The Difference Between Secured Debt and Unsecured Debt

Thu, 11 Dec 2008 01:58:56 GMT

There are two different types of consumer debt. There is secured debt which is a loan that is guaranteed by specific collateral and there is unsecured debt which is not secured by specific collateral. It is important that consumers understand the differences between the two types of debt, especially if they are having trouble making their loan payments, because the different types of creditors have different rights when it comes to collecting money from you and they have different priority when it comes to bankruptcy proceedings.

What is a Secured Debt?

As mentioned above, secured debt is a loan that is attached to a specific piece of property. The most common example is a mortgage which is, most often, secured with the property or home that the loan is used to purchase. So, if a borrower is having trouble making his mortgage payments and defaults on the loan, the lender can take back the property or the home in order to satisfy the debt. If the loan was not secured by the collateral (in this case the home or property) then the lender would have the same rights as other unsecured lenders and need to try to recover the money from the borrower’s total assets. It would not have any specific right, or priority in, the property or the home.

Typically, secured loans are offered at a better interest rate and better terms than unsecured loans because of the added protection that the collateral provides the lender.

What is Unsecured Debt?

In contrast to secured debt, unsecured debt is provided to a borrower without any specific collateral. For example, credit cards are unsecured debts. If a borrower stops making payments on his or her credit card, the credit card lender is able to sue the borrower for repayment but does not have a right to any specific piece of property. So, while a judge could order that property be sold to satisfy debts, the unsecured lender has no ability to require the sale absent a judicial ruling.

Bankruptcy Rights of Different Kinds of Creditors

While this might sound like an academic discussion since the borrower retains the obligation to repay all of his or her lenders, whether they be secured lender or unsecured lenders, the discussion is far from merely academic. While in theory the borrower has the responsibility to repay all of his or her debts, that is not always possible. If the borrower is defaulting on loan payments then the borrower may lack the funds to repay all of his or her obligations. Often, the borrower is left with no choice but to file for bankruptcy.

In a bankruptcy proceeding, secured creditors are entitled to the collateral which guarantees their loans in the order that the loans were made. For example, if a homeowner has an original mortgage that was properly executed and filed and then a second mortgage that was taken out at a later time and properly executed and filed and both loans were secured by the same property, then the original mortgage loan takes precedence over the second mortgage. It is only after both loans have been fully satisfied that unsecured lenders are entitled to any proceeds from the sale of the property or home.

Loan obligations, including student loans, car loans, mortgages and credit cards, can quickly become overwhelming. Therefore, it is important to understand your creditors’ right to recover payment from you and the priority in which they are entitled to do that.

Filing for Chapter 11 Bankruptcy Protection

Mon, 20 Oct 2008 16:41:26 GMT

The United States Bankruptcy Code is long and complicated. It provides different requirements for businesses and individuals who are seeking bankruptcy protection. The Code is divided into chapters and people often refer to the chapter number pursuant to which they qualify to file for bankruptcy.

Who Can File for Chapter 11?

Chapter 11 Bankruptcy is usually used by businesses that are unable to pay their creditors, although some individuals may also be eligible to file for bankruptcy pursuant to Chapter 11. The business itself can initiate a voluntary Chapter 11 petition or its creditors can file for an involuntary petition under Chapter 11 in certain circumstances.

Why File for Chapter 11?

Businesses that voluntary file for Chapter 11 protection are seeking to reorganize their debts so that the company can remain in business. Pursuant to Chapter 11, the court has the authority to give companies a fresh start by granting them complete or partial relief from their existing debts. Chapter 11 exists because there are times when it makes more sense for both a company and its debtors to see the business succeed. The business can, simply, earn more money as an ongoing operation than it can if it goes out of business and sells its assets off separately. Therefore, a plan is developed that is approved by creditors and the court that allows the business to continue operating and to pay its debts over time.

Businesses should be aware that Chapter 11 protection does not allow them to rack up debt, stay in business and not pay off their responsibilities. Creditors are often given partial or full ownership of the reorganized company if the original owners can not satisfy their debts. So, while the owners may lose control of their business, the employees of the business generally continue to have their jobs and the creditors of the business get their money.

What Happens Pursuant to Chapter 11?

When a business files for Chapter 11, the business is provided an opportunity to propose a reorganization plan. If an agreement with creditors is not reached during that time then the creditors are provided with an opportunity to propose a reorganization plan. The plans must meet specific criteria in order for to be approved by the bankruptcy court. If a reorganization plan is not reached and agreed to by the creditors then the Bankruptcy Court can either convert the case to a Chapter 7 bankruptcy proceeding or it can discharge the case entirely.

