Bankruptcy Legal Information

Overview

Bankruptcy lawyers assist individuals and companies who are having financial difficulties. These difficulties arise as the result of a large financial debt. Two types of debt can lead to bankruptcy. The most common type is unsecured debt, for which collateral has not been put up. Examples of unsecured debt are the money owed on a credit card and doctor bills. The second type of debt is secured debt. This debt involves someone putting up collateral for the debt, thus guaranteeing the debt will be repaid. A car loan is an example. The car itself is used to guarantee that the seller will receive payment. If the buyer cannot afford the car loan, the car is repossessed by the seller in place of payment. A bankruptcy lawyer will help guide you through the bankruptcy process, often reducing or eliminating your unsecured debt and helping to establish an affordable payment plan for your secured debt.

"I'm in debt, should I file for bankruptcy?"

Filing for bankruptcy should be a last resort. This action is only for people or businesses whose financial situation has become dire and there is no other recourse but to file for bankruptcy. A bankruptcy lawyer should then be consulted. Here are some guidelines for when you should start to consider filing for bankruptcy.

You are unable to pay your debt. Being unable to pay your debt means that your debt has grown so large you cannot see being able to repay it anytime in the future. Filing for bankruptcy may lead to a 3-5 year payment plan to repay some of your debt. If you debt is out of control and you believe you will not be able to pay it back for many years, you may want to consider filing for bankruptcy.

Your wages are being garnished. If a portion of your paycheck is being withheld to repay your debt it may be time to file for bankruptcy. A bankruptcy lawyer can help protect your income and ensure you are able to continue to earn a living.

You are being harassed by collection agencies. Collection agencies can make everyday life extremely frustrating and difficult. Filing for bankruptcy and employing a lawyer can help protect you against the harassment of collection agencies.

Your property is being repossessed because you can't pay. By filing for bankruptcy, a lawyer may be able to stop your possessions from being repossessed and protect almost everything you own.

Your debts are largely unsecured (i.e. credit cards and doctor bills). Filing for bankruptcy can eliminate most or all of your unsecured debt. This includes medical bills that are not covered by your insurance company.

You have few assets and no savings. With few assets and no savings the only option to alleviate your debt may be to file for bankruptcy.

"How can bankruptcy benefit me?"

Filing for bankruptcy assists an individual or company in three main ways. Bankruptcy can:

• Wipe out credit card debt, medical bills, and other unsecured debt.
• Stop creditor harassment and collection activities.
• Eliminate certain kinds of liens. A lien is a creditors right to take your property if you can't make payments.

"What can't bankruptcy do for me?"

The following are debts that will not be forgiven by filing for bankruptcy. Bankruptcy can't:

• Prevent a creditor from repossessing property that has a secured debt attached to it. (An example of this is an automobile repossession).
• Eliminate child support or alimony.
• Eliminate tax debts.
• Eliminate student loans.
• Get rid of fines you incurred from violating laws (i.e. traffic or parking tickets).
• Resolve debts for Bankruptcy or death you have caused as the result of driving under the influence.

"I want to file for bankruptcy, what are my options?"

The federal bankruptcy law falls under Title 11 of the United States Code. Title 11 is divided into 8 Chapters. The two most common Chapters when filing for bankruptcy are Chapter 7 and Chapter 13.

Chapter 7

This type of bankruptcy is referred to a "liquidation bankruptcy." Under Chapter 7 an individual or business may seek to be free of all debt. In order to do so, all assets are liquidated, or sold, to pay the creditors who are owed money. This is the most severe form of bankruptcy because a person must sell many of their assets in order to be relieved of their debt. However, an individual will be allowed to keep state exempted property. A qualified bankruptcy lawyer can assist with this process. The bankruptcy process using Chapter 7 takes anywhere from 3-6 months to complete. If your income is over a certain amount and you make enough to pay back your debt under Chapter 13 you will not be allowed to file for Chapter 7 bankruptcy.

Chapter 13

Chapter 13 is an example of a reorganization bankruptcy. Generally this type of bankruptcy is for homeowners who are having difficulty paying their mortgage. Unlike Chapter 7, Chapter 13 bankruptcy stops mortgage foreclosure and allows you to keep non-exempt property (in addition to exempt property). Under Chapter 13 a new repayment plan is decided upon and the person filing for bankruptcy is able to keep their assets while continuing to repay the debt. This repayment usually takes about 3-5 years. In order to file for Chapter 13 bankruptcy, an individual must have enough income for everyday living expenses and their debt repayment.

Chapter 11

Chapter 11 bankruptcy is very much like Chapter 13. The main difference is the amount of debt involved. In order to file for Chapter 11, an individual or business must have unsecured debt of at least $336,900 or secured debts of at least $1,010,650. Chapter 11 is a reorganization bankruptcy and like Chapter 13 a repayment plan is worked out with creditors and the individual or business is allowed to keep some assets.

When you file, make sure you do the following...

• Don't ever hide property you own. If it is later discovered that you hid property during your bankruptcy case you may face very steep consequences and even jail time.
• Don't ever deliberately hide assets or any financial debts. If it is shown that you have deliberately withheld such things during your bankruptcy you could face jail time.
• List every creditor. Even if you like the creditor you need to list them in your bankruptcy case or your debt may not be resolved.
• Include money you have coming to you. This could involve money left to you by a recently deceased relative or a recently resolved court case.

"How does the new bankruptcy law affect me?"

The new bankruptcy law requires an individual to complete financial counseling before they are allowed to file. There is also stricter eligibility when filing for Chapter 7. If you can afford to file for Chapter 13 you must do so. Chapter 13 requires you to pay back some of your debt where as Chapter 7 does not. Also, you must pay last year's income taxes before you can file for bankruptcy.

"How will a bankruptcy affect my future?"

After you file for bankruptcy, a black mark remains on your credit history for 7-10 years. This will be detrimental not only to your credit history but also your quality of life. Having a bankruptcy on your credit history can prevent you from opening a checking or savings account, getting a job, renting an apartment, obtaining insurance, or applying for loans. In addition, if you are able to obtain a loan or credit card you will pay a much higher interest rate (costing you more money) than someone who does not have a bankruptcy on their record.

"Are there any alternatives to filing for bankruptcy?"

Yes, there are. One alternative may be to negotiate directly with creditors. You may be able to set up a reasonable payment plan by dealing directly with your creditors. If you do not want to deal directly with your creditors, you could employ outside help to design a repayment plan. Often a non-profit debt counseling agency can help you with this process. This process is similar to filing for Chapter 13 bankruptcy (you have a payment plan) but there is no bankruptcy on your credit history. Unfortunately, using this method does not give you the protection that a bankruptcy does if you end up missing a payment to your creditors. Missing a payment can lead you right back to where you started before employing a debt counseling agency's help. Also, you will be paying back all of your debt with this alternative, not just a portion.

Payment

Bankruptcy lawyers charge either an hourly fee or a flat fee. Hourly fees depend on a bankruptcy lawyer's experience, operating expenses, and the location of their practice.

If your bankruptcy is relatively simple and easily defined, your lawyer may charge a flat fee. Make sure you understand exactly what is included in the flat fee. Additional fees may include things such as filing fees.