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Filing Personal Bankruptcy
The economy is very unstable at the moment. People are feeling the effects of the markets, big businesses and the banks faltering. Job loss is high. In Michigan, unemployment continues to rank above the national average. In August 2007, unemployment stood at 7% in Michigan. Most recently, 9% of the Michigan working class was unemployed. Without jobs, people are losing their insurance at a disturbing rate. Are we in or headed into a recession? How long will it take to bounce back? In the meantime, millions of us are struggling to pay our bills. Many of us will see no other means to get through this national financial crisis without filing bankruptcy.
In the past, the word bankruptcy was taboo. People were embarrassed to admit filing bankruptcy. They felt like a failure or disappointment.
Times have changed and filing for bankruptcy has become much more accepted. Millions of Americans are choosing to file Chapter 7 or Chapter 13 Personal Bankruptcy. People now realize it is a way out from under debt and a way to start fresh and get a new opportunity at financial stability.
Filing bankruptcy is a complicated process. There are numerous state and federal laws, codes and procedures that must be adhered to. While it is certainly possible to go it alone, most people will choose to hire personal bankruptcy attorneys. It may sound counterintuitive to spend money at this critical time in your financial life, but with everything involved in bankruptcy filing, you will be grateful to have someone walk you through the ins and outs of this process and help set you on your way to financial repair.
Every state has a multitude of bankruptcy attorneys to choose from. Getting back to the example of Michigan, you can search the web or phone book to find a Michigan Bankruptcy Attorney. Realize that your lawyer is on your side and will work with you every step of the way. He will explain the pre-bankruptcy counseling that is required to be completed before the whole process begins. You will learn what papers and financial records need to be collected. He will describe the “341 Meeting” that you will attend with him and your creditors. He will explain the court procedures, estimated length of time this all should take and then finally, how to get back on your feet once your bankruptcy has been discharged by the court.
We all hope that the national and global economies will recover as rapidly as possible. More importantly, we want everyday people to get back on their feet quickly. Knowing that there is an escape and chance to start anew after filing bankruptcy should help many Americans get a new lease on life when it comes to their financial future.
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Chapter 13 vs. Chapter 7
Chapter 13 bankruptcy, sometimes called reorganization bankruptcy, is quite different from Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, most of your debts are wiped out; in exchange, you must give up any property that isn’t exempt from seizure by your creditors. In a Chapter 13 bankruptcy, you don’t have to hand over any property, but you must use your income to pay some or all of what you owe your creditors over time (typically 3-5 years). The amount of repayment can range from 10% to 100% depending on the debtor’s income and aggregate of the amount owed.
Chapter 13 bankruptcy is the reorganization of an individual consumer’s debt with a new payment plan. If you have too much disposable income to qualify for chapter 7 or have assets you want to protect, you may want to think about this code. Personal debt must be below a certain level and you must have steady income.
Your payments will be made to a Trustee who will disburse them in a manner called for in the court-approved plan. During this time the Trustee will have control over your (personal) finances and any credit-related matters will have to be cleared through him. Individuals will have no direct contact with their creditors while under Chapter 13 protection.
Homes - Perhaps the most significant advantage of filing chapter 13 is that it offers individuals a chance to save their homes from foreclosure. Choosing Chapter 13 is an effective way for the debtor who is serious about keeping his home not only to stop a foreclosure, but also to get up to five years to make up the back payments while at the same time making regular payments going forward.
Motor Vehicles – If a debtor is behind on his automobile payments but the vehicle has not yet been repossessed, filing Chapter 13 Bankruptcy can stop the repossession and allow the debtor to keep the car by continuing to make the regular payments. In Chapter 13, the debtor can sometimes reduce the amount that he has to pay the lender for the vehicle if he has owned the vehicle for more than 910 days.
IRS Debt - Certain income taxes, if they are old enough, are eligible for bankruptcy discharge. In this case, the tax, the penalty and the interest all are discharged and the IRS would be stopped forever from trying to collect it. There are many tests and factors to be considered. An experienced bankruptcy attorney who handles IRS bankruptcy cases will be able to offer advice in this area.
Non-Exempt Assets - Another advantage of chapter 13 is that it allows people to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments.
Divorce Related Debt - If a divorce has taken place prior to a bankruptcy filing, Chapter 13 may afford the debtor relief that may not be available in Chapter 7. In Chapter 13, if the debt is determined to be part of the property settlement, it will be treated just like any other unsecured debt, and the court will not force the debtor to pay it. If there is divorce related debt, legal counsel should be retained to weigh the advantages and disadvantages of Chapter 7 versus Chapter 13, including how the divorce-related debt topic would factor in.
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It’s Time To Begin Bankruptcy Proceedings
Before personal bankruptcy is filed (Chapter 13 or Chapter 7) you need to understand the following procedures to make certain your bankruptcy petition will be heard by the courts.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires all debtors to to be given credit counseling before they will be permitted to file for bankruptcy. This credit counseling was made mandatory to ensure that people understood their options before going bankrupt and answer the most common questions about the bankruptcy process.
Non-profit credit counseling services must be approved by the United States Department of Justice’s Trustee Program, except in Alabama and North Carolina where court officials (specifically Bankruptcy Administrators) approve pre-bankruptcy credit counseling services.
The pre-bankruptcy session will include an assessment of your current personal financial situation, a discussion of alternatives to bankruptcy, and an individual budget plan. A certified credit counselor will help you look at all your options. He or she is required by law to offer you impartial advice. This means that he or she cannot lead you to make a specific financial decision.
A typical session should last between 60 to 90 minutes, and can take place in person, over the phone, or online. Online services may include an interactive online course that you can work on and complete at your own pace.
The counseling organization is required to provide the counseling at no cost for people who cannot afford to pay. If you cannot afford to pay the fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which is typically between $40 and $50, depending on where you live, the types of services you require, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.
Once you have completed the required counseling, you must get a certificate as proof. Check the U.S. Trustee’s website to be sure that you obtain the certificate from a counseling organization that is approved in the judicial district where you are filing bankruptcy. Credit counseling organizations may not charge an additional fee for the certificate.
Your pre-bankruptcy credit counseling session must be completed within the 180 days prior to your bankruptcy filing. You must bring the counseling completion certificate with you to court. If you go to bankruptcy court to file bankruptcy and you have not completed your credit counseling, you will not be permitted to file for bankruptcy. Your bankruptcy request will be dismissed.
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