Creditors of businesses who file for Chapter 11 bankruptcy protection are paid in the same order as they are in other bankruptcy proceedings. Specifically, secured creditors are paid first and then unsecured creditors are paid according to the rules set forth in federal statute.

Nobody wants to file for bankruptcy. Business owners are not eager to give up control of their company in this way. However, Chapter 11 is designed to protect the greater good. It protects the jobs of the existing employees and it keeps the business going so that it can make the money necessary to pay off its existing creditors.

For more information about chapter 11 bankruptcy, Contact an experienced bankruptcy lawyer in your area today.

Free Consultations: Important for Bankruptcy Cases

Fri, 07 Nov 2008 00:53:50 GMT

If you are looking to hire a bankruptcy attorney then you have likely seen multiple ads that all claim to provide prospective clients with free legal consultations. However, the word consultation means different things to different attorneys and it is, therefore, important to understand what your free bankruptcy consultation will be before you agree to it.

Why is a Free Bankruptcy Consultation Important?

You should think of an initial consultation with a bankruptcy attorney as a job interview with you being the employer. You will, after all, be paying the attorney for a service and you, therefore, have the right to find out if you are comfortable with the attorney and if the attorney has the skills and expertise to get you the best possible outcome in your bankruptcy proceedings.

Many attorneys understand that they are providing you with a service and, accordingly, will not charge you for the initial meeting. This is not only to your benefit but to the attorney’s benefit as well. The attorney needs to conduct an initial case evaluation in order to determine if he or she is qualified to help you and to determine if it is a job that he or she wants.

What Questions Should I Ask If An Attorney Offers a Free Consultation?

While many attorneys realize the importance of providing an initial bankruptcy consultation free of charge, every attorney defines that initial consultation in a different way. There are some questions that you should consider asking any attorney, who is offering a free consultation, including:

How Long Is the Free Consultation? Attorney consultations can vary widely in duration. Some attorneys offer free 1 hour consultations and charge for any time over 1 hour. Other attorneys do not put a specific time limit on the consultation session.
Where is the Free Consultation? In an effort to keep consultations short and time efficient, some attorneys will only conduct free consultations over the phone or internet. Some clients and some attorneys prefer face to face meetings, however.
If I Don’t Retain You, What Happens? The lawyer should be aware that professional responsibility rules in most states limit what the lawyer can do with the knowledge obtained from a prospective client during a consultation meeting.
Should I Bring Anything to Our First Meeting? Similarly, would you like anything to review prior to our first meeting? These questions will allow you to come to the meeting prepared to answer the attorney’s questions.

A Free Consult Can Be a Good Start

When an attorney, or his or her office staff, answers your questions about a free bankruptcy consultation, it is important to take note of all of the answers. The way in which the attorney handles your questions and free consultations can be indicative of how the attorney will handle your entire case.

Most clients are looking for an attorney with whom they feel comfortable, and who they trust to do the best job possible in handling their bankruptcy. While this in no way means that an attorney is obligated to give prospective clients free consultations that go on for extraordinary lengths of time, it also means that prospective clients should not full rushed during a free consultation. Rather, each free consultation should be a productive meeting where the attorney and client have a chance to honestly get to know one another and to decide if the attorney is a good match for that particular client.

How have bankruptcy laws recently changed?

Tue, 09 Dec 2008 03:00:09 GMT

With a record number of bankruptcies in America on file, Congress has taken action to hold more people accountable for running up debts that they simply cannot pay. In general, the changes in the law may make it much harder for some people file bankruptcy, may make some people ineligible to file Chapter 7 bankruptcy at all, and may take more of your income to repay your debts in a Chapter 13 bankruptcy. Plus, you will now have to take some steps to address your debts before filing for bankruptcy, and you may have a harder time finding a bankruptcy lawyer to handle your case.

First, before anyone files for bankruptcy, he or she must now attend a credit counseling session with an agency approved by the bankruptcy trustee. Even if credit counseling clearly will not help you at this point, you are still required to go. The theory behind this change is that perhaps credit counseling can help a person handle his or her debts without having to resort to filing bankruptcy. Next, when your bankruptcy comes close to being complete, you will have to attend another credit counseling session, which is designed to educate you about handling money and debts, so that you will not have to file bankruptcy again in the future. The bottom line is that you are not allowed to finish your bankruptcy proceedings until proof is submitted to the court that you attended these credit counseling sessions as required.

