Dealing with Guilt when facing Bankruptcy

If you feel uneasy about filing for bankruptcy, consider this: there are many other people facing situations similar to yours. According to the American Bankruptcy Institute, millions of Americans filed for bankruptcy last year alone. Bankruptcy filers come from every background and represent every income bracket. People file for bankruptcy for a variety of reasons, including divorce, medical bills, job loss, and credit card debt.

Despite these differences, bankruptcy filers have something in common. They realize that they have a problem that they can't resolve on their own. Bankruptcy offers a second chance to debtors who are in over their head. You, too, can enjoy the benefits of a second chance by filing for bankruptcy.

Consider this: if you are considering bankruptcy, your debts are probably so great that you will never pay them off. Would you rather file for bankruptcy, or would you rather needlessly suffer a financial burden for the rest of your life? If you have a family, your debts could also interfere with your ability to support them.

Also consider the damage you are doing to your credit by falling behind on your payments. Excessive late payments are a red flag to lenders. My response to those who say "bankruptcy ruins my credit" is to simply point out that the debt has already ruined your credit. Bankruptcy is actually the first step to rebuilding your credit. The reason is simple. You must get out of debt before you can rebuild. If you can't afford to pay your debt, bankruptcy may be the only way to get out of debt.

Additionally, you could even run the risk of losing your home or vehicle if you wait too long to file for bankruptcy. Your lenders could repossess your property if you do not address your debts.

Filing for bankruptcy may be difficult, but you must take action if you are to improve your situation. Bankruptcy could immediately eliminate a significant source of stress in your life and protect your property. You could also correct your financial problems and work towards a brighter financial future.

Health, Health Care Insurance and Bankruptcy

Imagine for a moment that your health has taken a turn for the worse. You need extensive medical attention and expensive treatments. Would you be prepared to account for these medical costs? Or would you or a family member ultimately have to deal with this financial burden?

Surely, you would not want to suffer the consequences of paying big medical bills on your own. This is why health insurance is so important. A Harvard study conducted in 2001 found that medical bills caused half of all bankruptcies. Therefore, you should make sure that you have some form of medical insurance. You should also make sure that your money is well-spent on insurance that meets your needs.

You should feel lucky if you are in the minority of people who receive health insurance through your employer. According to bankrate.com, company health insurance is actually part of a group insurance plan. Your employer pays for most of your insurance and also pays for your insurance with portions of your paychecks. Everyone in your group plan pays the same rate. The premiums paid by healthy members go towards paying the bills of sick members. Bankrate.com recommends that you study up on your employee benefits package to make sure that the insurance plan you choose provides you with the services and options you will need. If you are young and/or relatively healthy, you may want to consider choosing to pay for your company's cheapest health plan.

Bankrate.com also recommends that you review your insurance plan periodically. You may be paying more money for services you no longer need. For example, if you have children that have graduated from college or are no longer on your insurance plan, you should change your insurance plan accordingly. Additionally, if you have lost weight or quit smoking, you could qualify for a cheaper insurance plan.

Have You Been Laid Off?

If you have recently lost your job, you may want to consider the Consolidated Omnibus Budget Reconciliation Act (or COBRA) plan. With a COBRA plan, you pay for the medical benefits your former employer paid for on your own. The plan lasts up to 18 months. Keep in mind that the COBRA plan is a bit expensive. In addition to paying the premiums your company used to pay, you would also have to pay a 2% service fee.

Are You Uninsured?

Unfortunately, according to bankrate.com you may face discrimination from insurance companies if you try to insure yourself on your own. You may have difficulty buying insurance if you have any medical problems whatsoever. Remember, with a company group insurance plan, your insurance provider only has to pay the medical bills of the sick members in the group.

Look for health plans that have higher premiums. You may pay more upfront for medical coverage, but you will ultimately spend less on deductibles. At the very least, financial analyst Suz Orman recommends paying for worst-case-scenario insurance for medical bills that top $5,000. This way you can at least be sure that you will not have to foot the entire bill for high costs.

No one wants to live their life fearing the worst. By insuring yourself, you can at least rest assured knowing that you are prepared if your health takes a turn for the worse. As a result you or your family would not have to suffer the additional hardship of having to pay for your medical costs yourself. The good news is that if you can not afford insurance coverage, bankruptcy could eliminate your medical bills if necessary.

