411 on Bankruptcy

When people come in for an initial consultation, they want to know three things. First, is bankruptcy appropriate for their financial problems? Second, what options are available under Bankruptcy Code? And third, how will bankruptcy affect their lives after the bankruptcy is done.

Bankruptcy may be the appropriate remedy if a person is having difficulty paying their bills as they come due and owing, have credit card debt they have been unable to pay off or have long term debt such as home loans which they are having difficulty paying.

The most common form of bankruptcy is a Chapter 7. A Chapter 7 is a straight bankruptcy also known as a liquidation case. In a Chapter 7 case, all assets and liabilities are included and the Chapter 7 Trustee will have the right to liquidate non-exempt assets for the benefit of creditors. In exchange for including all assets and liabilities, an individual’s promise to pay on most debts are forgiven through a discharge.

In most cases, there are no assets available to creditors because all of the assets are exempt or encumbered by liens to the full extent of their value. Exempt assets include IRA or retirement plans, equity in a car up to $3,525, most household goods and furnishing, life insurance and then $23,250 in other assets such as balances in bank accounts or additional equity in cars or other items.

A Chapter 13 is a Consumer Reorganization which is usually used when a borrower needs one of the special “bells and whistles” provided by the Code. The most common bells and whistles are that the Debtor has non-exempt assets that they want to keep or they have a junior lien on a primary residence that does not attach to any equity which could be avoided in a Chapter 13 or maybe they have a car loan which is older than 910 days which they can reduce to the current fair market value.

The Chapter 7 process usually takes approximately 4 months from the date of filing to closing of the case. While a bankruptcy can stay on a person’s credit for a maximum of 10 years, Fannie Mae’s guidelines provide that a person will be eligible to purchase with a FHA loan product in as little as 2 years after the closing of the bankruptcy. New credit is usually granted within 1 year, but at lower limits and higher interest rates. The Chapter 13 process takes between 3-5 years, but provides greater relief in many situations.

Most people who are having problems paying their bills qualify for Chapter 7 Bankruptcy either because their income is low or because their mortgage payments and other secured loans such as car loans are too high in relation to their income. However, a person should not delay in seeking legal advice. The loss of a home prior to a bankruptcy filing either through a short sale or foreclosure may make an individual’s income too high for a Chapter 7 and the only option will be Chapter 13 repayment plan which will last between 3-5 years. In addition, there may be personal liability and tax consequences which could have been eliminated in a bankruptcy.

In conclusion, if you are having financial problems, seek legal counsel. You did not make this real estate and credit card meltdown. Do not lose sleep and your sanity worrying about financial problems.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING A DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  

© 2010 Joan Grimes