What are the financial problems that have caused your economic distress? Do you have credit card debt? Are you in foreclosure? Have you received overdraft notices from your financial institution? Are you receiving repeated telephone contact from collection agencies?

While you may try to work your way out of the above problems, that task may become overwhelming. Perhaps it is time to eliminate much of this debt through filing a bankruptcy case. A Chapter 7 bankruptcy is designed to discharge most consumer and individual debt to achieve a fresh start. A Chapter 13 bankruptcy is designed to protect your personal assets (in particular, your home) while allowing you to pay a portion of your debt and discharging the remainder of debt.

Recently, the most common reasons that consumer and individual debts have been discharged include: credit card debt; foreclosure actions; massive medical bills; personal lines of credit; and personal guarantees on business lines of credit or commercial leases.

Be advised that certain debts are not dischargeable in bankruptcy, they are: recent tax debt, student loans, alimony or child support, criminal penalties or restitution, and fraudulent transfer of assets.

Some assets are either partially or wholly protected under either a Chapter 7 or Chapter 13 bankruptcy, they are: pensions and IRA’s, several thousands in home equity, certain automobiles, bank accounts, and personal injury settlements.

Protecting assets while discharging debts often requires skillful case preparation. To protect assets through transfer to relatives or to other financial vehicles to avoid creditors can jeopardize a bankruptcy case causing a Trustee to recapture such assets or even to dismiss a case. This office can provide you with sound advice regarding a bankruptcy case which will lead to a solution to your financial crisis.

The past few years have created a hard time financially for many people and with the slow recovery, this year seems to follow that pattern as well. Many people have bills which pile up and have no means to pay. High unemployment rates and home foreclosures are still regular features of the economy. Equally, many small businesses have closed and left owners in rough personal financial straits. To cope with these situations many have considered filing bankruptcy. In order to assess your situation there are various factors to consider before determining whether bankruptcy is the best choice for your situation. Here are some factors to consider.

Chapter 7

If you are unemployed and have no other means of support, you may qualify for a Chapter 7 bankruptcy. This is determined by a Means Test. This is a form used by the bankruptcy court to compare your income with families of like size and location. For example, if your family income is below the average median income in your area and you have no other way to pay your bills and other creditors the bankruptcy court may approve your filing under Chapter 7.

When your filing is accepted by the bankruptcy court, a Trustee will be appointed to evaluate your petition and schedules to determine any non-exempt assets. These assets will be sold by the Trustee to pay off your creditors to the extent possible. There are many items you will be allowed to keep so that you do not become destitute. A list of current exemptions appears elsewhere on this website for your reference. The remaining debt will be discharged by the court. Once a discharge has taken place you have a fresh start without the burden of past financial mistakes.

Chapter 13

If your family income is beyond the median for a family of your size and in your location you may be eligible for a Chapter 13 bankruptcy. Also, if your debts are such that they cannot be released by the court under a Chapter 7 this may be a proper alternative. In a Chapter 13 bankruptcy the court will confirm a plan of repayment for all or part of your debt on a schedule that your income can sustain. Such a repayment plan will pay off debt over a three to five year period at lower than your current rates. Thus, you must have a steady income and available assets in order to file a Chapter 13.

A Chapter 13 will prevent your home from going into foreclosure because once filed, an automatic stay is imposed by the bankruptcy court. This can be overcome by a creditor that is successful in having the court set aside the stay in your case. In order to avoid that happening, your plan must cure any past-due mortgage payments over a reasonable time. If this cannot be done, then you may have to surrender your home in the bankruptcy. If you do file under Chapter 13, you must continue to make regular payment on secured items you wish to keep, such as your house or automobile.

Because bankruptcy filing is not a simple process, people need support from their family and friends. Having to part with some assets because of emotions can be difficult. For this reason you should consider using the services of a bankruptcy attorney to help you in this process. This office can provide you with the help you need.

At some time your financial situation may become so difficult that you have to rely on filing bankruptcy. When this occurs, you will need to decide which form of bankruptcy to choose. The two major forms of consumer bankruptcy are Chapter 7 and Chapter 13. These bankruptcy forms are designed to ease and remove your debts by paying off as much debt as possible under your particular circumstances.

