- I will lose all my property if I file Bankruptcy. Bankruptcy is intended to help those facing financial hardship. Taking away assets would do more harm than good. The bankruptcy code has various exemptions which protect people’s assets. These include social security, unemployment, home and car.
- Everyone will know I filed for Bankruptcy. Although bankruptcy filings are public record, that chances that an individual’s bankruptcy will become news is very rare. Bankruptcy filings are not indexed by search engines online. Unless one is searching for an individual’s financial information or the debtor shares that information with others, there is little change that their bankruptcy will be known.
- Both husband and wife must file bankruptcy. While in some cases it makes sense for both spouses to file joint bankruptcy, it is not required by California state or Federal law. Every bankruptcy case is unique, and sometimes it does not make sense to file jointly. For instance, if the majority of the debt is in one spouse’s name, then that spouse may file bankruptcy individually and protect the other spouse’s good credit.
- Back taxes are not discharged in bankruptcy. In some instances it is possible to discharge federal and state back taxes. There are specific rules on when this is possible and how much can be discharged. Certain types of taxes may not be discharged and others may be mitigated. It’s always best to check with an attorney.
- I can only file bankruptcy once. Bankruptcy is meant to get people back on their feet and give them a fresh start, but they may fall into debt again due to unforeseen circumstances such as, illness, divorce, unemployment, etc. The law is that people can get a discharge for Chapter 7 bankruptcy once every eight years. Additionally, they can file for a Chapter 7 after filing for a Chapter 13 or file for a Chapter 13 one year after their previous filing.
Financial stability is built upon living within one’s means. How does one know whether they are living within their means? One easy test is if you are spending more than you’re making. Here are some other important questions you should answer to know whether you are financial stable:
1. Would you survive financially without your job or business income for at least six months?
Most of us refer to this as our rainy day or emergency fund. It is something we need to establish and replenish over time. This reserve can become necessary in case of unemployment or even a major medical expense or home repair. You should set aside how much you would need to meet your ongoing monthly living expenses, including mortgage, food, insurance, car and home maintenance, utilities, etc.
2. Are you saving at least 10% of your pay?
Most advisers agree that if you are not saving at least 10% of your income for retirement since age 25, you are not saving enough. If you are over 35, you should be putting away more than that.
3. Is your mortgage payment more than one week’s salary?
In other words, is your home more than you can afford? The one-week salary figure is a rough guide and means that your mortgage payment would not be more than one-quarter of your income. Most lenders would view that you were living beyond your means if more than 35-40% of your income goes into your home.
4. Has your credit card balance remained the same for the past year?
If your balance is growing each month, then you are living way beyond your means. However, if you haven’t been able to pay off your balance within a year, that is a good sign that you are living beyond your means.
5. Are you purchasing big ticket items through interest-free, deferred-payment options because you think you’ll be able to afford it next year?
Although these deals sound enticing, they can be very dangerous. If you fail to pay for your item in full by the set deadline, you will get hit with sky-high interest charges. A good rule of thumb is if you can’t afford to buy it now, hold off on such purchases.
6. Do you use your credit card to pay off another credit card’s balance?
Have you become the expert maverick when it comes to credit card balance transfers? Have you noticed that you don’t seem to get ahead and actually pay off your balances? If you’re using balance transfers because you need to raise your personal debt ceiling, that is not a good idea. However, you will end up saving money in the long run if you are moving balances to a lower interest rate and most importantly paying off the balance.
7. Are you consistently paying an overdraft fee on your checking account?
Most consumers don’t even realize they are being charged overdraft fees. An ongoing, repetitive nature of overdraft fees usually signals a big problem.
8. Do you normally tell yourself that you shouldn’t buy something, but then you buy it anyway?
If you’re rationalizing your purchases, it’s a good indication that you are spending unnecessarily.
