Bankruptcy News & Information from Birmingham, Alabama Bankruptcy Lawyer, Matt Dunaway

1.  Chapter 7 Bankruptcy is still an option for most people, even after the bankruptcy laws changed in 2005. Many people believed (because creditors wanted us to believe) that it is very hard for someone to file Chapter 7 Bankruptcy after the 2005 bankruptcy amendments (BAPCPA).  The 2005 bankruptcy laws increased the amount of paperwork and the costs of filing, but most people who could file under the “old law” are still eligible to file under the “new law”.

2.   99% of people who file Chapter 7 bankruptcy do not lose any of their property.  One of the biggest fears for people considering bankruptcy is how much of their stuff will they lose; will they lose their house or car?  Most debtors don’t lose anything, because most debtors don’t have any property the bankruptcy trustee wants.  Also, bankruptcy exemptions allow people to keep most, if not all, of their possessions.  Whether you get to keep your house, car or other property will depend on how much property you have and on your state law exemptions.  Your bankruptcy lawyer can explain exemptions to you in detail.

3.  Your “credit” will NOT be ruined forever, if you file bankruptcy. This is another myth creditors like to perpetuate to the public.  Yes, a bankruptcy filing can be reported on your credit report for up to ten years, but that does not mean you won’t be able to get credit for ten years.  Many of my clients have had better credit scores one year after bankruptcy than they had when they filed.  I’m not encouraging anyone to file bankruptcy for a better credit score.  In my opinion, the decision to file bankruptcy has nothing to do with your credit report; you either need to file bankruptcy or you don’t.

4.  Credit Counseling is required before you can file bankruptcy, and completion of a financial management course is required before you are eligible for your discharge.  You MUST complete a credit counseling course before you file bankruptcy, but it also must be pre-approved by the bankruptcy court.  Talk to your bankruptcy attorney about how to fulfill this requirement.  Don’t waste your money on credit-counseling that does not meet the bankruptcy court’s requirements.  After you file bankruptcy, but before you get your discharge (your case is over), you MUST complete a financial management court.  The course must be approved by the bankruptcy court.  Talk to your bankruptcy attorney on how to best fulfill this requirement.  WARNING!!!  Some people who file bankruptcy fail to complete the financial management course before they receive their discharge; this is VERY BAD!  Be sure to complete your financial management course before the bankruptcy court enters a discharge.  Talk to your bankruptcy lawyer about doing this; this is very important!

5.  The Chapter 7 Bankrutpcy “Means Test” does NOT apply to everyone.  Most people who file bankruptcy will not be effected by the “Means Test” because their income is not high enough, but an increasing number of higher income debtors are filing bankruptcy, and the “Means Test” can be an enormous hurdle to higher income debtors.  The “Means Test” basically says this: if you make over a certain amount of income, we’re going to really scrutinize your financial situation before we allow you to file bankruptcy. Obviously, it get more complicated than that, but that’s the basic gist.

6.  You can only file Chapter 7 Bankruptcy every eight (8) years. So make it count!

7.  Most people only have to go to one court hearing.  The first, and probably only, court hearing you will attend is about 30 days after the bankruptcy case is filed; it’s commonly called the “Meeting of Creditors” or “341 Hearing”.  Most people who file Chapter 7 Bankruptcy will never see a bankruptcy judge; they will only see the bankruptcy trustee.  For most people, the hearing will be quick and painless, so don’t fret over it.

8.  The goal of filing Chapter 7 Bankruptcy is to get a “Discharge”.  A discharge, or “discharge order” is what is entered by the bankruptcy judge at the end of your case.  This means that all debts that are eligible to be discharged, are indeed discharged (erased).  Therefore, just filing a bankruptcy case is not the end of the story; be sure to work with your bankruptcy lawyer to make sure you accomplish your final goal…discharge.

9.  Taxes, Student Loans and Child-Support obligations are usually NOT discharged (erased) in a Chapter 7 Bankrutpcy. Most of the time, taxes, student loans and child support obligations are NOT discharged in bankruptcy.  In some cases, taxes are dischargeable.  In rare cases, student loans are dischargeable.  Child support obligations are pretty much never dischargeable.