Chapter 7 bankruptcy is designed to liquidate your assets while exempting certain necessary items that you are allowed to keep. Other non-essential items may be sold by the bankruptcy Trustee to pay off creditors to the extent possible. The end result is that the bankruptcy court discharges all of your debt and you receive a fresh start.

Upon filing a Chapter 7 bankruptcy, the bankruptcy court will appoint a Trustee to handle your case. The Trustee is charged with distributing any non-exempt asset you have to pay off your creditors. The Trustee will review your case and notify creditors if you have any such non-exempt assets for which they can file a claim for proceeds. These proceeds are all that creditors can recover and therefore they cannot harass you any further regarding your debt. Once your case has been completed, your debt is discharged and you are no longer liable to repay it.

There are two important facets of a Chapter 7 bankruptcy to keep in mind. First, there are the exemptions created by both state and federal law. A bankruptcy attorney will help you determine which set of rules you should use to allow you to keep many of your assets.. Second, is that any debt acquired through fraud or an illegal transaction will not be discharged and you will still be liable to repay that debt.

A Chapter 13 bankruptcy involves creating a plan of reasonable repayment for some or all of your debt. Such a plan is developed by your attorney and the Chapter 13 Trustee for your particular case. The repayment plan will be implemented over a three to five year period and should create more feasible debt payments than you currently have. Once the plan is completed, the balance of debt is discharged.

Within 30 to 45 days of filing for Chapter 13 bankruptcy, you must begin payments to the Trustee assigned to your case. The Trustee then distributes this money to creditors according to your confirmed plan. Confirmation of your plan takes place before a bankruptcy court judge, but for the most part you will only deal with the Trustee assigned to your case. As in the Chapter 7 bankruptcy, your creditors will not be able to harass you concerning your debt.

Once you have filed a Chapter 13 bankruptcy, it is your responsibility to follow the plan and payment schedule. If your employment situation changes or you become divorced or seriously ill, it may be necessary to modify your plan. Under certain circumstances a Chapter 13 can be converted to a Chapter 7. If your situation changes drastically you should contact an attorney for assistance in resolving the matter. As in Chapter 7 bankruptcies not all debts are dischargeable. For example, student loans and taxes you may owe.

Thinking about filing bankruptcy? During this stressful time, this process may seem to be overwhelming and burdensome. Here are the basic steps.

First, review your finances and compare them against your monthly expenses. It is critical that you know who you owe and how much is owed to them. Take all of your bills and sort them into a list of creditors and how much is owed to each of them. While this exercise may increase stress, simply ignoring this information won’t make it go away. This is the first step in organizing yourself. If you need help ask a trusted family member or friend to help you in this process. The most important thing is to be sure you have an accurate list.

Second, try to modify any outstanding loans or debts by contacting the creditors. Some of them may choose to modify your payment plans or accept a lower amount. Explain to the creditor that you are trying to take care of your outstanding debts and that you would like to work with them to accomplish that goal. Usually the first telephone contact you have with the creditor will be a person that does not have the authority to change payment terms or accept a reduced payoff. If so, ask to speak with a supervisor about your situation. Keep a record of the dates of contact and the person you talked to and what was discussed.

Third, keep aware of any legal actions of foreclosure or judgments. If a foreclosure or judgment is coming up, you know that the court is involved and there is a timeline to be followed. Know the dates and any limitations that have been placed on your situation. If a foreclosure is coming you need to contact an attorney to assist you and help you through the next steps.

Fourth, hire an attorney if you need to file bankruptcy. Representing yourself can be a disadvantage in many cases. Creditors are well versed in collection matters and will likely be represented by attorneys at this point. It is their job to try and collect the debt and they can make this process more challenging for you. While hiring an attorney may seem to be a difficult expense at this time, it may be the best step you can take at this time. A bankruptcy attorney will help you through this process and provide you with the needed relief you are seeking.