Next, whereas you might have qualified to file Chapter 7 bankruptcy in the past, you may no longer be eligible for it, depending on your income. There is now a rather complex formula, based on your household income and expenses, which determines whether you are eligible to file Chapter 7 bankruptcy. If your household income is less than the median household income for a family of your size, in your state, then you can file Chapter 7 bankruptcy. However, if your household income is more than the median household income, then you will not be eligible to file Chapter 7 bankruptcy unless you pass the “means test”. This is an evaluation of whether you have the ability to pay back a portion or all of your debts, based on certain deductions and debt obligations. If you pass the “means test”, then you can file Chapter 7 bankruptcy.

The new laws also made some changes to Chapter 13 bankruptcy proceedings. In the past, the payment amounts required for a Chapter 13 repayment plan were based on your actual household expenses. Now, the IRS has set limitations on these expenses; therefore, you may end up paying more toward your debts than you would have under the former rules.

Finally, since the new income requirements and “means test” make filing a bankruptcy more complex, bankruptcies are more complicated and time-consuming for bankruptcy attorneys. The new laws also change the level of responsibility of a bankruptcy attorney for the bankruptcy filing; now, a bankruptcy attorney must personally verify that the information contained within the bankruptcy filing is correct. As a result of these changes, you may find it more difficult, and undoubtedly more expensive, to hire a bankruptcy attorney.

How to File Bankruptcy

Thu, 20 Nov 2008 01:46:59 GMT

Sometimes bankruptcy is inevitable. You understand the consequences of filing bankruptcy and have decided that bankruptcy makes the most sense for your future. So, how do you go about taking the next step and filing for bankruptcy?

Consider Hiring an Attorney

Many people decide to hire a bankruptcy attorney prior to formally filing for bankruptcy. In most cases, this is an important step because an attorney can often produce more favorable results than you could achieve on your own. An attorney is particularly important if you are filing for Chapter 13 bankruptcy where a plan will need to be negotiated with your creditors.

Get Consumer Credit Counseling

Also, it is important to seek consumer credit counseling from an entity approved by the U.S. Trustee before filing for bankruptcy. Federal bankruptcy law requires bankruptcy petitioners to receive consumer credit counseling from an approved entity within 180 days of filing a bankruptcy petition. The consumer credit counseling will review alternatives to bankruptcy and consequences of bankruptcy with you.

Decide Whether You are Filing for Chapter 7 or Chapter 13 Protection

When you are ready to begin bankruptcy proceedings, you, in consultation with your attorney if you have hired one, will need to decide if you are filing for Chapter 7 or Chapter 13 bankruptcy protection. Chapter 13 bankruptcies establish a repayment plan with your creditors and Chapter 7 bankruptcies allow you to repay your debts through a liquidation of your assets.

Filing

After you have decided which Chapter of the Bankruptcy Code best meets your financial needs and long term goals, then you can file the requisite papers with the Bankruptcy Court. You should also be prepared to pay all applicable filing fees at this time.

Once you have officially filed your petition for bankruptcy with the court, all of creditors will be notified and an automatic stay goes into effect. This means that your creditors may not contact you regarding debt repayment. Instead, all discussions of satisfying existing debts will go through the court.

Creditor Meeting

You will be notified, either through your attorney or by mail, of the date for a meeting with all of your creditors. The meeting is usually not long but it is significant. The meeting will review the debts and assets listed in your bankruptcy proceeding to ensure that all of your declarations were truthful. The trustee running the meeting will also make sure that you understand the details and consequences of your bankruptcy petition.

Developing a Plan

The next step is to develop a plan to settle your debts. In a Chapter 7 case, the trustee will determine if you have any nonexempt assets that can be sold to satisfy your debts and will oversee the sale and distribution of funds from those assets. In a Chapter 13 case, you will enter a 3-5 year plan to repay your debts.

Your credits have 60 days after the date of your meeting with your creditors to challenge the discharge of a particular debt or the entire discharge plan. If no lawsuits are filed within that 60 day window then your bankruptcy will be discharged soon after the 60 days have expired. If a lawsuit is filed then your attorney will work with you to finalize an agreement with the creditor or creditors who have brought suit.