10.  If you want to keep your house or car, after filing bankruptcy, you must continue to make your payments to the creditor.  Normally, you have two choices when it comes to property (house, car, etc…) that you are still making payments to a creditor at the time you file your bankruptcy case: (1) you can let the creditor take the property back; if you give the property back, you don’t have to pay for it any more, or (2) you can keep the property, but if you keep the property, usually you still have to keep making your payments to the creditor.

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Bankruptcy laws can trace their roots to the Bible. The Old Testament had several laws mandating the forgiveness of debts every seven years, and even includes a form of redemption after foreclosure. Bankruptcy laws, or something similar, were enacted by the Romans. Our modern bankruptcy system has it’s roots in British laws from the 1500’s. Early bankruptcy laws favored the creditor; debtor’s had few rights, and were often thrown in jail for not paying their debts. Fortunately, bankruptcy laws evolved from being a “sword” for the creditor to being a “shield” for the debtor. Unfortunately, the 2005 bankruptcy amendments took a step back in that evolution.

All kinds of people and companies file bankruptcy. Here’s a short list:  Mark Twain, Milton Hershey (Hershey’s chocolate), Henry Ford, Kmart, Macy’s, Larry King, Walt Disney and many more.  Bankruptcy laws give debtors a “fresh start”. Thankfully, the days of being thrown in jail for not paying your debts is long gone (except for taxes or child-support payments).  The public policy behind bankruptcy legislation is to get the debtor back into the economic system.  It doesn’t benefit society for the debtor to be permanently shackled with loads of debt.  It’s both humane, and in the long run, best for society to give the debtor a “fresh start”.

Chapter 7 Bankruptcy is what most people think of when they think of “bankruptcy”. Chapter 7 Bankruptcy allows the debtor to “discharge” (erase) most, if not all, of his debts.  Most debtors choose to file Chapter 7 Bankrutpcy when they have no reasonable expectation to ever be able to pay back their debts, based on the amount of their income and assets.  If you are over-burdened with debts and have not idea, or hope, of every being able to pay them all back, then Chapter 7 Bankrutpcy might be your best option.

Chapter 13 Debtor’s Court is a debt consolidation plan for debtors, where they pay back all or some of their debts. Chapter 13 is commonly referred to as Debtor’s Court.  It is a debt consolidation plan for consumer debtors.  Chapter 13 allows debtors to consolidate their debts and pay them back over a five year period.  Debtors who are being on car or house payments, and are facing repossession or foreclosure, often file Chapter 13 Debtor’s Court.

Bankruptcy does NOT erase all debts. Taxes, student loans and child support payments are the three debts rarely discharged in bankruptcy.  In certain cases, taxes can be discharged in bankruptcy, but it is rare.  Student loans are very difficult to discharge in bankruptcy.  Child support payments are never discharged in bankruptcy.

Bankruptcy is a federal law, but it differs dramatically from state to state. Why?  Exemptions.  Simply put, exemptions are how much “stuff” the debtor is allowed to keep when filing bankruptcy.  What the debtor is allowed to keep varies dramatically from state to state.  In some state, debtors with $100,000 of equity in their homes are still allowed to keep their homes (Florida).  In others they are not (Alabama).  Exemption amounts vary dramatically from state to state.  It’s important that you, and your bankruptcy lawyer, know and understand exemptions.

Chapter 7 Bankruptcy can be filed every 8 years. If you filed Chapter 7 Bankruptcy, and your case is “discharged” (that’s a good thing), then you cannot file Chapter 7 Bankruptcy again for 8 years.  You can file Chapter 13 Debtor’s Court within that 8 year period.

Chapter 13 Debtor’s Court cases can last up to 5 years, but not longer. Debtor’s Court cases cannot last longer than 5 years, so it’s important to make sure that the debtor can accomplish his goals within that time frame.

Bankruptcy will stop garnishments, repossessions and foreclosures…at least for a while…most of the time. The basic rule is that bankruptcy, either Chapter 7 or Chapter 13, will stop garnishments, repossessions and foreclosures.  The “rest of the story” is that it might not stop them permanently, and in some cases (if the debtor has previously filed bankruptcy recently), it may not stop them at all!  It’s very important to discuss this with your bankruptcy lawyer.

Bankruptcy will NOT ruin your credit forever. Most people who file bankruptcy already have bad credit, so filing bankruptcy doesn’t hurt much, if at all.  The bottom line is this: you either need to file bankruptcy or you don’t.  What bankruptcy does, or doesn’t do, to your credit score isn’t that important, in the big scheme of things.

