bankruptcy, Chapter 7 and Chapter 13. For people trying to stop home foreclosure, Chapter 13 may be the more powerful choice.
In Chapter 13 bankruptcy, a filer works with the bankruptcy court to create an affordable debt repayment plan. Under this repayment plan, filers pay off debts, including mortgage debts, to their creditors over a course of three to five years.
That, in a nutshell, is how Chapter 13 helps eliminate debt. Here's how Chapter 13 could help stop home foreclosure:

• Automatic stay. Immediately after a person files for Chapter 13, the automatic stay kicks into action. This court order usually temporarily halts foreclosure actions that have been initiated against a filer's home.
• Payment plan. Under the Chapter 13 payment plan, a filer can usually stretch out overdue mortgage payments in a more reasonable payment schedule. This may also allow filers to keep their homes.
• Discharged debts. Once mortgage payments are completely current through the repayment plan, some unsecured debts may be discharged at the end of the process, allowing a person to free up money to continue making regular mortgage payments, rather than pay other debts.

As you can see from the information listed above, there are several potential ways that filing bankruptcy could help stop foreclosure.

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