Fifth, take the credit counseling class as required by the bankruptcy process. There are two required classes, one prior to filling and one following your meeting with the Bankruptcy Trustee. Your attorney will offer you a list of agencies which provide this service via telephone or online. The cost for these services are around $25 per class and under certain conditions these fees can be waived. The pre-bankruptcy instructional course is about personal financial management and a completion certificate is required in order to file bankruptcy. Your attorney cannot file a bankruptcy petition until you complete this course. The pre-discharge counseling is to be completed after your meeting with the Trustee from the bankruptcy court. Your discharge will not be issued until you have received the certificate of completion from the agency you chose and it has been filed with the court.

Sixth, file your bankruptcy petitions after completing the above steps. Your attorney will use your documents and interview information to complete some thirty or so pages to be electronically filed with the bankruptcy court for your jurisdiction. By getting all of these documents together for the attorney promptly, this process can be accomplished in a few days. The bankruptcy petition itself can be filed rapidly but accompanying schedules must then be completed within two weeks. Once these items are filed, the court and your attorney will advise you of the next steps in the procedure.

Seventh, you must attend a Section 341 Hearing or Creditors Meeting that will be scheduled by the court. This is usually done about 30 days after the petition is filed. At this meeting the Trustee assigned to your case will ask you questions regarding your outstanding debts and current situation. Your attorney will also be present for this meeting. You must bring a photo ID and your Social Security Card to this meeting for identification purposes. These meetings are recorded and you will be placed under oath to give testimony. The Trustee is another attorney that works for the court and these hearings are less formal than courtroom hearings. If questions are fully answered the Trustee will close the hearing. If the Trustee requires further information the hearing may be adjourned to a later date. If only documents are required by the Trustee, you will not be required to attend a subsequent hearing if they are promptly provided.

Finally, you will receive your Discharge Order from the bankruptcy court by mail about 60 days after the Section 341 Creditors Meeting. This is notice that your filing is complete and your case will be subsequently closed when the court finishes its administration. Please be aware that some debts are not subject to discharge such as student loans or tax arrearages. Your attorney will advise you concerning those debts which you still owe, some of which may require signing a Reaffirmation Agreement with the Creditor.

Upon filing, the bankruptcy court imposes an automatic stay to protect certain assets whether you are filing under Chapter 7 or Chapter 13.

During the length of the stay, which is in effect until the legal requirements of the bankruptcy are fulfilled, creditors cannot bring claims against you, attempt to enforce a judgment against you, try to gain property from you, collect debts from you, or attempt to enforce any type of lien against you. Your creditors are notified of the stay by the court and any harassment by them should cease.

This stay, however, does not protect you against losing a license, fulfilling family support obligations, criminal proceedings, the capture of your tax refunds, requests for tax returns, or the collection of property by creditors that is not part of your estate.

A creditor can request that the court lift the stay in their claim. Normally the stay would remain until a court discharges it, the case is closed or dismissed, or property listed in a claim is no longer part of the bankruptcy estate.

In a Chapter 7 bankruptcy, the stay is replaced by a permanent injunction when the case is discharged. In a Chapter 13 bankruptcy, the stay remains until the completion of the bankruptcy plan, normally 36 – 60 months.

If you filed for bankruptcy one this year and had it dismissed, then the stay is limited to 30 days. If you filed twice this year, and both filings were dismissed, then you are not eligible for a stay.

“The purpose of an exemption is to protect a debtor and his family against absolute want by allowing them, out of his property, some reasonable means of support and education and the maintenance of the decencies and proprieties of life.” Poznanovic v. Maki, 296 N.W. 415, (1941)

In a bankruptcy proceeding, certain exempt property is not touched by the court. State and federal laws provide a list of all property that can be kept through exemption during your bankruptcy proceeding. In a Chapter 7 bankruptcy, all property that is not exempted will be liquidated in order to pay off creditors, so it is in your best interest to know what can be kept through exemption.

