1. Chapter 20
Bankruptcy

2. Is bankruptcy the right choice for you? 10 important considerations
Bankruptcy may be the easiest and fastest way to deal with all types of debt problems.
Most bankruptcy cases are complicated. You should consider getting professional help.
Bankruptcy temporarily stops almost all creditors from taking any steps against you except through the bankruptcy process.
Bankruptcy can permanently wipe out your legal obligation to pay back many of your debts.
When bankruptcy does not wipe out a debt, a chapter 13 bankruptcy (a “reorganization”) gives you an opportunity to catch up on that debt.

3. Is bankruptcy the right choice for you? 10 important consideration
In most cases, you will not lose property by filing for bankruptcy.
The initial fee for bankruptcy is presently $306 under chapter 13 and $281 under chapter 7.
If you file bankruptcy, you usually do not need to go to court.
Bankruptcy will usually not make your credit report any worse.
Watch out for bankruptcy related scams.

4. Is bankruptcy the right choice for you
Is bankruptcy the right choice for you? General information about bankruptcy
The right to file bankruptcy is an important tool that society provides for people with debt problems.
It is often stated that bankruptcy should be considered as a “last resort” for financially troubled consumers. However, when considering bankruptcy, time is of the essence. Delaying bankruptcy could cost you time and money.
There were many news reports suggesting that changes to the bankruptcy law passed by congress in 2005 would prevent many consumers from filing bankruptcy.

5. What bankruptcy can do …
Bankruptcy may make it possible for you:
Can eliminate legal responsibility for many of your debts and to get a fresh start.
Can stop foreclosure on your house or manufactured home and allow you an opportunity to catch up on missed payments.
Can prevent repossession of your car or other property, or force the creditor to return property even after it has been repossessed.
Can stop wage garnishment, debt collection harassment, and other similar collection activities and give you some breathing room.

6. What bankruptcy can do …
Bankruptcy may make it possible for you:
Can prevent termination of utility service or restore service if it has already been terminated.
Can lower the monthly payments on some debts, including some secured debts such as car loans.
Can allow you an opportunity to challenge the claims of certain creditors who have committed fraud or who are otherwise seeking to collect more that they are legally entitled to.

7. What bankruptcy cannot do …
Bankruptcy may not make it possible for you:
Cannot eliminate certain rights of “secure” creditors.
Cannot discharge types of debts singled out by the federal bankruptcy law for special treatments, such as child support, alimony, most student loans, court restitution orders, criminal fines, and some taxes.
Cannot protect all cosigners on their debts.
Cannot discharge debts that are incurred after bankruptcy has been filed.

8. Possible advantages of bankruptcy
The Automatic stay of foreclosures, evictions, repossession, utility shut-offs, and other creditor actions.
Your bankruptcy filing will automatically, without any further legal proceedings, stop most creditor actions against you and your property. However, there are a few exceptions, usually based on prior bankruptcy filings.
Discharge of most debts.
The principal goal of most bankruptcies is to achieve a discharge. This means that, after bankruptcy, the creditor can seize its collateral if you don’t pay, but cannot try to collect the debt.
Protection against wage garnishment and enforcement of judgment liens.
After you file a bankruptcy petition, creditors are prohibited from garnishing your wages or other income.

9. Possible advantages of bankruptcy
Added flexibility in dealing with secured creditors.
Bankruptcy can be helpful in dealing with creditors who have taken items of your property as collateral for their loans.
In some situations, bankruptcy can stop secured creditors from seizing collateral by “avoiding” the creditor’s lien. A Ch. 7 allows you to keep collateral by redeeming it. Ch. 13 will stop a threatened foreclosure and allow you to gradually catch up on back payments.
Utility Terminations.
A bankruptcy filing will not only stop a threatened utility termination, but will also restore terminated utility service, at least for twenty days.
Driver Licenses.
In situations where your license has been taken away, bankruptcy is sometimes the only possible way for you to keep or regain the license.

10. Other considerations of bankruptcy
In most cases, you will lose little or none of your property.
Generally, you will keep all or almost all your property in a bankruptcy except property that is very valuable or that is subject to a lien you cannot avoid or afford to pay.
In valuing property for the purposes of bankruptcy, the question is not the property’s original cost, but what the property in its present condition could be sold for at the time the bankruptcy is filed.
Remember that exemption laws vary widely from state to state.
If you have significant non-exempt assets, a chapter 13 bankruptcy may be a good way to keep all of your possessions.

11. Possible disadvantages of bankruptcy - The effect of bankruptcy on your credit report
The one area where bankruptcy is very likely to make it more difficult for you is in attempting to obtain a conventional mortgage to purchase a home.
After bankruptcy, some lenders may demand collateral as security, ask for a cosigner, or want to know why bankruptcy was filed.
To improve your chance of getting credit after bankruptcy on reasonable terms, you should make sure that the information being reported about your bankruptcy is accurate.

