Your lender is now foreclosing your home. What’s the first step? Do you file for bankruptcy? Do you defend the foreclosure action? Do you look ask for a modification or contact the workout departent of your lender?
Do you know the warning signs of too much debt? If you answer “Yes” to any of the questions below, you are probably already in financial trouble whether you realize it or not and need to find out what your options are. Do not allow yourself to be lulled into a false sense of security just because you’re not late with any of your payments.
Just because you can pay your minimum payments each month does not mean you are financially fit. Low monthly minimum payments benefit the credit card company, not you. The “minimum amount due” is cleverly calculated to keep you trapped in debt for your entire adult life.
Unless for some reason a general discharge of debts is denied, the Court typically enters an order which grants a discharge to the person(s) named as the debtor(s). A discharge in bankruptcy eliminates a debtor’s legal obligation to pay debts that are discharged.
The granting of a discharge is not a dismissal of the case and does not determine how much money, if any, the trustee will pay to creditors. Moreover, it does not always automatically result in the closing of a case. All contested matters, if any, must be resolved, and the appointed trustee must file a Final Report and Account and request entry of a Final Decree before the Clerk’s Office will close the case.
Most debts are eliminated in bankruptcy. The Bankruptcy Code, however, states that the certain individual debts are not dischargeable, and that the creditor does not need to take any Court action to have such a debt declared non-dischargeable. The most common examples of such debts are:
1. Debts for most taxes;
WIthout the Protection of the Bankruptcy Court, it is legal for a creditor with a court judgment against you to freeze or “attach” your bank account. Some creditors, like the IRS, can go after your account even without a court judgment.
The law provides express prohibitions against discriminatory treatment of debtors by bothgovernmental units and private employers. A governmental unit or private employer maynot discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, ordeclining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
If an individual debtor in a Chapter 13 case is not able to maintain plan payments to the applicable case trustee, it is possible to file a motion for a “hardship” discharge so that the case can be completed. As a practical matter, the relief obtained by the debtor is quite similar to that obtained by converting the case to one under Chapter 7 in that the debts which are not dischargeable in Chapter 7 are not discharged if the Court approves a hardship discharge in the Chapter 13 case. For an individual 13 debtor to obtain a hardship discharge, such debtor must show that (1) the amount paid to creditors pursuant to the confirmed Chapter 11, 12, or 13 Plan is at least as much as the creditors would have received had the estate been liquidated as of the effective date of the Plan, and (2) modification of the Plan is just not practicable. In addition, in a Chapter 13 case, the debtor must show that the failure to complete plan payments is due to circumstances for which the debtor should not justly be held accountable.
The Bankruptcy Court has no jurisdiction over credit reporting agencies. The bankruptcy petition, schedules and plan are public documents and are available to the general public at the Clerk’s Office. Credit reporting agencies regularly collect information from the petitions filed and report the information on their credit reporting services. Under the provisions of the Fair Credit Reporting Act [15 USC §1681c], the fact that an individual filed a bankruptcy can remain on the credit report no longer than 10 years. According to the Consume r Data Industry Association, if a chapter 13 bankruptcy is successfully completed, the credit reporting industry retains the information for only seven years rather than the ten years allowed by law to encourage debtors to file under that chapter.
Bankruptcies may be taken into consideration by any person reviewing a credit report for the purpose of extending credit in the future. The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor depending on the type of credit requested. There is no law which prevents anyone from extending credit to you immediately after the filing of a bankruptcy nor will a creditor be required to extend credit to you. However, a chapter 13 debtor is generally prohibited from incurring credit while the case is pending without the approval of the chapter 13 trustee. The best way for you to obtain credit in the future is to generate adequate and regular income and to pay all of your financial obligations in a timely and responsible manner. Many creditors will not deal with you in the future unless you have already established credit with someone else and demonstrated that you are a reliable debtor. In general, it is recommended that, after the filing of a bankruptcy, one learn to live within his/her income and not request credit which is not absolutely necessary. The Federal Trade Commission has a number of educational publications on its web site to help consumers address credit and financial issues.
As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a “means test” has been instituted to determine whether or not a debtor is entitled to a Chapter 7 discharge, or whether such debtor must convert the case to one under another chapter of the Bankruptcy Code. The basic purpose of the means test is to compare monthly income and expenses to determine whether or not a Chapter 7 discharge would constitute an “abuse” of the provisions related to Chapter 7 in the Bankruptcy Code.
Means testing is only applicable to debtors whose annualized current income exceeds the median family income for the state of residence and family size involved. Such median income figures can be obtained from the U.S. Trustee’s Web Site. In calculating income for means testing, however, average income for the six months immediately prior to the filing of the bankruptcy petition is used as opposed to actual or projected income at the time of filing. Some types of income (e.g., social security benefits) are not included for the means test calculation. With respect to expenses, allowable expenses are to some extent determined by IRS guidelines as opposed to actual expenditures.