722 Redemption and Bankruptcy

When you file for a Chapter 7 bankruptcy, you get relief from all of your unsecured debts. The basic rule regarding secured debts is that you must continue to pay your contractual payments in order to keep the collateral. If you want to eliminate a secured debt through bankruptcy, you can, but you must surrender the collateral to the secured creditor. There is a third option that an experienced and knowledgeable bankruptcy attorney can help you with. The third option is called "redemption."

The redemption process in bankruptcy requires the debtor to obtain a court order. The court order typically requires the secured creditor to release its lien against a particular piece of personal property in exchange for a lump sum payment from the debtor. The lump sum payment must equal the current market value of the collateral.

It is important to note that the redemption process only applies to personal property used primarily for household purposes. Examples of personal property used for primarily household purposes include vehicles, furniture, household appliances and household electronics.

The Upside

The main benefit of the redemption process is that you can retain property and pay the creditor less than the full balance on the secured debt. The secured creditor will not be able to repossess the property. Typically, you would owe more on the debt than what the collateral is worth. This is especially true in relation to vehicles, at least for the first couple of years of the loan. For example, if you owe $15,000 on a vehicle that is now worth only $10,000, you would only have to pay your creditor $10,000.

The Downside

The downside is that you must be able to pay the value of the collateral in one, lump sum payment. Most debtors do not have access to enough money to pay a lump sum on a valuable piece of personal property.

If this is the case, a knowledgeable and experienced bankruptcy attorney like the attorneys here at Legal Helpers/Macey & Aleman can give you information about lenders that offer loans to cover this lump sum payment. Of course, you will have to pay this lender interest. An experienced attorney such as the ones at our firm can help you analyze the costs and benefits of the redemption process in your particular case.

Tax Records and Bankruptcy

With the bankruptcy law reform of 2005 in effect, you will need to provide more documents to file for bankruptcy. One of these additional documents will include your tax returns. You will need to provide your tax returns to prove your income to your creditors and the court. The court will then use this information to make sure you truly need bankruptcy and in determining how much money you can afford to repay your creditors.

You will have to provide the most recent tax return or a tax transcript at least seven days before your 341 meeting (meeting of creditors). If you fail to provide this information, the court will dismiss your bankruptcy case. In fact, most diligent attorneys will want you to provide this information in order to prepare your paperwork, so you'll likely have to provide the tax return or transcript shortly after meeting with your attorney.

The new law also requires that the most recent tax return must be made available to any creditor who requests it at any point during your bankruptcy proceedings.

Tax Records and Chapter 13 Bankruptcy

If you have opted for a Chapter 13 bankruptcy, make sure you have filed all your tax returns from the past four years. Your repayment plan will not be confirmed until you have done this.

Conclusion

Under new bankruptcy reform legislation, you will be required to provide your attorney with copies of the tax returns or transcripts to proceed with your bankruptcy.

Trusts and Bankruptcy

Some people attempt to protect their assets from creditors by transferring some of their money or property into a trust. A trust gives some ownership of a person's assets to another person or group of people. Creditors would then have a harder time collecting on these assets.

In the meantime, the trust holder can continue to earn the interest made on the property in the trust by reserving a life estate. Some people then try to transfer the interest earned to another party to try to shelter it from creditors. However, with the bankruptcy law reform in effect, creditors will more easily be able to gain access to these assets.

Self-Settled Trust

Your trustee can stop you from collecting the interest on properties protected by trusts made within 10 years of your bankruptcy filing if you assigned a portion of them to a self-settled trust. A self-settled trust is a trust that you start for your own personal benefit.

Chapter 13 Superdischarge

Currently, there are approximately 25 types of debts that can't be discharged in Chapter 7 and six types of debts that can't be discharged under Chapter 13 (thus the term "superdischarge").

The debts that can be discharged under this "superdischarge" provision are debts incurred on the basis of fraud, debts from willful and malicious injury to another or another's property, debts from larceny, breach of trust, or embezzlement, and non-support debts arising out of a marital settlement agreement or divorce decree.

With the new bankruptcy law in effect, individuals will no longer be able to take advantage of the "superdischarge" for five types of debts that are currently dischargeable in a Chapter 13. Below is a list of debts you will no longer be able to discharge with a Chapter 13 "superdischarge:"

1. Debts Incurred Through Fraud or Misrepresentation. Including credit card debts arising from providing false information on a loan application.
   