12. Possible disadvantages of bankruptcy
Effect on your reputation
Effect on feelings of moral obligation
Effect on potential discrimination
Cost of filing

13. When bankruptcy may be the wrong solution
You have only a few debts and strong defenses for each.
The debts at issue are secured by your property-such as home mortgages or car loans.
You have valuable assets that are not exempt in the bankruptcy process.
Because of a prior bankruptcy, you cannot receive a discharge in a chapter 7 bankruptcy.
You can afford to pay all of your current debts without hardship.
Thus, do not file a bankruptcy with these situations.

14. The bankruptcy counseling and education requirement
Find an “approved” counseling agency.
You must receive the required counseling from an agency that has been approved by the U.S. trustee program
This required credit counseling may be helpful for you and in any case, you have to do it if you want to file for bankruptcy.
Avoid for-profit debt counseling agency.
The costs of pre-filing counseling.
You can expect that most agencies will charge between $30-$50 for the pre-filing counseling.

15. The bankruptcy counseling and education requirement
Is a debt management plan right for you?
1) Are you having trouble mainly with secured debts?
Yes, then a DMP is not for you.
2) Do you have little or no money left over in your budget each month?
3) Are you still current on your credit cards?
4) Can you make a long term commitment to making monthly payments?
No, then a DMP is not for you.
5) Do you want to keep using all of your credit cards while on a DMP?
6) Are you able to pay your priority debts and still have some money left over each month?
Yes, then a DMP may be helpful.

16. Asking the court to waive the counseling requirement ..
There are a few situations when you can request a permanent/ temporary waiver of the counseling requirement.
You may request a waiver if you are disabled or incapacitated.
If you need to file bankruptcy in an emergency to stop a home foreclosure, car repossessions, or wage attachment, or some other “exigent circumstances,” you can request a temporary waiver of the counseling requirement.
Since waivers are not easily approved, it is important to check carefully that you meet the requirements for a waiver before filing bankruptcy without a counseling certificate.

17. Chapter 7 (Liquidation)
A case under chapter 7 of the bankruptcy laws is often called a “liquidation.” In a liquidation case, your assets are examined by a court appointed trustee to determine if anything is available to be sold for the benefit of creditors.
When making the decision to file for bankruptcy, you should first understand your state’s exemption laws. The best way to do this is to ask for a list of exemptions from a neighborhood legal services office, a private attorney, or pro bono bar organization.
At the end of a chapter 7 case, you obtain a discharge of most unsecured debts

18. When filing a chapter 7 bankruptcy ..?
Who can file?
Any individual who lives in the United States or has property or a business in the United States can file a chapter 7 bankruptcy.
In 2005, a “means test” was added to the bankruptcy law to make it more difficult for wealthy consumers to file a chapter 7 bankruptcy.
What will happen after filing?
Filing the petition triggers the automatic stay. Then a date is set for the “meeting of creditors.”
What is a bankruptcy trustee?
After you file bankruptcy, a trustee is appointed to represent the interests of creditors.
What is the meeting of creditors?
The meeting of creditors is conducted by the trustee and gives the trustee and others a chance to ask questions about your financial affairs. After the meeting of Trustees you must complete an education course.

19. What is reaffirmation and when should you consider it?
Reaffirmation is your agreement during bankruptcy to remain legally obligated on some or all of a debt which you could have otherwise eliminated.
It is almost never a good idea to reaffirm a credit card debt, even store credit cards that may be secured. Some department store cards, especially department store cards, may be secured. After you have filed bankruptcy, the credit card company cannot claim that they will repossess what you bought such as TV or sofa if you do not reaffirm the debt.
When you should agree to a reaffirmation? See p. 437

20. Important Points about Reaffirmation
If a creditor tries to pressure you to reaffirm, you can say no.
Never reaffirm a debt just because a creditor offers to advance you some new credit or to keep your account in good standing.
You can voluntarily pay any debts you want to pay after bankruptcy without signing a reaffirmation agreement.
You can cancel any reaffirmation agreement for 60 days after it is filed with the court.

21. Discharged debts in Chapter 7
The final step in most chapter 7 bankruptcy cases is the discharge. If no one objects to your discharge, the court enters the discharge without a hearing.
What will my chapter 7 discharge cover?
The discharge in chapter 7 covers all unsecured debts, including most credit card debt, medical bills, and back utility debts.
What should I do if a creditor tries to collect a debt which has been discharged?
Collection of discharged debts is illegal. You should contact your lawyer if you have been subject to collection efforts.

22. Chapter 13 (Reorganization)
A case under chapter 13 of the bankruptcy laws is often called a “reorganization.”
The heart of a chapter 13 case is a bankruptcy plan -- a document outlining how to make payments to various creditors.
You submit a plan to repay your creditors some or all of what you owe them over time. A chapter 13 bankruptcy plan normally requires monthly payments to the bankruptcy trustee over a period of three years.
In a chapter 13 bankruptcy, you may have as long as five years to catch up with overdue payments on secured debts, and you may be able to keep all of your property.

