Bankruptcy

This is an image of a woman reviewing overdue bills and considering filing for bankruptcy, and area of law that Mooney and Associates can help people facing a heavy debt burden.

 

Surprisingly, most individual’s credit scores improve (by as much as 200 points) after the discharge for a Chapter 7 Bankruptcy.  Their debt goes down and so their credit goes up.  A bankruptcy can be noted on a credit report for up to 10 years but rarely does that hinder the individual from obtaining credit.  Immediately following a bankruptcy, one can obtain consumer credit cards and  a car loan but will be charged a premium.  If there was no house surrendered as part of the bankruptcy, one can obtain home loan within 2 years of the bankruptcy.

If you cannot afford to make your payments and are falling further behind each month, your creditors can do many things to make the situation worse.  They can seize the car without notice to you and sell it and then file suit for the amount not recovered in the sale.  They can obtain a judgment and siege other property.   With a judgment, they can freeze your bank account, seize your money and cause all your outstanding checks to bounce.    They can have a sheriff sale of all your personal property.  If employed in Maryland, they can garnish your wages.    If employed in PA, they can garnish your wages only for child support, taxes, student loans and landlord debt and seize tax refunds for payment of student loans.

Debt settlement companies are mostly scams.  They get you to pay their fees for approximately two years and tell you to not pay the creditor while they “work on” getting the debt reduced.   When you stop paying the creditor, the creditor raises your interest rate to approximately 32% and the debt balloons so now when they work out a deal for you to pay 50 cents on the dollar but you owe even more than if you had been paying the creditor over the 2 year period.  If the creditor forgives more than $600, the IRS requires that a form be sent to them so that it  gets added to your taxable income.   The debt settlement companies are only required by law to settle one debt before taking your payment so they will settle the lowest amount owed first.  They know it is very likely that you will be sued prior to their completion of collection of their fee.  Consumer Credit Counseling, the reputable, non –profit

There are four types of bankruptcy outlined in the Bankruptcy Code: Chapter 7, filed by an individual; Chapter 11, filed by business enterprises; Chapter 12, filed by family farmers; and Chapter 13, filed by individuals who have higher debt and want to save their house from foreclosure so are willing to set up 3 to 5 year payment plans ( restructuring their debt).   The most common type is the Chapter 7 which is completed very quickly, in about 100 days.   Individuals with unsecured debt like credit cards, medical bills, utility bills and personal unsecured loans are discharged ( wiped out)  and the debt is no longer due and owing.   These unsecured debts are easiest to eliminate in bankruptcy.

Debts involving houses and cars are usually secured debts, which mean the creditor has a lien against the property when it was purchased.  If the consumer does not want the car or house, they can agree to surrender the property and the debt will be discharged.  If they want to keep the property, they will have to keep making the payments and may be requested to reaffirm the debt.   Reaffirming the debt is usually not be a good idea since they could be pursued after the bankruptcy if all the payments are not made.

The third type of debt is priority claims such as restitution, child support, student loans and taxes.  These debts cannot be generally discharged.  Restitution and child support cannot be discharged. Student loans can only be discharged if there is proof that they would cause undue hardship which is a very difficult burden to prove.   Taxes cannot be discharged if a tax lien has been filed or if it is less than 3 years since the taxes were due.

The bankruptcy court requires that the individual have brief meeting with a credit counselor before allowing the filing of the bankruptcy petition, which is about 50 pages.  There is a nominal charge for the counseling and it may be done in person or on the telephone. As soon as the petition is filed, the individual is protected from creditors.  Creditors may no longer make phone calls, send collection letters or file suit against the individual.  Approximately six weeks later a trustee is appointed to review the petition and schedule a meeting with the individual and his attorney.  If the individual has assets in excess of the amount permitted by law, the trustee will supervise the sale of the assets and distribute the proceeds to unsecured creditors.   If there are significant assets, a chapter 13 bankruptcy is the better alternative.  In order for the discharge to occur, the individual must complete the required education via phone or internet and the discharge can then occur in 60 days.  Bankruptcy is not available again for at least 8 years.

Surprisingly, most individual’s credit scores improve (by as much as 200 points) after the discharge for a Chapter 7 Bankruptcy.  Their debt goes down and so their credit goes up.  A bankruptcy can be noted on a credit report for up to 10 years but rarely does that hinder the individual from obtaining credit.  Immediately following a bankruptcy, one can obtain consumer credit cards and  a car loan but will be charged a premium.  If there was no house surrendered as part of the bankruptcy, one can obtain home loan within 2 years of the bankruptcy.

If you cannot afford to make your payments and are falling further behind each month, your creditors can do many things to make the situation worse.  They can seize the car without notice to you and sell it and then file suit for the amount not recovered in the sale.  They can obtain a judgment and siege other property.   With a judgment, they can freeze your bank account, seize your money and cause all your outstanding checks to bounce.    They can have a sheriff sale of all your personal property.  If employed in Maryland, they can garnish your wages.    If employed in PA, they can garnish your wages only for child support, taxes, student loans and landlord debt and seize tax refunds for payment of student loans.

Debt settlement companies are mostly scams.  They get you to pay their fees for approximately two years and tell you to not pay the creditor while they “work on” getting the debt reduced.   When you stop paying the creditor, the creditor raises your interest rate to approximately 32% and the debt balloons so now when they work out a deal for you to pay 50 cents on the dollar but you owe even more than if you had been paying the creditor over the 2 year period.  If the creditor forgives more than $600, the IRS requires that a form be sent to them so that it  gets added to your taxable income.   The debt settlement companies are only required by law to settle one debt before taking your payment so they will settle the lowest amount owed first.  They know it is very likely that you will be sued prior to their completion of collection of their fee.  Consumer Credit Counseling, the reputable, non –profit organization, may be able to negotiate to lower your debt and extend the time to repay the debt but businesses are not required to participate and this may further damage your credit rating and you may be spending a lot more money than would be required with a Chapter 7 or 13 Bankruptcy.  This would only be recommended if your debt could be paid off a short time of monthly payments.

You need an experienced bankruptcy attorney to deal with your financial problems through the procedure of bankruptcy.  This procedure is designed to give you a fresh start, a chance for a brighter future.