In Michigan, a person chooses whether to use State or Federal exemptions. This client decision should be the result of consultation with an attorney before filing a bankruptcy petition. The list of exemptions below are the current Federal exemptions which change annually. Be sure you are aware of the amounts currently in use. (December 1, 2011)

Liens normally remain. One of the most fundamental protections for creditors under Chapter 7 is the fact that liens normally pass through Chapter 7 unaffected by the debtor’s discharge.

Types of liens. A lien is a security interest affecting some type of property owned by the debtor. Most typically in a bankruptcy case it is going to be a lien or a mortgage secured by the debtor’s residence or other real property, or the title slip to a motor vehicle that has money owed on it. Purchase money security interests in appliances and furniture are also common examples of assets that may be subject to a lien. Basically, a “lien” is usually found on something that the debtor has not finished paying for. When the debtor files bankruptcy, the debtor can usually keep such assets, provided that the debtor continues to pay for the item and honors the original contract.

Avoiding liens. Some liens are avoidable (removable) by the debtor, but to avoid such a lien special action must be taken in the court. It does not happen automatically, and it is the debtor’s burden to prove in court that each of the circumstances that legally permit the court to make an order avoiding such lien in fact exists. Generally, liens can be avoided against assets but only to the amount of any exemption that the debtor was entitled to claim on the asset, and provided that the lien arose as a judgment lien, or as a non-possessory, non-purchase money lien on certain kinds of household goods and personal effects belonging to the debtor. The terms “non-possessory, non-purchase money” means that the debtor already owned the asset before it was ever pledged as collateral for the debt, and the creditor did not keep possession of asset as security for the debt.

Examples: Jewelry held in pawn is not subject to such lien avoidance, because a pawn broker keeps possession of the jewelry until the loan is paid, thus the lien isn’t non-possessory. A debtor who has borrowed money from a loan company by using home furniture and appliances as collateral for the loan can usually avoid the lien, because such furniture and appliances are usually exempt, the debtor did not use the borrowed money to buy the assets that are being used as collateral, and the debtor did not have to surrender possession of the collateral until the loan is repaid – and thus the necessary elements of a non-possessory, non-purchase money lien against exempt property have been met. A judgment lien recorded against the debtor’s house is usually avoidable to the extent of the equity that would have been exempt in the absence of the judgment lien, because the lien is a judgment lien, (as opposed to a voluntary mortgage which normally is not avoidable).

Statutory liens are not avoidable by the debtor. There are certain liens called statutory liens that the debtor can not avoid. Examples are tax liens and mechanic’s liens.

Caveat: Certain liens against exempt property are avoidable by the debtor, but the lien avoidance does not happen automatically. The debtor must take affirmative legal action in court to secure an actual court order avoiding the lien, or else it remains against the debtor’s property and can still be enforced by the creditor, after the case is closed, even though it could have been avoided during the case.

Reopening a closed case. The court will usually permit the debtor to reopen a case so that the debtor can pursue relief that could have been sought, (but perhaps was overlooked), during the bankruptcy. For example, during the bankruptcy case the debtor might not have been aware of a judgment lien, and only learned about the lien several years later. In that case, the debtor might seek to reopen the closed case to then file a motion seeking to avoid the lien.

Because of the recent decline in home values, many second and third mortgages are no longer secured by the home’s value. For example, if your home is now valued at $150,000 and you have a first mortgage balance of $150,000 and a second mortgage balance of $25,000, your home secures the first mortgage but there is no longer any equity to secure the second mortgage. Here’s what happens to those mortgages when you file for bankruptcy protection.

If you have filed a Chapter 7 bankruptcy, the discharge received will eliminate your personal liability on the second mortgage but will not eliminate the lien. If you filed a Chapter 13 bankruptcy, you can eliminate both your personal liability and the lien by a procedure called “lien stripping”. The basic rule here is that you can eliminate a lien that has no security in the home, but you cannot eliminate a lien if any part of it is secured by the home’s value.

For example: Assume your home is worth $175,000 with a first mortgage balance of $170,000 and a second mortgage balance of $20,000. The second mortgage cannot be stripped because it is secured by at least $5,000 of the home’s value.

