Introduction to Personal Bankruptcy

Our Bankruptcy Laws allow a person with overwhelming debt either to eliminate most or all of those debts in a Chapter 7 Bankruptcy or, in the alternative, to make a repayment plan in a Chapter 13 Bankruptcy. A corporation that wishes to end its operations may also file a Chapter 7 Bankruptcy. However, a corporation that wishes to stay in business and reorganize its debts must file for bankruptcy under Chapter 11 and not under Chapter 13. Small farmers in financial distress may file for bankruptcy under Chapter 12. Debtors with issues involving other countries should file a Chapter 15 Bankruptcy. The remainder of this section will be limited to an explanation of Chapter 7 and Chapter13 Bankruptcies, which are the types of interest to the typical person who is facing substantial debt.

If you are overwhelmed with bills, you can get immediate relief by filing bankruptcy. The Bankruptcy Laws can stop creditors from harassing you, garnishing your wages, freezing your bank accounts and foreclosing on your home. The purpose of filing bankruptcy is to provide you with a fresh financial start. Once you have completed a Chapter 7 or Chapter 13 Bankruptcy, you may not owe any debts. Note that there are exceptions, however, which will be discussed in more detail below.

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Should You File Bankruptcy?

The question of whether you should file bankruptcy should be thought of as a business decision and not an emotional one. You should approach this as a major corporation would. Examine your assets, your liabilities, and the likelihood of being able to pay your bills in the near future. It is important not to allow your emotions to keep you from examining your situation rationally and looking for a realistic solution to your financial problems.

During your examination, ask yourself the following questions. If you answer yes to any of these questions, you would be wise to consider the option of bankruptcy:

• Does the amount of your debt total more than 25% of your gross annual income?
• Are you only making the minimum monthly payments on your credit cards?
• Are you borrowing from one credit card to pay another?
• Have you missed any payments?
• Are creditors calling you?
• Are you receiving letters from your creditors?
• Are you being sued for failing to pay a debt?
• Are your wages being garnished or seized?
• Are you behind in paying your mortgage or rent?

We offer a free consultation, during which we will be able to discuss your options, which may include bankruptcy. Click here to schedule a free consultation.

Additional information on whether you should file bankruptcy.

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Six Common Mistakes To Avoid If You Are In Debt

1. It may not be wise to consolidate your debts. Turning several small debts into one large debt may make it more likely that you will have a problem. Consolidating your debts may not significantly reduce your monthly payments, and you will create a creditor, which will be quicker to sue if you fall behind. Also, if you decide to file bankruptcy, that creditor may object to that debt being eliminated.
2. Do not take cash advances from a credit card to pay another credit card. This would only cause you to fall deeper into debt and may again cause a creditor to object to that debt being included in bankruptcy. Further, balance transfers may not be a good idea. If you need to file for bankruptcy, those creditors may also object to having those debts eliminated in bankruptcy.Taking equity out of your home to pay your unsecured bills, such as credit cards, may or may not be a good idea. If doing so will solve your financial problem and you can afford the resulting payments, it might be beneficial. However, if you won’t be able to afford the resulting monthly payment on your line of credit, you will be setting yourself up to lose your home. Further, you may be converting a debt that could be wiped out by bankruptcy into a debt that you will be saddled with if you wish to keep your home. It is best to come in for a free consultation before taking out a home equity loan or refinancing your mortgage.
3. Do not pay a fee to a company that promises to “negotiate” with your creditors or “reduce” your bills. Commercials for such services appear night and day on television, radio, and the Internet. They sound very convincing. However, they are a waste of your time and money. The truth is that they cannot do anything for you that you cannot do on your own. Further, the most that you can expect from your creditors is a reduction in your interest rate or in the minimum payment required for a few months. If you cannot pay your debt, the creditor will get the tax benefit of writing it off as a bad debt. Do not expect your creditors to be very helpful.
4. Beware of a “short sale” or a creditor willing to reduce your debt. In both cases, the reduction in debt is reported to the IRS as a forgiveness of debt and is treated as income to you, which will cause you to owe more in taxes. You may be better off eliminating these debts by filing bankruptcy and avoid owing taxes.
5. Do not under any circumstances sign your home over to someone who promises to help you in return. There are many dishonest people looking to take advantage of a desperate situation either by stealing your home or by causing you to fall deeper into debt. These people are professionals and know how to manipulate you. Do not fall for it. If in doubt, check with us or another lawyer that you know and trust.

If you are deeply in debt, but feel that you can pay your way out, create a realistic budget and start to pay off the bills with the highest interest rates first. There is no easy way out. Do not let others tell you otherwise. Stop using credit cards, make a budget, and keep to it.

If you are too deeply in debt to pay your way out, bankruptcy may be your solution.

Request an appointment for a free consultation in our office.

We are a federally designated Debt Relief Agency under the United States Bankruptcy Laws. We assist people with finding solutions to their debt problems, including, where appropriate, assisting them with filing bankruptcy.