Posts Tagged ‘filing for bankruptcy’

What Steps are Involved in Filing for Chapter 7 Bankruptcy?

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chapter 7 bankruptcy

Bankruptcy is not a punishment. It is a protection. But contrary to popular belief, this protection is not for creditors. It is for debtors.

This is because the courts — which essentially represent the will of society — recognize that it is not in society’s best interest for condemn people in debt to a lifetime of financial agony; even if the wounds are self-inflicted vs. caused by unforeseen external events (e.g. excessive medical bills, etc.).

As such, bankruptcy gives debtors the time, legal protection, and financial relief they need to get out — and ideally stay out — of debt, so they can (again, ideally) make a positive contribution to society down the road.

Of course, this doesn’t mean that creditors are left high and dry. They will typically get partial payment based on where they are in the pecking order. And some debts such as alimony, child support, student loans, and court-ordered restitution per a previous criminal conviction cannot be discharged as part of a bankruptcy filing (with this in mind, the court may consider a structured repayment plan if debtors can prove that they cannot meet their full obligations on these debts, and programs exist to provide some relief for student loans).

Steps in Filing for Bankruptcy

Now that you are aware that filing for bankruptcy is essentially a legal protection for debtors and not a collection method for creditors (in fact, as we’ve written about creditors typically don’t want debtors to file for bankruptcy!), we can look at the other unknown aspect that fills many people with anxiety and distress: what the filing process looks like.

Basically, here are the steps that you’ll take on your journey of filing for chapter 7 bankruptcy:

  1. Within six months of filing for bankruptcy, you must complete a mandatory credit counseling course. The course is delivered through in-person training, as well as via the web.
  2. You must submit a complete application to the court that includes financial statements, income tax assessments, and proof that you pass your state’s respective chapter 7 means test. If you wisely hire a bankruptcy attorney to represent and guide you, then he or she will handle this on your behalf and ensure that your application is complete. Note that if your application is incomplete, then it will be delayed or may be denied, and you will not be granted an automatic stay from your creditors. They will continue to contact you, charge interest on debts, and proceed with collection activity such as wage garnishment and civil lawsuits.
  3. If your application is complete and accepted, the court will assign a trustee to govern the remainder of the bankruptcy process. Keep in mind that the trustee does not work for you or for creditors. He or she is an officer of the court.

  4. Your creditors will be invited to a meeting that you must attend (if you have an attorney, then he or she will accompany you). During this meeting, the trustee and creditors will have the opportunity to ask you questions about your finances and future earning potential.

  5. After the meeting of creditors (also called a “341 Meeting’), your eligibility to file for chapter 7 will either be confirmed or denied, largely on the basis of whether you passed the chapter 7 means test. If you are not eligible, then you will typically be able to file for chapter 13 bankruptcy in which you propose a structure repayment plan that is typically executed for 3-5 years.

  6. The trustee will then take an inventory of your non-exempt assets (i.e. items that can be sold or liquidated to pay off your debts). You might also be able to negotiate with the trustee to retain certain non-exempt assets. Essentially, if the trustee can get as much or more from you vs. another party, there is a good chance you will be able to keep the asset(s).

  7. Next, the trustee goes through your secured assets and determines what assets will be returned to creditors. You may be able to retain some of these assets by paying for them, or reaffirming debt. However, keep in mind that if you wish to reaffirm any debts, then you must attend a reaffirmation hearing in front of a judge. If you have an attorney, then he or she can represent you at the hearing and you do not have to attend.

  8. You must complete a financial management course. Similar to the credit counseling course that must be taken within the six months immediately prior to filing for bankruptcy, the financial management course is available in-person and online. Once you have completed the course, you must submit a form to the court verifying your achievement.

  9. Within 3-6 months after filing, you will receive a discharge notice in the mail (your attorney will also receive a copy). At this point, the automatic stay is lifted — which is fine, because even if you have creditors at this point, they will not be threatening you with collection activity.

