Top Ten Reasons People File for Bankruptcy
1. Eliminate the Legal Obligation to Pay Many of Your Debts.
This process of wiping the slate clean is called a discharge of debts. The goal of a discharge is to reduce debt to give you a fresh start. Whether it is through straight bankruptcy (Chapter 7 Bankruptcy) or through reorganization (Chapter 13 Bankruptcy), most or all of your debts can be cleared.
2. Stop Foreclosure on Your House and Allow You to Effectively Make Payments to Catch up on Missed Payments of Your Mortgage.
If your home is in foreclosure, Chapter 13 Bankruptcy will stop the foreclosure any time prior to the sale. Bankruptcy does not eliminate mortgages on your property without payment. Rather, bankruptcy will structure a plan in order to repay your mortgage arrears (the amount that you are behind).
3. Prevent Your Car or Other Property From Being Repossessed.
Even if the creditor has repossessed your car, filing bankruptcy can effectively force them to return your car or other personal property (if the bankruptcy is filed quickly enough). The past payments you have missed will be consolidated into your Chapter 13 Bankruptcy plan. After this you will no longer pay the finance company, rather you will make monthly payments to the trustee of your Chapter 13 Bankruptcy who will then pay the finance company.
4. Reduce or Even Eliminate High Medical Bills.
Sometimes an unfortunate accident or major recently discovered illness can completely ruin a family. Many families have to make choices on allocation of bills. Often, bills that were once important become insignificant to the large medical bills acquired by a loved one. Filing Chapter 7 Bankruptcy can greatly reduce the amount of medical bills.
5. Recent Loss of Employment.
Studies show that loss of work is one of the most common reasons people file for bankruptcy. This is very easy to see. A family can get comfortable on two maybe even one salary. They can take on regular amount of debts, join clubs, and pay normal bills with relative ease. All of a sudden one or both spouses lose a job and a family must go from two salaries to one. Losing a job is closely tied to high medical bills. Losing a job means this family may be left without the protection of insurance that was once provided by their employer. Often times these two factors combined create an almost impossible mountain to climb without the help of bankruptcy.
Bankruptcy and Co-signers
Before filing for bankruptcy you need to make sure which type is appropriate for your situation. At this time it is important to ask if your co-signer would be asked to pay your debt if your file for bankruptcy. The answer to this question would depend on the type of bankruptcy that you file for and the particulars of your bankruptcy plan.
Essentially, only a Chapter 13 bankruptcy will protect your co-signer. With a Chapter 7 bankruptcy, only the debtor is protected and the co-signer will still be liable for the debt. That is to say, with Chapter 7 bankruptcy, the creditors will still have the right to demand that your co-signer pay off the outstanding payments. On the other hand, Chapter 13 bankruptcy is able to give the co-signer increased protection under the right conditions.
Under chapter 13 bankruptcy, as long as the bankruptcy plan is active the co-signers will receive a stay. All the same, when the plan closes, the co-signer is once again liable to pay any outstanding payments. The following aspects should stay constant while your file for bankruptcy and in the later processes also. If any one of the following factors is not satisfied at the point of bankruptcy filing or later, then your co-signer will be responsible to pay off your debts. The factors are:
• you file for Chapter 13 bankruptcy. Chapter 7 will not protect your co-signers
• the debt of the co-signer has to be a consumer debt, which is to say, a personal debt and not a business one.
• the co-signer is not the recipient of any benefits from the debt proceeds.
• the accurate bankruptcy plan payments are made in accordance with your bankruptcy.
When filing for bankruptcy, one needs to keep in mind that the conditions mentioned above are legal ones and have to be dealt with in the appropriate manner. It would be advisable to contact a bankruptcy attorney to ensure the protection of your co-signer
Mortgage After Bankruptcy
Most people probably assume that obtaining a mortgage to purchase a home, refinance or to consolidate debt after a bankruptcy is out of the question. In fact, many people are able to obtain these mortgage services, even 1 day after a bankruptcy discharge in some cases. Loan programs and lenders are available that require little or no time after the discharge of a bankruptcy. Here are a few tips to speed up the road to credit recovery and the mortgage services you desire. First, continue timely paying on items such as your home and cars that were not discharged in the bankruptcy. Having at least a couple credit items you are paying on- time will help. Second, limit the amount of other debts such as credit cards or bank loans. Too much debt will make it more difficult to qualify for a loan, particularly revolving credit accounts such as credit cards.
Your debt-to-income ratio is one part of the puzzle lenders will look at in determining your ability to repay a mortgage. Another important aspect is providing all necessary documents in a timely manner to your loan consultant. Items such as paystubs and tax returns are generally needed in order to establish your income and show the ability exists to repay the loan. Information on your credit report needs to be checked for accuracy. Items that you feel are inaccurate need to be disputed in writing with the three major credit repositories. (Equifax, Experian and Trans Union). This may take persistence to ensure the items are removed appropriately. The removal of this inaccurate information will help establish a more favorable debt-to-income ratio and make the process of qualifying for a loan easier. Finally, if you are unable to qualify for a loan initially, do not despair. Sometimes this process requires a little patience. Follow the tips mentioned earlier and more options are usually available 6 months to a year after the bankruptcy discharge.