These are just a few things you need to know about bankruptcy.  Read more posts to find out about specific.  Sign up for the FREE newsletter for more information.

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Bankruptcy is a big step.  Hopefully, filing bankruptcy is a once in a lifetime event.  Making sure filing bankruptcy is right for you is important.  Here are 7 things to consider before filing bankruptcy.

1.  Bankruptcy will not ruin your credit for life.  Most people facing bankruptcy already have pretty bad credit.  Normally, the credit rating does not go down much (if any); more importantly, in bankruptcy, you discharge debt, which puts you back on track to sound financial dealings, which will eventually lead to a better credit rating.

2.  Bankruptcy law is very complicated.  You are allowed to file your own case, but it is rarely advisable.  Hiring an attorney who regularly practices bankruptcy law will likely save you money in the long run; and save you a lot of “headaches”.

3.  Most people do not lose their personal property when they file bankruptcy.  Depending on how much “stuff” you have, and what state you live in, you may or may not be forced to surrender any property.  Most people don’t, but you need to consult with a knowledgeable bankruptcy attorney in your area about your specific situation.

4.  Bankruptcy, in most cases, temporarily stops garnishments, repossessions and foreclosures.  This is great when trying to save your home or car; or when you are having your paycheck garnished.

5.  Chapter 7 Bankruptcy “wipes out” most debts, giving the consumer a fresh start.  Chapter 13 Debtor’s Court gives the consumer an opportunity to catch up on debt payments and pay back debts, while under the protection of the bankruptcy court.

6.  Bankruptcy may be the best, and only, option.  No one wants to file bankruptcy.  By the time most people actually get up the nerve to call a bankruptcy lawyer, they have already exhausted all their other options.  For many people in dire financial situations, bankruptcy is the best option; sometimes the only option.

7.  Watch out for debt consolidation scams.  People in dire financial situations are desperate, and often susceptible to predatory scams.  Be careful.  Do your homework.  If it sounds too good to be true, it probably is.

Bankruptcy is the right decision for some people.  Before you decide it’s right for you, do your homework.  Talk to a bankruptcy lawyer.  Understand your situation and options; then you can make a sound decision about filing bankruptcy.

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Bankruptcy filings declining?  According to an article at Credit Slips by Bob Lawless, bankruptcy filings declined in December and January.  I thought we were in the middle of the worst economic crisis since…well, since forever.  If bankruptcy lawyers are filing fewer bankruptcy cases, doesn’t this mean an end to the economic crisis?  No.

As Bob Lawless explain, historically, bankruptcy filings in December and January decline.  Although no one knows exactly why, most people think it is due to the holiday season.  My personal experience as a bankruptcy lawyer shows the same cycle.  Typically, I see a drop off in late November through the end of January.  By February, bankruptcy filings begin to pick up.  In this economy, with business bankruptcies rising and unemployment rising, bankruptcy filings will increase dramatically, so “batten down the hatches” and get ready for a rough 2009.

What’s the moral?  Keep your statistics in context.  This big picture is this: America, corporations and individuals, are in for a long, hard “detox”.  Decades of rampant borrowing, irrational exuberance, and consumerism are finally catching up.  I know it sounds “old-fashioned”, and many smart economists disagree, but it’s time to get back to common sense money management; less debt, more savings, and sound investing.

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Birmingham business bankruptcies will increase in 2009, according to an article in The Birmingham News by Russell Hubbard.

In short, every one is cutting back; businesses and individuals.  Purchase orders are down.  Manufacturing is down.  Unemployment is up.  Most businesses (and individuals) have operated on very thin capitalization over the last decade, relying on lots of debt; this is coming back to haunt us.  A slowing economy plus tightening credit is the “perfect storm” for many businesses; they just can’t survive.  More business bankruptcies mean more job losses.  Unemployed people have a hard time paying bills, which in turn leads to personal bankruptcy.

So here’s my question:  If Congress passes the $1 TRILLION “bail-out bill” in a few weeks, where are we going to get the next TRILLION dollars we’ll “need” in late 2009 or 2010 when things are “really bad”?  I’m not trying to be pessimistic; I’m simply asking a seemingly logical question.  If things are going to get worse in 2009, won’t we need a “bail-out” even worse then?  I’m sure people much smarter than me have already considered and planned for this eventuality, but then again…maybe they haven’t???

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