23. When filing Chapter 13 bankruptcy
Who can file?
Chapter 13 is available to “individuals with regular income” who live in the U.S. or have a place of business or property in the U.S.
What will I have to pay?
You must begin making plan payments within thirty days after filing your bankruptcy case, unless the court orders otherwise.
How does my plan get approved?
The court will evaluate your plan at a “confirmation hearing.”
What if I fail to complete my plan?
Some people are unable to complete their chapter 13 plans, usually because of loss of income. There are 4 options. See pp
What debts are discharged in chapter 13? You must complete an educational course on personal finances before you will be given a discharge.

24. Choosing the Right Type of Bankruptcy
Advantages of a chapter 7 bankruptcy - It is simpler and quicker than a chapter 13 bankruptcy. Once the papers are filed, unless unusual issues are raised, you will receive a discharge with 3 to 5 months. The chapter 7 bankruptcy will generally meet your goals if it will discharge most of your debts and not result in the loss of any of your property. Generally, chapter 7 is the best option when two factors are present;1) All or nearly all of your property is exempt ; 2) The debts, that are causing problems for you, are unsecured and dischargeable in chapter 7.
A chapter 13 filing is generally preferable if you are delinquent on a secured debt and want to cure this default over time. A chapter 13 may not be necessary if you are current on your mortgage, car loan, and other secured debt payments.

25. Favoring chapter 13 bankruptcies
Choosing chapter 13 bankruptcies - The most common reason for filing a chapter 13 petition is that one or more secured creditors cannot be dealt with satisfactorily in any other way. Another reason to file a 13 bankruptcy is to protect non-exempt assets which would be sold in a chapter 7 case. However, the current value of the non-exempt property usually has to be paid over the course of the plan.
Other important reasons favoring a chapter 13 filing include:
Some debts that are not dischargeable in 7 can be discharged in 13.
Some creditors consider a 13 filing to be less harmful to your credit rating and reputation.
If you obtained a 7 discharge within the previous eight years, a new 7 filing is not an option; only 13 is available.

26. The timing of your bankruptcy filing
The emergency bankruptcy -You may have no choice other than to file immediately to prevent a foreclosure, repossession, eviction, execution sale, or utility shut-off. Bankruptcies in an emergency can be filed with little preparation. You may initiate it by filing only the 3- page petition, a statement of your social security number, and a list containing the names and addresses of your creditors.
Delaying bankruptcy in anticipation of further debt - If you are not facing immediate loss of property and cannot avoid incurring further debt, such as new medical, utility, or unpaid rent bills, filing should be delayed until after these debts occur. Because debts incurred after the bankruptcy filing are not discharged.
Exemption planning -You can legally take a number of steps to improve your legal position prior to filing bankruptcy. These steps are generally called “exemption planning.” It means arranging your affairs so that a maximum amount of property can be claimed under exemption provisions, and a minimum amount is lost to creditors.

27. Getting help with your bankruptcy filing
You should be prepared when first meeting a bankruptcy specialist to answer the following questions: 1) What types of debt are causing you the most trouble?; 2) What are your significant assets?; 3) How were the debts incurred and are they secured by your property?; and 4) Has any creditor started a process to collect any debt or to foreclose or repossess property?
It is helpful to take written information about these issues to the bankruptcy attorney, particularly copies of your bills and any legal notices (plus your credit report). This will help the attorney understand how much is owed and to whom. “Complete information” is essential to an effective bankruptcy. “Do not overlook debts”, including debts that you co-signed, owed to friends, student loans, payday loans, utility bills, etc.

28. Tax Consequences
Unpaid debt usually has tax consequences. This is because the IRS views owing money in the same way it views borrowing money, with one importance difference. Borrowed money is income. However, because you have to repay a loan, when you borrow money, the IRS does not tax the money you borrowed. When you cancel a debt, you do not repay the amount you “borrowed.” Therefore, a canceled debt is not only income but taxable income (e.g., debts wholly or partially written off through plans developed by debt settlement services may create new tax liabilities for you).
Bankruptcy is one exception to this rule. If debt is discharged in the bankruptcy process, you do not owe taxes on the unpaid amount of the debt.

29. Credit Consequences
Bankruptcy will usually not make your credit report any worse.
You should not assume that, because you file bankruptcy, you will have to get credit on the worst terms. Most lenders will not hold the bankruptcy against you if, after a few years, you can show that you have avoided problems and can manage your debts.
Chapter 7 – 7 years
Chapter 10 – 10 years

30. Watch out for bankruptcy!
Be wary of auto dealers, mortgage brokers, and lenders who advertise: “Bankruptcy? Bad Credit? No Credit? No Problem!.” They may give you a loan after bankruptcy, but at a very high cost.
You should also avoid credit offers that are aimed at recent bankruptcy filers. These may be an attempt to collect discharged debt in the form of a “disguised” reaffirmation agreement. Read the fine print of the credit offer.
Although bankruptcy can help with many financial problems, its effects are not permanent. Make careful decisions about future borrowing and credit.