It is a serious decision whether or not you should file for bankruptcy. If you decide that bankruptcy is the right plan for you then an attorney and the US Bankruptcy Court can help you navigate the different requirements necessary for a successful bankruptcy discharge.

Is there is anything that I can do about my debts to avoid filing bankruptcy?

Tue, 09 Dec 2008 03:06:47 GMT

There are a number of steps that you can take in order to avoid bankruptcy proceedings. If you find yourself falling behind on your credit card, car loan, and/or mortgage payments, you may want to take some immediate steps so as to avoid filing bankruptcy on these debts.

First, many people are overwhelmed by credit card debts. Never mind how you got yourself in over your head with credit card spending; the real issue for you now is to figure out how to get out of it. One easy step to take is to contact your credit card company and try to negotiate a lower interest rate. Credit card companies want to keep your business, because they are making money off of your high credit card balances. Plus, credit card companies often charge very excessive interest rates on the money that you have “borrowed” from them by using your credit cards. Many – even most – credit card companies will lower your interest rate to some degree, if only you take the time to ask. When you are dealing with large amounts of debt, any cut in interest rates charged on your debts will help you in the long run, in that you won’t have to pay back as much as money as you would with a higher interest rate. It is not only easy to make a phone call and ask for an interest rate cut, but you are also likely to get it.

Next, you can enlist the assistance of a credit counseling organization, which can help you negotiate with your creditors in order to form a repayment plan that you can afford. Every state has non-profit debt counseling agencies that are in business to help you manage your debts. This is also a good solution when you don’t feel comfortable, or are simply fed up, with trying to deal with your creditors on your own. While you will have to pay back your debts in full, you will be able to avoid having a bankruptcy on your credit report, which may be very important to you.

It is also important to keep in mind that you don’t have to put up with certain types of harassment from your creditors. You cannot be thrown in jail for failing to pay your debts (except if your debt involves child support or alimony). Your creditor does not have the right to call you at work if you don’t want to be contacted at work. The Fair Debt Collection Practices Act, which is a federal law, sets forth some very clear guidelines about what debt collectors can and cannot do in terms of collecting a debt. Thus, if you are being harassed by creditors, you should take some steps to educate yourself about what exactly these creditors can legally do to you for not paying your debt.

Some Debts May Remain After Bankruptcy

Mon, 26 Oct 2009 18:02:36 GMT

The decision about whether to file bankruptcy is a difficult to decision to make. People often worry about the lasting effects on their credit history and their ability to borrow money in the future. However, sometimes the advantage of being relieved of debt in a bankruptcy proceeding outweighs the disadvantages. In order to weigh the advantages and disadvantages for yourself, it is important to understand exactly what debts bankruptcy gets rid of for you and which debts will remain your responsibility.

Individuals may file for bankruptcy pursuant to Chapter 7 or Chapter 13 of the United States Bankruptcy Code. Chapter 7 bankruptcy requires the sale of the debtor’s nonexempt property and the distribution of the proceeds to the debtor’s creditors. Chapter 13 bankruptcy allows debtors with a regular income to keep their property and to come up with a debt repayment plan to satisfy debts over the course of 3 -5 years.

While most debts are satisfied in a Chapter 7 or Chapter 13 bankruptcy discharge, there are certain debts that are likely to remain with the debtor following bankruptcy discharge including:

Alimony and child support debt for past amounts that have not been paid;
Taxes: unpaid taxes usually remain with debtors after a bankruptcy is discharged;
Government funded or guaranteed educational loans: are not discharged in bankruptcy proceedings;
Debts associated with a criminal sentence: debtors who are ordered to pay restitution in certain criminal cases must still pay those debts after an individual bankruptcy discharge;
Debts incurred in some in DUI lawsuits: a debtor who injured or killed someone while driving under the influence of alcohol (DUI or DWI) remains responsible for any financial damages awarded to a plaintiff in a lawsuit arising from the incident;
Mortgages: long term obligations such as mortgages may not be discharged in a Chapter 13 bankruptcy proceeding; and
Secured Debts that have been reaffirmed in a Chapter 7 bankruptcy proceeding remain the debt liability of the debtors.

The degree to which bankruptcy gives a debtor a fresh financial start depends on an individual’s specific debts. If most of the individual’s debts are government backed educational loans and unpaid taxes, for example, then bankruptcy will not relieve the debtor of his or her obligations.