2. Debts Incurred by Embezzlement or Breach of Fiduciary Duty.
3. Taxes. "Superdischarge" would still apply to unpaid, but timely filed taxes, but would not apply to taxes that should have been withheld, trustfund taxes, unfilled or late-filed tax obligations. Fraudulent tax returns would also be non-dischargeable.
   
4. Debts Arising from Death or Personal Injury Caused by Debtor's Wilful or Malicious Conduct. However, the "superdischarge" will still include debts for willful and malicious injury to property.
   
5. Debts to Creditors who were not Notified in time for the Creditor to file a Proof of Claim.

Domestic Support Obligations

If you have a family, your ability to support your family members is an important issue. The courts recognize this fact. Your domestic support obligations are a priority when you file for a bankruptcy. These obligations will be accommodated before any of your other unsecured debt in your Chapter 13 case. However, secured creditors and administrative fees get paid before your support obligations.

Limits to Automatic Stay with Regard to Domestic Support Obligations

An automatic stay is a federal court order that stops all collection proceedings against you after you file for bankruptcy. The automatic stay will not stop the collection of a domestic support obligation regarding a piece of property that is not part of your estate. Assets traditionally not considered property of the estate, like your post-petition wages in a Chapter 7 case, or a pension plan, can still be levied to satisfy a domestic support obligation.

The automatic stay will not prevent a license suspension or a tax refund offset under the new law which went into effect in October of 2005. The automatic stay will also not effect the "establishment" or "modification" of a domestic support obligation.

Consequences to Failing to Meet Domestic Support Obligations

The new law puts even more emphasis on making sure debtors honor their domestic support obligations. Debtors must be current on post-petition (after filing) support obligations in order to get a Chapter 13 case confirmed by the court. Debtors must remain current on these support obligations throughout the entire Chapter 13 plan, or risk dismissal of the case or a denial of discharge.

The new law, in essence, forces debtors to be completely current on support obligations by the time they are discharged from a Chapter 13. Any past due support obligations would get paid as a priority debt in the Chapter 13 and thus must be paid 100% in the Chapter 13 and the debtor is now required to remain current on continuing support obligations after the case is filed.

Debtor's Statement of Intent

When you file for Chapter 7 bankruptcy, you must file a statement of intent. Your statement of intent tells the courts and your creditors how you plan to deal with any secured debts you may have. A secured debt is a form of debt where your creditors can legally repossess your personal or real property (or secured property) as collateral. Some examples of secured debts include car payments and mortgages.

Failure to Attend to Secured Properties during Bankruptcy

You must file a statement of intent within 30 days of your first creditors meeting.

In addition, you must either finish payments on your secured property or reaffirm the debt on your secured property within 45 days. When you reaffirm your debt, you choose to continue payment on your debt after you file for bankruptcy.

If you have not finished paying your secured debts or reaffirmed your secured debts within 45 days, the courts will terminate your automatic stay as to the property securing the particular secured debt. The automatic stay is a federal court order that stops all collection proceedings against you. Creditors have to stop their foreclosure proceedings, stop any pending lawsuits against you, and stop garnishing your wages.

Click Here for more information on Automatic Stay

If the automatic stay is terminated, creditors will regain their ability to pursue their right to repossess your property that secures the debt.

Conclusion

You will likely want to keep your home or vehicle after you file for bankruptcy. In order to do this, you will need to file a statement of intent in a timely manner. Be sure you make the proper arrangements for your possessions by reaffirming the debt. The most important thing you can do to keep the property that is collateral for a loan is to stay current on the payments. Our attorneys at Legal Helpers/Macey & Aleman would be happy to assist you through the entire bankruptcy process.

Documents You Will Need to Provide to File for Bankruptcy

Below is a list of the documents you will need to provide to your bankruptcy attorney and the courts in order to file for bankruptcy.

1. List of Creditors. You must have a list of every company and agency that you owe money.
   
2. Schedules of Assets & Liabilities
   
3. Income and Expenses. You will need to disclose how much money you earn and how much money you need to meet your living expenses.
   
4. Photo ID & Social Security Card

THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. THIS IS IN NO WAY GIVING ANY LEGAL ADVICE OR REPRESENTATION. THE INFORMATION CONTAINED HEREIN WAS COMPILED FROM VARIOUS ARTICLES. FOR ANY LEGAL ADVICE OR REPRESENTATION SEEK YOUR OWN LEGAL COUNSEL.