Your city’s average credit score has an affect on your credit standing. A city’s credit score is influenced by such things as, the unemployment rate and foreclosures. City and metro areas with high credit scores have the lowest credit risk. The city or metro scores indicate how individuals stack up compared to their neighbors. For instance, San Jose, CA has the highest average credit score in the nation, and the majority of the city’s residents have healthy financial standing.
Credit rating bureaus are using city and metro credit scores in an effort to encourage consumers to check their own scores. Most of us do not check our scores until we are ready to buy a home or car or need a personal or business loan. However, it takes time to establish healthy credit standing, especially in the eyes of a lender.
Not all lenders use the same rating as credit bureaus. Even if a consumer received a good score from one credit bureau, it does not mean that a particular lender is using the same rating. A study released in September by the Consumer Financial Protection Bureau indicated that one of five consumers would likely receive a meaningfully different score than a creditor would see. Consumers should check their credit score(s) with the different rating bureaus each year to ensure there are no errors, that such score(s) accurately reflect their credit history and to identify areas to work on.
Metro areas with the highest average credit scores:
Metro area, score
San Jose-Sunnyvale-Santa Clara, Calif. 700
San Francisco-Oakland-Fremont, Calif. 696
Madison, Wis. 694
Minneapolis-St. Paul-Bloomington, Minn.-Wis. 691
Bridgeport-Stamford-Norwalk, Conn. 690
Boston-Cambridge-Quincy, Mass.-N.H. 689
Oxnard-Thousand Oaks-Ventura, Calif. 685
Portland-South Portland-Biddeford, Maine 685
Seattle-Tacoma-Bellevue, Wash. 685
Metro areas with the lowest average credit scores:
Metro area, score
Memphis, Tenn.-Miss.-Ark. 638
McAllen-Edinburg-Mission, Texas 639
Jackson, Miss. 642
El Paso 650
Columbia, S.C. 650
Las Vegas-Paradise 650
Little Rock-North Little Rock-Conway 651
Baton Rouge 651
Lakeland-Winter Haven, Fla. 651
Augusta-Richmond County, Ga.-S.C. 651
I am often asked about the debt settlement or debt consolidation option prior to filing bankruptcy. More than 500,000 Americans with $15 billion of debt are currently enrolled in debt settlement programs, according to industry estimates. Only a tiny proportion of debts are actually settled by these companies, clients are typically left worse off than they were when they started. NACBA
BEWARE, while most consumers want to believe that they can make it, Ask yourself this basic questions, do you think you can resolve your financial difficulties within one year? Would you see a light at the end of the tunnel in one year? If not, you are only delaying the inevitable. Within one year after bankruptcy, your credit score will begin to improve and you will receive offers for new credit.
There is now across-the-board agreement on the danger debt settlement schemes pose (National association of consumer bankruptcy report). The Better Business Bureau designates “debt settlement” an “inherently problematic business.” The New York City Department of Consumer Affairs calls it “the single greatest consumer fraud of the year.” The U.S. Government Accountability Office, the Federal Trade Commission, 41 state attorneys general, consumer and legal services entities and consumer bankruptcy attorneys all have substantial evidence of its abuses.
The Federal Trade Commission charged Ohio-based United Debt Associates and its owner Ryan Golembiewski with fraudulently claiming on 17 websites that consumers can quickly get out of debt using its debt settlement companies. He agreed to a settlement barring deceptive claims and to a $390,000 judgment. It was entered Oct. 4 by the U.S. District Court for the Southern District of Ohio, Eastern Division.
The means test is the test that determines whether a debtor qualifies for chapter 7 or must file chapter 13. In certain borderline situations, debtors that are receiving social security income may be mistakenly including the social security income in the means test calculation. Section 101(10A)(B) excludes Social Security income from a debtor’s Current Monthly Income. Section 105(10A)(B)’s definition of “Current Monthly Income” specifically excludes benefits received under the Social Security Act. Therefore, Social Security income is not included when calculating disposable income.