A Bankruptcy Attorney Can Help a Debtor Achieve a Fresh Start

An experienced bankruptcy attorney will review all of an individual’s debts before filing a bankruptcy petition in order to advise a bankruptcy petitioner about which debts are likely to be discharged in bankruptcy and which debts will remain the responsibility of the debtor after bankruptcy. A bankruptcy attorney may be able to renegotiate debts that would ordinarily not be discharged or help a bankruptcy petitioner set up feasible repayment plans so that the remaining debt is not overwhelming.

For all of these reasons, it is important to contact an experienced bankruptcy attorney to discuss your options and to make sure that a bankruptcy will provide you with the fresh start which you are seeking by relieving most, if not all, of your debt.

What are the basics of a Chapter 13 bankruptcy?

Fri, 12 Dec 2008 03:34:17 GMT

With recent changes in bankruptcy law, more and more people are finding themselves ineligible for traditional Chapter 7 bankruptcy, or liquidation; as a result, the trend is toward more Chapter 13 bankruptcy filings. By filing Chapter 13 bankruptcy, you are essentially entering into a repayment plan that permits you to repay all or a portion of your debts over a certain time period. Furthermore, filing Chapter 13 bankruptcy generally permits you to keep your assets, which does not always occur in a Chapter 7 bankruptcy. Therefore, if you are a person who has substantial assets, as well as a regular income sufficient to repay all or most of your debts, filing Chapter 13 bankruptcy may be the right step for you.

Much like a Chapter 7 bankruptcy filing, Chapter 13 bankruptcy proceedings start when you file a petition, along with various required forms regarding your assets, income, debts, and expenses. Filing Chapter 13 bankruptcy also requires you to file a repayment plan at the time of or shortly after the petition is filed, for approval by the court. The court also appoints a trustee to manage your Chapter 13 bankruptcy case; the duties of a trustee are primarily to evaluate your case and proposed repayment plan, as well as to receive payments from you pursuant to the plan, and disburse those payments to your creditors, or to the companies to whom you owe debts. Within 30 days of filing Chapter 13 bankruptcy, you have to begin making payments to the trustee as per the terms of your plan.

Furthermore, a Chapter 13 bankruptcy filing will result in an “automatic stay”, or a temporary order of the court that stops your creditors from taking further action to collect their debts from you, such as by garnishing your wages. The automatic stay typically remains in place throughout your bankruptcy proceedings. Therefore, a Chapter 13 bankruptcy filing may be a way to save your house from foreclosure, so long as payments are made according to the Chapter 13 plan.

After the Chapter 13 bankruptcy filing, the trustee holds a meeting of creditors, at which you must appear and answer any questions, and any potential problems with the proposed plan must be resolved. The bankruptcy court will then schedule a confirmation hearing in order to determine whether your plan is feasible and appropriate.

Assuming that your Chapter 13 bankruptcy plan is confirmed by the court, then it is up to you to make the plan work. In other words, you must comply with the terms of the plan in terms of repayment, and you must not incur new debts during the repayment period. If you complete the plan successfully, then you will receive a discharge of any remaining amounts owed on your debts included in the plan.

What are the basics of a Chapter 7 bankruptcy?

Fri, 12 Dec 2008 03:28:05 GMT

When people talk about filing bankruptcy, they usually are referring to Chapter 7 bankruptcy, which allows you to discharge, or wipe out, most debts that you owe. In many cases, filing Chapter 7 bankruptcy is the quickest and easiest way for a person who owes a lot of debt to get a “fresh start” in life. So long as you are eligible for Chapter 7 bankruptcy relief, and depending on your individual situation, you could find yourself free of all dischargeable debts within just a few short months.

In order to file Chapter 7 bankruptcy, you must file a petition with your local bankruptcy court, along with several required forms that list your income, assets, debts, and living expenses. Therefore, it is necessary to provide your bankruptcy attorney with a clear, detailed picture of all of your financial affairs. If you owe mostly consumer debt, such as credit cards, the bankruptcy court will require you to undergo credit counseling with an approved agency before filing bankruptcy. You can file Chapter 7 bankruptcy individually, or jointly with your spouse.

Some of your property will be “exempt” from the bankruptcy proceedings, which means that you will get to keep it, regardless of debts that you owe to your creditors. Whether property is exempt depends on both federal and state bankruptcy law. Filing bankruptcy will also result in an “automatic stay” against your creditors. With some exceptions, the automatic stay stops all creditors from attempting to collect debts from you while the bankruptcy proceedings are going on. All of your creditors will be notified of your bankruptcy filing by the court, so your creditors will be aware that they cannot collect debts from you during this time period.