Who is a Trustee?
In every case of filing for bankruptcy, an impartial trustee is appointed by the courts. The primary role of the trustee is to act as a representative of the creditor. The role of the trustee and the degree of involvement changes with different types of bankruptcy plans. Although, representative of the creditors, the trustees also have the responsibility to ensure that the debtor’s plan runs as smoothly as possible.
How Does the Trustee Work?
There are various ways in which a trustee goes about carrying out his main objective of protecting the interest of the creditor. For example, a trustee can collect property of the estate, object to discharge or certain exemptions a debtor may claim, liquidate nonexempt property in the estate and distribute the funds to appropriate creditors. Te trustee is appointed by the United State Trustee, an officer of the Department of Justice.
Let’s now look at the two types of bankruptcy filing and the roles the trustee plays therein:
Chapter 7: In a Chapter 7 Bankruptcy filing, the role of the trustee is limited. In most Chapter 7 cases, the debtor would not have any assets available, but in cases where there are assets, the trustee is responsible for the liquidation and distribution of money to the creditors. The trustee will check up on the bankruptcy, look at exemptions, schedules, and ensure that the debtor is sticking to the plan of action laid out by the court. The trustee also participates in creditor meetings, and oversees the process of selling assets. The trustee has the power to deny a discharge to the debtor if any evidence of fraud, perjury, or ineligibility is discovered.
The United States Trustee appoints every Chapter 7 trustee to a panel for a period of one year (renewable).
Chapter 13: No doubt, in a Chapter 13 filing the trustee’s role is not just of an overseer, and is much more involved. Ordinarily, there will be one trustee handling all Chapter 13 work in a particular district or area. There is of course no liquidation involved in a Chapter 13 case so the trustee’s responsibility is to manage the financial affairs of the debtor, in a way that facilitates paying back some of all of the credit. The trustee must be present at all hearings that concern property valuation, must ensure receipt of payments from the debtor and also the disbursal of money to the respective creditors.
The United States Trustee appoints a “standing trustee” to administer cases in a specific geographic area.
Chapter 11: The job of a trustee in a Chapter 11 case is multi-layered. The responsibilities include setting up official committees (usually up to 15 people) to serve a case and choosing members for the same; reviewing all reorganization plans submitted to ensure the information provided is adequate and accurate; ensure that deadlines are met; investigating any case of fraud, or abusive conduct and refer the case to the appropriate department.
In all cases, the United States Trustee oversees (at the minimum) the following functions of the panel/“standing” trustees:
• Administration of individual debtor estates
• Financial record-keeping
• Impose necessary requirements to ensure that fiduciary duties are carried out
The Balancing Act
It’s a literal tight rope walk. On the one hand is the responsibility to keep the creditors interests in mind, and on the other is to provide assistance in the smooth performance of the debtor’s plan. How can a debtor be sure whether a trustee is keeping a close watch on your activity to help in times of need, or to collect as much money as possible? There is no knowing really, and it’s a tough call that you might want to avoid taking. Leave this to the discernment and experienced eye of your attorney to judge. Keeping in mind the tendencies of a particular trustee, your attorney will help you structure the best possible scenario for your bankruptcy plan.
What is the Difference Between Secured Debt and Unsecured Debt?
The most straightforward way to understand the difference between unsecured and secured loan is to work out if your creditor can take away any item or property in the case that you are not able to repay the overdue amount in time.
The basic difference between secured and unsecured debts is that in unsecured debts there is no tangible property or any other kind of product that is attached to that debt, whereas for a secured debt there are tangible items that are attached to the debt. Common examples of unsecured debts are arrangements such as credit cards, medical bills and store cards where you do not have to put up any material as security for the debt. On the other hand, things such as mortgages and car payments usually have tangible items attached to it, i.e.: your house or car.
The difference between the two types of debts is applicable when someone is filing for bankruptcy also. In Chapter 7 Bankruptcy you can make the choice of either keeping the product or property and pay of your debt in some other way. But if you decide that you cannot pay at all then you also have the option of giving the product or property back and paying off your debt in that way. On the other hand, in Chapter 13 Bankruptcy you are allowed to keep the merchandise or property but you will be allowed to pay off your debt according to the Chapter 13 plan. That is to say the bankruptcy court will most probably allow the creditor to charge you only about 10% interest, whereas you most probably were paying a much higher interest than that. However, if the value of the item is less that the value of the debt, then the outstanding about that is not covered by the item will be paid as an unsecured debt without interest.