Filing Bankruptcy? What Bills Should I Pay?

Most people that come to the place in their life where they need to file for bankruptcy have a lack of funds. Prior to filing bankruptcy, every month they make the big decision of who to pay and who to let slide. This is usually the reason why they end up in bankruptcy. A little over extended and just not enough money to make ends meet. Before filing for bankruptcy is a good idea to sit down with a bankruptcy attorney and start planning the process. Including in this bankruptcy planning process is the decision of what bills to pay.

There are two basic types of debts or bills, secured and unsecured. First of all, the secured debt is one where the loan is secured by the property that was purchased. The most common example of this is a home mortgage or an automobile loan. There are other examples of this with certain revolving credit accounts for department stores that have a security clause in their agreement. This gives them the ability to repossess anything that is not paid for. In the case of the mortgage, the lender will need to start a foreclosure to repossess or foreclose on a piece of property. With an automobile loan, the lender will put the car out for repossession and if it is not surrendered, it will be taken from the driveway or where ever the repo man can find it. This is why a bankruptcy attorney will typically tell a person that they need to continue paying secured debts if they plan on keeping the property. Usually, when a person is filing for bankruptcy, the lender will ask the debtor to sign a reaffirmation agreement. This agreement makes the person liable through the bankruptcy filing and until the contract is complete. If a person decides after the bankruptcy discharge, that they no longer want to keep the property, they will be at the mercy of the lender. The bankruptcy attorney will usually explain this to their client when preparing the bankruptcy petition. If someone isn’t sure about a piece of property, it’s best to include it in the bankruptcy so the debtor will have no future liability regarding that piece of property.

On the other side of the coin is unsecured debts. Unsecured debts usually fall in the lines of credit cards and personal loans. These debts are not secured by any piece of property and are typically completely wiped out in Chapter 7 bankruptcy discharge. Most of the time, a bankruptcy attorney will suggest that these debts are less important when limited cash is available. Why continue paying on something that is going to be included in the Chapter 7 bankruptcy? The only time the bankruptcy attorney might suggest paying these debts is if the credit cards have been used right up to the bankruptcy filing. As a rule of thumb, individuals should not use their credit cards 90 days prior to filing. This also depends on what the cards are being used for. If it’s for living expenses, it is more acceptable than someone who went out and bought themselves a big screen TV a month before filing bankruptcy. When the finances get tight, before making any stupid mistakes it’s best to go sit down and consult a bankruptcy attorney to get some direction. This will make sure that mistakes aren’t made that could damage a possible filing.

Filing Bankruptcy? You Need to Learn the Bankruptcy Exemptions

In today’s economy, many Americans are filing bankruptcy as a way to get out of debt while protecting their assets. When Bankruptcy was created, Congress wanted to make sure that the individual filing bankruptcy would get a fresh start. With this in mind, they felt the only way the debtor could truly get a fresh start is if they weren’t wiped out by liquidation. This is where they came up with bankruptcy exemption laws. They wanted to allow the debtors to be able to keep their generous amount of personal property by protecting it with bankruptcy exemption laws. The exemption laws vary from state to state and even the federal government has their own set of bankruptcy exemption laws that an individual could use if they don’t like their state exemptions.

When filing bankruptcy, an individual will have a certain amount of property that they will be able to keep and make it exempt from the bankruptcy estate. If a person filing bankruptcy has more property than the exemption laws protect, the property could be sold and the proceeds divided amongst the creditors. Sometimes, a debtor has something that only part of it would be exempt, they can ask the bankruptcy trustee to pay for the difference to be able to keep the property. This is seen with people that own automobiles out right and have no lien on them. They need their car so they negotiate with the bankruptcy court to be able to keep it. This usually happens in a Chapter 7 bankruptcy, because with a Chapter 13 bankruptcy there is a 3 to 5 year payment plan that allows the debtor to catch up on money owed and keep their property.

While it’s possible to file on your own, because of the complexity of the exemption laws, it’s best to hire a bankruptcy lawyer that will have experience with this topic. There are many regulations that the average person filing bankruptcy wouldn’t know without the help of a bankruptcy lawyer. For example, if a person moved out of state prior to the bankruptcy filing, until they have resided in the new state for two years, they will use the bankruptcy exemption laws of the state they left. This change came with the overhaul to the bankruptcy code in 2005. Congress didn’t want people moving to a state with more generous exemption laws just to file.

Because of all the changes to the bankruptcy code, it’s a good idea to consultant bankruptcy lawyer about one’s financial situation. A bankruptcy lawyer will have experience with the bankruptcy exemption laws for the individual’s state and will know what is expected of the local bankruptcy trustee. While, Chapter 7 bankruptcy is known as a liquidation bankruptcy, rarely does someone filing bankruptcy lose any property. In today’s economy, the bankruptcy trustee will weigh out the cost of recovery versus the return on all property that is nonexempt. In many cases, it takes too much time and effort to recover a few dollars.

Debt Settlement: Is It Right for You?

The debt settlement is the means of negotiation that comes into play when you or a respective company is liable to pay money so that the creditors accept some portion of money against the full payment. The debt settlement company will force you to pay some amount on a monthly basis that is due until you have enough payment to pay off your creditor.

The theoretical aspect

As soon as you agree to a debt settlement program, many of the settlement firms will advise you to stop making the credit card payments monthly. Taking such a step will enable you to save money. Once you have enough money, the debt settlement firm will negotiate with your credit card company. It will offer them a one-time and a large payment that will settle your debt.