When determining a Chapter 13 debtor’s projected disposable income, the Supreme Court in Lanning said the starting point is the debtor’s disposable income. In unusual cases this amount may be modified to account “for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.”The 10th Circuit found additional support for its conclusion in the Social Security Act, which shields payments made pursuant to the Act from “execution, levy, attachment, garnishment, or other legal process,” or from “the operation of any bankruptcy or insolvency law.”
The issue of whether Social Security income is included in a Chapter 13 debtor’s projected disposable income is currently on appeal in the 4th and 5th Circuits. In both cases, In re Ranta, No. 12-2017 (4th Circuit), and In re Ragos, No. 11-31046 (5th Circuit), the National Association of Consumer Bankruptcy Attorneys has filed an amicus brief in support of the debtor. The debtors are the appellants in Ranta and the trustee is the appellant in Ragos.
Its summer break time and that means a slow down for bankruptcy attorneys around the country. Traditionally there is about a 25% drop in traffic to the bankruptcy attorneys office during this time. As a bankruptcy attorney since 1997, even I plan my vacation around this time if possible.
So what does summer break have to do with bankruptcy? Well the typical clients who file bankruptcy are families. They have children. Children need summer activities and parents have to accommodate that even if they have financial difficulties. Children don’t understand your financial issues and why should they? When they leave the nest, they will have to worry about their own finances. But for now, let them enjoy their summer. Letting your kids enjoy the summer is more important than bankruptcy if you do not have to file right now. That is what the statics says when there is a drop during a specific period as summer break. there is also a spike right after summer break which is yet another fact that says some things are more important then bankruptcy and client can wait.
Taking care of your finances is definitely one of the most important things you have to do. And sometimes that means having to file bankruptcy. If you do not have an urgent event forcing you to file bankruptcy like a wage garnishment or a foreclosure or a lawsuit that was actually filed. Let summer pass, keep the kids happy, and when they get back to school, you can get back to the business of dealing with your finances. A good attorney will tell you when is the best time to file. So call a local bankruptcy attorney. Bankruptcy is important, but sometimes it can just wait.
Are you facing a crushing student loan debt? You’re not alone. Did you know United States citizens face more than 1 trillion dollars in outstanding student debt? That’s a lot of loans, and the 2005 law that prevented borrowers from discharging their student loans in bankruptcy didn’t help resolve the issue. Generally student loans are not dischargeable in bankruptcy. Court rulings make discharging student loans extremely difficult. So if you are in school and facing the potential of high student loans, here are some suggestions to follow:
- Borrow as little of student loans as possible, only borrow what you need for tuition, nothing else.
- Do not borrow student loans to cover living expense.
- Minimize your expenses as much as possible.
- For everything else, use any other credit that may be available to you including credit cards.
Student loan reform seems to be in the news all the time these days, with a federal agency going so far as to petition Congress to change the current rules surrounding student debt and bankruptcy. Whether or not this move is successful remains to be seen. Until then following the above steps should hedge your chances just in case things do not work out the way you had them planed. Finally, you may be surprised to learn that filing bankruptcy does not affect your ability to get most new federal loans and grants, with the exception of PLUS loans. So even if you are in the middle of your education, Bankruptcy option is available to you.
Bankruptcy is always a though decision to make. Most debtors resort to bankruptcy as a last option to resolve their financial situation. While it takes time for this realization to sink in, 3 factors that affect most whether to file bankruptcy are, income, assets and timing.
Income: A debtor’s income can be a factor in limiting the debtor’s options on what chapter he or she may file under. Too much income may exclude the debtor from qualifying for chapter 7 bankruptcy under the means test. However debtor’s may be able to overcome the means test if they have sufficiently high monthly contractual obligations such as mortgage, car payments. Debtors can also use other expenses such as childcare, healthcare expenses to still qualify under chapter 7 bankruptcy. Otherwise, they can usually file chapter 13.