  10. Typically within a few days (or sometimes a few weeks) after getting your discharge notice in the mail, you will receive a letter informing you that your case has been closed. You will no longer be liable to most (or ideally all) of your creditors, and can start your new life ahead with a clean financial slate.

Learn More

To learn more about the process of filing for chapter 7 bankruptcy, contact the Law Office of Charles Huber today. We have over 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!

FAQ: Getting a Mortgage after Filing for Bankruptcy

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Understandably, the biggest concern that many people have about filing for bankruptcy is how it may hinder their ability to get a mortgage in the future.

To provide clarity and reduce anxieties that are based on myths and misinformation — and unfortunately there is a great deal of both floating around the web — below we answer some frequently asked questions about getting a mortgage after bankruptcy:

Question: “Do I need to wait until a bankruptcy filing is removed from my credit score before I get a mortgage?”

Answer: No, you do not. If your bankruptcy was caused by reason(s) beyond your control, then you should be able to apply for a mortgage two years after discharge. If your bankruptcy was the result of financial mismanagement on your part, then you will be able to apply for a mortgage four years after discharge.

Question: “Does a bankruptcy filing make me ineligible for federal housing loan programs?”

Answer: No, your eligibility is not affected. However, you will have to abide the required waiting period. For example, if you wish to apply for a Federal Housing Authority (FHA) loan, then you will need to wait two years after discharge. Or if you wish to apply for a United States Department of Agriculture (USDA) loan, the waiting period is three years (for chapter 7 filings) and one year (for chapter 13 filings).

Question: “Are there any exceptions to the two-year post-discharge waiting period before applying for an FHA loan?”

Answer: Yes, there is. You may be able to apply for an FHA loan less than two years after discharge if you meet two conditions: 1) your bankruptcy was not the result of financial mismanagement on your part (e.g. you were forced to cover excessive medical bills or major home repairs after a natural disaster); 2) since filing for bankruptcy, you have behaved in a financially responsible and prudent manner.

Question: “Will conventional lenders make me pay more for a mortgage based on my bankruptcy filing?”

Answer: This depends. Conventional lenders (a.k.a. private lenders) rely on a variety of factors to determine lending rates, including — but not exclusively — credit scores and bankruptcy filings. With this being said, all lenders (banks and private organizations) are governed by Federal and State guidelines that forbid predatory lending practices, discrimination, and other transgressions.

Generally speaking, if you pay less than a 20% down payment on your home, then you’ll be required to pay mortgage insurance (contrary to what some people believe, the government does not insure private conventional mortgages). However, once you have 20% equity in your home, the insurance payment should drop or be eliminated.

Learn More

To learn more about getting a mortgage after bankruptcy, contact the Law Office of Charles Huber today. We have over 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!

The Basic Facts of Filing for Chapter 7 Bankruptcy While Separated

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chapter 7

Whether temporary or leading to divorce, separation can be an emotionally traumatic experience. Indeed, even in so-called “good breakups” (which some people consider a contradiction in terms) can cause wounds that can only be healed with time, support, and possibly the assistance of a qualified mental health professional like a psychologist, psychiatrist, therapist or counselor.

However, it is less well-known that separation can — and often does — impose a major financial burden as well. Unfortunately, creditors frankly do not care and have zero compassion when it comes to this very common scenario. They demand payment, and will not pause their aggressive collection efforts — including filing lawsuits — because a debtor is going through a very difficult time in their relationship or family.