About a month after you file Chapter 7 bankruptcy, your bankruptcy trustee, or the person assigned by the court to manage your case, will hold a meeting of creditors that you must attend. At that meeting, you may have to answer questions about your financial situation from both the trustee and/or your creditors. The main role of your trustee is to ensure that you comply with all rules and requests for information, and to liquidate any assets that you have that are not exempt. Any assets that are available to liquidate will be distributed to your creditors in accordance with the bankruptcy laws for the priority of claims. In many cases, however, there are no non-exempt assets, so there will be no distribution or payments made to the creditors at all.

Finally, unless a creditor objects, or there is something unusual in your financial situation, the bankruptcy court generally will grant you a discharge of all dischargeable debts that you owe. This means that the creditors can no longer take any action against you to collect the debts that you owe them. If all goes smoothly, discharge can occur in as little as four months. There are a few exceptions where discharge may not occur, but as a rule, the end result of a Chapter 7 bankruptcy is discharge the vast majority of the time.

What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

Tue, 09 Dec 2008 02:47:18 GMT

After you have decided to file for bankruptcy, you may have to choose between the two types of bankruptcy proceedings that are available for individuals – Chapter 7 bankruptcy and Chapter 13 bankruptcy – depending on your eligibility for each. Deciding which type of bankruptcy is right for you is an important choice, because the type will determine whether you have to pay back at least a portion of your debts. However, in some cases, you may not be eligible for one type of bankruptcy or the other, so you will not have a choice as to what type of bankruptcy to file.

In Chapter 7 bankruptcy, you are able to get most of your debts discharged; in other words, you won’t have to pay back most of your debts. In return, the bankruptcy trustee, who is the person designated by the court to manage your bankruptcy proceedings, can take property that you own (with some exceptions), sell it, and pay the proceeds to your creditors, or the people to whom you owe the debts. For instance, if you own a house with little or no equity in it, and you owe a mortgage debt on that house, your bankruptcy trustee can sell the house and give any proceeds to the bank that holds your mortgage debt.

On the other hand, Chapter 13 bankruptcy requires you to pay back all, or at least a portion of, your debts. Therefore, Chapter 13 is like a repayment plan that can last over several years. The amount that you have to pay, and the time period in which you have to pay it, will vary according to the amount of debts that you owe, your ability to pay the debts back, and the amount of property that you own. In this type of bankruptcy, then, your property is not typically sold; you get to keep it, so long as you comply with the terms of the repayment plan.

As noted above, however, there are income limitations on filing Chapter 7 bankruptcy, and debt limitations on filing Chapter 13 bankruptcy. These limitations have become stricter under the new bankruptcy laws. If you have filed for Chapter 7 or Chapter 13 bankruptcy in the past, for instance, there are time limitations on how soon you can again file for Chapter 7 bankruptcy.

There are may be some strategic reasons for choosing Chapter 7 over Chapter 13. Obviously, Chapter 7 bankruptcy, if you qualify, will give you the best chance at a fresh start, as you will not have to pay back most of your debts. If you are behind on your mortgage or car loan payments and you really want keep your house or car, however, filing Chapter 13 may be the only way to do so; if you file Chapter 7, you could lose your house and car altogether, depending the amount of equity that you have in them. Furthermore, if you have a lot of debts that you cannot discharge in Chapter 7 bankruptcy, such as student loans or child support, then by filing Chapter 13, you can repay those debts over time, which may help your financial situation.

Will filing for bankruptcy get rid of all my debts?

Tue, 09 Dec 2008 02:53:02 GMT

Many people think that if they simply file Chapter 7 bankruptcy, then they will get rid of all of their debts. Unfortunately, this is not the case. There are some types of debts that cannot be discharged in bankruptcy by law. This means that even if you complete bankruptcy proceedings, you still have to pay back these debts. These debts include child support, alimony, student loans, most taxes, many secured debts, and debts not listed in your bankruptcy petition.

First, child support is one of those debts that bankruptcy laws will not permit you to discharge. Whether you receive a Chapter 7 bankruptcy discharge or not, you will still owe the same amount of child support that you did before you filed for bankruptcy, or more. Therefore, if you choose to file for bankruptcy, do not do so for the purpose of wiping out your child support debt. You also should not stop paying your child support simply because you have filed for bankruptcy, since child support orders can still be enforced in some respects while you are in bankruptcy proceedings. The same rules apply for alimony or spousal support that you have been ordered by a court to pay. Despite your bankruptcy discharge, you still will owe alimony, just as you did before the bankruptcy.