Assets: The law allows a certain amount of exemptions that are protected under bankruptcy. Funds in excess of the exemptions are not protected and will be liquidated to pay your creditors. Too much assets, under chapter 7, may prevent a debtor from filing bankruptcy when they are unwilling to have certain assets liquidated. Alternatively, debtors can file chapter 13 and pay back into the plan the value of these assets within reason.
Timing: Like everything else in life, timing is everything. If the debtor’s wages are being garnished, then they do not have much of a choice, the time has been decided for them by the creditors. Leaving the decision to file bankruptcy for the last minute is the most common mistake debtors make. But with little foresight, a debtor’s options for a fresh start are greatly enhanced. Proper timing can help debtors determine their income level and accordingly qualify for chapter 7 when they would have been required to file under chapter 13 otherwise. Proper timing may prevent the liquidation of assets that would have been protected permanently or temporarily delayed in bankruptcy such as foreclosure.
Most bankruptcy attorneys offer a free initial consultation. Debtors should talk to a knowledgeable bankruptcy attorney early on when they suspect bankruptcy may be needed. Having knowledge is the first step in organizing difficult financial situations. Knowledgeable bankruptcy attorneys can help debtors understand what it will take to file bankruptcy and when is the best time for them to file bankruptcy.
Often I get clients who have incurred huge amount of debt, over $150,000 in credit card debt, while trying to run their business. Usually these clients are concerned because they have to explain what happened to incur so much debt. the Magic words are “business debt.”
Did you know that the means test, the test which determines if you qualify to file chapter 7 bankruptcy, does not even apply if your debts are mostly business debt? So long as more than 50% of your debt is business debt, you don’t even have to complete the means test. The means test was introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act to make it more difficult for debtors to file a Chapter 7 Bankruptcy. But its was really targeted to consumers or chapter 7 debtors whose majority of debt was for consumer purchases. So just make sure you let your attorney know that if most of your debt was for business expenses, they are listed as such.
Now in some jurisdictions, mortgages on primary residence are considered consumer debt. Since most debtors may have mortgages that are more than any credit card debt, the above may sound pointless. Not so. Listing the debt properly as business debt on your schedule “F” will get you a long way from the red flags that a large amount of credit card debt may raise.
At the end of the day, the truth is the best policy you have, just let your bankruptcy attorney know the truth of what you did with the charges. The experienced bankruptcy attorney will prepare the petition in a way to properly document your petition and qualify you for the means test and get you the discharge.
Student loans, while might help students obtain an education, are inherently part of a capitalistic system whose primary objective is generating profit for their investors. American consumers owe more than $150 billion in outstanding private student loan debt (department of education report). Some students who graduate with enormous amount of none dis-chargeable student loans are effectively in an indentured servitude to these institution.
Student loan financing is fueled by investor appetite for asset-backed securities. The financial institution private student loan market grew from less than $5 billion in 2001 to over $20 billion in 2008. From 2005 – 2007, lenders increasingly marketed and disbursed loans directly to students, reducing the involvement of schools in the process; indeed during this period, the percentage of loans to undergraduates made without school involvement or certification of need grew from 40% to over 70%. As a result, many students borrowed more than they needed to finance their education. Additionally, during this period, lenders were more likely to originate loans to borrowers with lower credit scores than they had previously been. These trends made private student loans riskier for consumers and more profitable to creditors who have banked heavily on the fact that student loans are not discharged in bankruptcy.
After 2008 lenders rapidly increased the share of loans with a co-signer, from 67% in 2008 to over 85% in 2009. Creditors preyed on the uninformed parents to further secure their capital investment. In 2011, over 90% of private student loans were co-signed.
Many private student loan borrowers did not exhaust their federal Stafford Loan limits before turning to the private loan product. Some borrowers reported that they did not know they had fewer options when repaying their private student loans than they did with their federal student loans.
The private student loan industry is not some benevolent institution for providing opportunity to education, they are a money making machine whose sole objective if profit. They do not deserve any special protection that may be available to the federal student loan system.