If you are facing this difficult situation, then filing for chapter 7 bankruptcy might be in your best financial interest. Here are some basic facts that will help you decide if contacting a bankruptcy attorney for a closer look at your options is a worthwhile next step:

  • Contrary to what many people believe, individuals can indeed file for bankruptcy while legally separated. They do not need to file jointly (although in some cases it may be beneficial to do so).
  • Usually, any new debts that you incur after legally separating will be your responsibility (and the same applies to your spouse).
  • If you and your spouse have joint credit cards or other joint debts, then these will continue accumulating and creditors may seek to enforce the debt against the non-filing spouse. In other words: if your spouse files for bankruptcy and you do not, then creditors may come after you — and not your spouse — to pay up, even though the debt was initially incurred by both of you.
  • In the same light as the point immediately above: depending on the homestead exemption laws in your state, if your spouse files for bankruptcy and you do not, then creditors may seek to foreclose on your home in order to resolve outstanding debts that were incurred by you and your spouse.
  • If you file for bankruptcy and ultimately discharge your debts in federal court, the family court in your state may use your new (and larger) disposable income amount to reduce your alimony award if you are due to receive a monthly amount, or increase your obligation if you are due to pay a monthly amount.
  • Should You File While Separated or Wait for Divorce?

    Whether you should file for chapter 7 bankruptcy while separated, or if you should wait until you are officially divorced, is an extremely important issue to resolve — one that will have a lasting impact on your financial future for decades to come.

    The above facts are NOT intended to point in you in one direction or the other. Rather, they are meant to give you a basic understanding of the landscape. The only source that can provide you with counsel for your specific situation is an experienced bankruptcy attorney. Be advised that your family lawyer cannot (and should not) provide you with this type of financial advice, since it is not their area of specialization. Fortunately, this warning is usually a non-issue, since qualified and credible family lawyers will always refer you to a bankruptcy attorney if they believe that it is in your best interest to consult with one.

    Learn More

    To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing bankruptcy cases, and have helped numerous individuals going through the legal separation.

How Many Times Can You File for Bankruptcy?

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Unless a bankruptcy court deems otherwise (more on this below), there is no limit to the number of bankruptcy cases that an individual can file. However, where restrictions come into the picture is with respect to the length of time that must pass between filings. To make things a little more complicated, the restrictions are also based on the type of bankruptcy filing (i.e. chapter).

Currently, here are the rules:

Chapter 7 to Chapter 7

If an individual previously filed for chapter 7 bankruptcy and received a discharge, then they must wait 8 years from the date of the previous filing (not the date of discharge) before they can file again for chapter 7 bankruptcy.

Chapter 13 to Chapter 13

If an individual previously filed for chapter 13 bankruptcy and received a discharge, then they must wait 2 years from the date of the previous filing (not the date of discharge) before they can file again for chapter 13 bankruptcy. With this being said, most chapter 13 bankruptcy filings are linked to a repayment plan that lasts for 3-5 years. As such, practically speaking, most people can file for chapter 13 bankruptcy immediately after their previous chapter 13 filing closes (since for them the 2-year waiting period would have entirely passed).

Chapter 7 to Chapter 13

If an individual previously filed for chapter 7 bankruptcy and received a discharge, then they must wait 4 years from the date of the previous filing (not the date of discharge) before they can file again for chapter 13 bankruptcy. This approach (filing for chapter 7 bankruptcy and then filing for chapter 13 bankruptcy) is commonly and informally called “chapter 20 bankruptcy,” and is sometimes sought by individuals who need help paying off key debts, or have the opportunity to get caught up on missed mortgage and/or car payments.

Chapter 13 to Chapter 7

If an individual previously filed for chapter 13 bankruptcy and received a discharge, then they must wait 6 years from the date of the previous filing (not the date of discharge) before they can file for chapter 7 bankruptcy. However, the 6-year waiting period does not apply if during the chapter 13 proceedings the individual paid back all of their unsecured debts, or they paid back at least 70 percent of their unsecured debts and their repayment plan was deemed by the court to be proposed in good faith and executed with the best of intentions and efforts.

Extensions to the Waiting Period

As noted above, the court may extend the amount of time that an individual must wait before filing a new bankruptcy case. This is referred to as dismissing a case with prejudice (as opposed to dismissing a case without prejudice, in which case there would be no additional filing restrictions).