It is believed that many of the debt settlement firms claim that the one-time payment is much less that the original payment that you owe. They even state that will ensure that you no longer get bothered through endless calls from the creditor or the collection agency. But the downside is that people incur much debt, and debt settlement does not look good at all.

The reality

If you agree to the following debt settlement plan, then you would know the real picture. For instance, you have 10,000 dollars in debt and that it takes three years for you to save enough to reach a settlement. This usually amounts to the half of the amount you owe, but your total debt would have doubled.

By the time you save half of your original debt, which is 5000 dollars; the debt will become 20,000 dollars respectively. In this regard, to reach a settlement will mean that you should have half of the new amount which is 10,000 dollars.

Disadvantages

Fees can be substantially high: Several of the debt settlement companies not only charge an upfront fee but a percentage of the total debt as well.

Your credit score can get affected: It happens that the credit score gets dropped because of partial or late payments. This occurs because you do not make payment for some time as part of your debt settlement. On the other side, the financial experts believe that settling of the debt for less against the full credit card payment also hurts the credit card score considerably.

Your credit card company can sue you: The moment you stop paying credit card bill on time, the creditor can file a lawsuit against you.

Not all debt settlement companies are reliable: You need to remember that the industry is not solely run by the federal government. There are plenty of scams where the respective firms can collect money and never settle the debt payment at all.

The tax needs to be paid on the debt: A point for you to remember is that the difference between what you pay and what you owe is considered as the income by the Internal Revenue Service. This means you need to pay the taxes that come under this amount.

Options For Getting Your Loans To Creditors Legally Written Off

There are a number of methods you can try in order to clear debt. One of these methods includes making informal arrangements with creditors. Generally you work out your payment offers to the creditors based upon a pro-rata distribution of the income that is available, after which you organize to pay on any priority debts. In other words this means that a fair share of your pay is offered to all creditors, and in exchange you need to ask them to freeze any charges and interest.

If you are under financial difficulty, creditors have to treat you fairly. If you do not have any available income than you may not need to offer payments. This is called a ‘moratorium’. Creditors may only like to accept this for limited amount of time.

Another method to try is free debt-management plan in which after paying off your essential outgoings and priority debts, you need to pay each non-priority debts at least $5 per month. This is a long term method but usually lasts less than ten years.

There is also an individual voluntary arrangement (IVA) method. It is a short term plan usually less than five years, where you make a formal agreement to pay an agreed amount off your debts. An insolvent practitioner is required to set up an IVA.

There is also the choice of bankruptcy for which you can petition or ask a creditor to make you bankrupt. In this way your financial affairs and similar matters will be dealt with by an official receiver. Bankruptcy normally lasts for one year but the payments might last up to three years. At the end most debts are written off, and this is particularly a good option for those who have no assets and live in rented homes.

There is also the chance that you can apply to the official receiver for a Debt Relief Order (DRO), with an approved intermediary who is a money adviser. If that online application is successful, after twelve months most of your debts will be written off.

Administration Orders (AO) are also something you can opt for. This means that there will be a judgment made in High Court or maybe county court. However, there are two conditions to this. First is that the debt amount must be $5000 or lesser, and the second is that there should at least be two debts. For county court, there is an application form N92.

A simple method also exists, which is write off the debt. If you cannot make payments as you have no available income and savings or assets then you can ask the creditors to write off the debts. In order to do so, there must be such circumstances that you are unlikely to pay off your debt and you need to convince your creditors about this. Your situation might have to be exceptional such as for example a severe illness that requires a long recovery time. You need to be able to make your creditor understand that it is not going to be worthwhile trying to collect the debt.

The Fair Consumer Reporting in Bankruptcy Act of 2015

Did you know that banks and other creditors may continue to list a debt on your credit report even after that debt has been paid? When your credit report reflects a debt that hasn’t been paid, your credit rating can drop drastically. In some cases, that poor credit rating can even mean that you will have to pay extra interest in some cases or that you may not be able to obtain credit at all from other lenders.

A new bill proposed by Senator Sherrod Brown called the ‘Fair Consumer Reporting in Bankruptcy Act of 2015’ would prevent banks and creditors from listing a debt on a consumer’s credit report once that debt has been wiped clean with a bankruptcy discharge.

Bill Details

The new bill (if passed) would require creditors to contact the consumer reporting agency once a debt has been cleared. If that debt has been discharged in bankruptcy and is at zero, creditors would have to report the debt as such.

How big of an issue is this? Right now, it’s estimated that one in five consumers has an error on their individual credit report. Personally, we think this number is way too low and is actually upward of 50%. This means that there are major mistakes on many credit reports, and even if you think that your debt has been paid and wiped clean, it might not be.

Aside from the fact that you may have a hard time getting approved for a loan, neglecting to report a debt as “zero” may also mean that a consumer will be charged more interest on additional obligations because of their debt to income ratios. Sadly, many consumers do not bother to check their reports after paying off a debt. The new bill would protect consumers that have declared bankruptcy and, therefore, have a right to have that debt wiped from credit records.

In the Meantime

The bill mentioned above has not yet been approved, but there are some things that you can do to make sure any debts you have paid off are reflected on your credit report. First, always check your credit report to make sure that debts that have been paid are accurately reflected on that report.

If you see any discrepancies on your credit report, it is incumbent on you to dispute the debt. Second, keep on top of your credit report by checking it once per year. You never know if the information that is reported is accurate, and it will only benefit you to keep on top of it.