Next, student loans are generally not dischargeable in Chapter 7 bankruptcy proceedings. Even if you discharge all of your other debts in bankruptcy, you still will be stuck with your student loan payments. The only exception to this rule is if the student loans will cause you “undue hardship”, which is a very high standard to meet. In order to prove “undue hardship”, you will need to show the court that not only are you unable to pay your student loan debts now, but there is very little chance in the future that you will be able to pay them, either.

Likewise, back taxes that you owe are typically difficult to discharge in bankruptcy. While there are some rare, very limited circumstances in which you may be able to discharge old income tax debts, you must meet many different requirements in order to do so. Therefore, you should not count on being able to discharge your tax debts in Chapter 7 bankruptcy proceedings.

You may have difficulty discharging secured debts in Chapter 7 bankruptcy proceedings, which are debts that are secured by property that you own, such as a house or car. While bankruptcy can eliminate the debt, it cannot eliminate the lien. This means that while you can discharge your mortgage debt in your bankruptcy proceedings, the mortgage holder still will have a lien on your house. Bankruptcy cannot prevent your mortgage holder from executing its lien on your house, i.e. taking your house from you. Thus, some people choose not to discharge secured debts, if they want to keep the secured property.

Finally, don’t forget that you must list all your debts that you want to discharge in your bankruptcy petition. If you don’t do so, you risk not being able to discharge those debts, and you will have to pay those debts back in full, despite your bankruptcy. This is why you should always be completely honest with your bankruptcy attorney about all of your debts, no matter what.

Will filing for bankruptcy stop the bill collectors?

Tue, 09 Dec 2008 03:13:25 GMT

One of the most difficult aspects of owing debts that you cannot pay is dealing with your creditors, or the collection agencies that work for those creditors. Bill collectors often seem to stop at nothing to collect money from you, even if it means threatening you or not being truthful about the consequences of not paying off your debt. As a result, people in this situation often turn to bankruptcy proceedings to not only deal with their debts, but also to deal with their creditors.

Filing bankruptcy sets into motion some protection for you from your creditors, in what is commonly known as the “automatic stay.” This mechanism can prevent creditors from taking certain actions against you regarding the debts that you owe. The automatic stay doesn’t permanently prevent your creditors from attempting to collect debts from you, but will help during your bankruptcy proceedings until you can discharge your debts.

For instance, the automatic stay can help you in certain situations where you are being sued over an unpaid debt, or your wages are being garnished to pay for that debt. If you owe a credit card debt, and the creditor has now filed suit against you in order to collect the debt, the automatic stay will prevent the creditor from proceeding with the lawsuit against you until the bankruptcy is finished. Likewise, if your wages are being garnished to pay a debt or debts that you owe, which can really reduce your employment income, the garnishment must stop during your bankruptcy proceedings.

The automatic stay also can help in some circumstances where you are about to lose your home. If your home is being foreclosed on by your mortgage company, the bankruptcy can temporarily stop the foreclosure process, which may give you more time to move or find a new place to live. While bankruptcy won’t stop the foreclosure permanently, you will at least gain some time in order to decide what to do about your home. Similarly, if you are being evicted from a rental home, the automatic stay may have an effect on the eviction proceedings. There are some exceptions to these rules based on individual cases, but in any event, the automatic stay may help give you additional time to make other housing arrangements.

There are certain situations, though, where the automatic stay cannot help you with your bill collectors. For example, if the IRS is auditing your income tax return, that audit will not stop because you have filed for bankruptcy. Another common situation where the automatic stay is not helpful is child support. If you owe child support, you still have to pay child support while your bankruptcy is going on, and if you don’t, a court order for child support can still be enforced against you.

You’ll also need to keep in mind that there are ways for certain creditors to get around the automatic stay. For instance, if your house is being foreclosed on, and you will be unable to keep the house or pay the mortgage, then it is likely that the mortgage company or bank will ask the bankruptcy court to lift the automatic stay. Getting the automatic stay lifted allows the creditor to go ahead and proceed with its collection action; in the case of a foreclosure, then, your mortgage company would be able to go ahead and foreclose on your house, and then sell the house in order to get at least some of its money back.

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