The court may dismiss a case with prejudice if it deems that an individual:

Willfully failed to obey court orders. Filed multiple bankruptcy cases in an attempt to delay creditors. Attempted (regardless of success) to abuse the bankruptcy system. Committed (or attempting to commit) bankruptcy fraud by hiding assets or lying in any of their submissions or statements.

In cases that involve severe transgressions, the court can permanently ban an individual from discharging debts that were earmarked for discharge in a case that was dismissed with prejudice.

For example, if $10,000 in medical debt was going to be discharged per a chapter 7 bankruptcy filing, but the court later discovered that the individual filing the case knowingly hid assets in order to prevent them from being liquidated by the trustee, then that $10,000 in medical debt could be blocked from being discharged in any future bankruptcy filing. The individual would therefore have to pay it either by settling in some way with the creditor, or by obeying a court order per a civil lawsuit filed by the creditor.

Learn More

To learn more about bankruptcy filing rules and for a clear picture of all available options that are at your disposal, contact the Law Office of Charles H. Huber. We have over 30 years of experience filing bankruptcy cases.

Here’s the Absolute WORST Thing Some People Do when Filing for Bankruptcy

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On the road toward and beyond a bankruptcy filing, there are many dos — and even more don’ts. This isn’t because bankruptcy is a dangerous minefield that threatens to destroy people at every turn.

Rather, it’s because the amount of myths, misinformation an outright lies regarding bankruptcy is staggering. It’s even more shocking considering that we aren’t talking about vacation destinations or what kind of car to buy. Yes, there is a lot of lousy advice out there, and bad decisions are costly and stressful.

But filing for bankruptcy is an entirely different matter. Mistakes can, and often do lead to lasting damage — and in extreme cases, criminal prosecutions. And that leads us to the absolute WORST thing that some people do when filing for bankruptcy (to be fair, they are often convinced to do this by someone who they are going to hate in the near future when the mistake is discovered and the dire consequences set in).

Let’s hit the spotlight and reveal the number one thing that you — and anyone you care about — should never even think about doing, regardless of what you read or hear: run up your credit card debt prior to a bankruptcy filing.

There are two fundamental reasons why this a jaw-droppingly bad move:

It’s totally unethical.

Apologies to all of the Robin Hood fans out there, but stealing from the rich (i.e. big companies) isn’t ethical. It’s more sophisticated and may seem less harmful than walking up to someone in the street and stealing their purchase or grabbing someone’s keys and driving away in their car, but it’s essentially the same thing. Theft is theft.

It’s not going to work.

Creditors and especially court-appointed bankruptcy trustees are not stupid, and they are absolutely on the lookout for this kind of scheme. Remember, these are not cash purchases. Everything is tracked and traced, right down to the last cent.

Specifically, transactions for luxury goods or services totaling $650 or more within 90 days immediately prior to filing for bankruptcy will be presumed fraudulent. Of course, this may not be the case, but it will be up to filers to establish otherwise by demonstrating that the expenses were legitimate and necessary (e.g. getting new brakes on a car to make it roadworthy 60 days before a filing is not the same thing as buying the latest iPad a week before filing). The same presumption of guilt applies to any cash advances of at least $950 within 70 days immediately prior to filing for bankruptcy.

If filers cannot demonstrate that the transactions were legitimate and compliant, they will face the wrath of the legal system. For starters, their bankruptcy case will be dismissed. Then, creditors will go into attack mode and tack on interest penalties based on the date that the case was filed. Third, they will be prevented from re-filing for bankruptcy — and even when the ban is lifted, they may not be able to seek protection on previous debts. Lastly, they may be subject to criminal prosecution, which can lead to fines and in extreme (but not unheard of) cases, imprisonment.

The Bottom Line

If anyone is urging you to “game the system” by running up your credit cards prior to a bankruptcy filing, then consider yourself very, very fortunate that you’re reading this article now vs. after you’ve made that incredibly bad mistake. And if a friend or relative is thinking about heading down that road, send them this article and say “you’re welcome!”

Learn More

To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing consumer bankruptcy cases.