Here’s what it means if a lien remains on your home after filing a Chapter 7 Bankruptcy. While the lien cannot be stripped in a Chapter 7 bankruptcy, the lien may have a minimal effect on your future financial dealings. The Chapter 7 discharges your personal liability for a second mortgage, which means you cannot be sued for the money owed on that mortgage. Further, since there is no equity in the home securing the second mortgage, the holder of the second mortgage would not benefit from a foreclosure proceeding. This is because all of the money equity in the home would go to the holder of the first mortgage in a foreclosure sale. The end result is that nothing negative will happen as a result of the lien remaining on the home after the bankruptcy unless the home’s value comes back to a point where it could be sold or support a foreclosure by the second mortgage holder. Thus, unless you are only minimally “underwater”, this would be an unlikely scenario. Therefore, even though you may get a better result by lien stripping under Chapter 13, most people with highly “underwater” second mortgages will likely do just as well by filing a Chapter 7 bankruptcy.

Your bankruptcy has been discharged, so your remaining debt has been cleared up. Your credit score has now reflected all that has occurred in the past months. What does the financial future hold for you is the issue?

First of all, financial institutions know that most bankruptcy filings occur because of medical emergencies, a difficult recent divorce, a job loss, or a combination of these issues. The fact you have filed bankruptcy does not end one’s financial life. Soon after your discharge, you will be receiving mailings offering credit card and loan offers in the same way as you did prior to filing. This is because, after the discharge of a Chapter 7 bankruptcy, you may be considered a better risk than someone that has a lot of debt. The reason is that you cannot file another Chapter 7 for at least eight years. You can get a credit card right after discharge from many creditors.

It is wrong thinking to believe that credit cards got you into trouble before so avoid them forever. If you want to re-establish credit, you need to rebuild your credit score by using credit. Of course, this time, you need to use it wisely. A credit card history which shows you can pay your bills on time every month is one of the best ways to raise your credit score. This will enable you to have what you need to make large purchases in the future such as a car or house. Granted that during the rebuilding time some creditors may tier interest rates based on your credit score, but over time you will again be eligible for lower rates.

Three things need to be done immediately after discharge: Clean up your old credit report, start rebuilding your credit history, and start saving. After discharge, you no longer have those monthly payments so put some money aside each month to save for an emergency or a next significant purchase.

Fixing The Credit Report

After discharge, get a copy of your credit report and assess the damage that has been done. Don’t dwell on the past, focus on the future. If there are errors in the report, you must contact the credit reporting agencies about how to make corrections. The creditors will usually not help you in this task, each credit reporting agency must be contacted directly. Send the agency proof that an account is reported incorrectly as the agencies tend to believe creditors more than you, so the more proof the better. In addition to corrections, inform the credit reporting agency of your bankruptcy and identify any accounts which were discharged. The agency will note the bankruptcy and begin the process of removing those debts from your credit history. While negative reports may stay on your report for several years, your Chapter 7 bankruptcy stays for ten years. Now as negative reports age on your credit report, their effect on your credit score diminishes over time and your score will increase even before the bankruptcy drops off the report. It is possible that you will have to go through this process a few times, but each time a report is fixed the agency will send you a corrected report. Check the report each time and continue to report any remaining errors until all your discharged accounts are noted.

Rebuilding Your Credit History

During the fixing process above, begin to rebuild your credit history by opening one or two credit accounts. By paying each account on a regular monthly basis on time you will be sending positive information to the credit reporting agencies. Your initial credit card request may have to be secured in some fashion or even limited in some other way. It’s possible that your first few cards will have an annual fee and higher interest rates. Even though a particular card might not be the best deal, it may be the only deal available to you at first. Thus, after about a year or less, you may become eligible for an unsecured card and better terms. You may also qualify for a retail credit card. Whatever you do, do not overspend and not pay your bill on time. Keep with one or two manageable credit accounts and show that you can manage credit wisely by paying your bill on time.

Monitor Your Credit Score

Always monitor your progress toward rebuilding your credit score. Frequent monitoring is available through several agencies on the internet for a reasonable fee. By frequent monitoring, you can reinforce your progress and this helps you to stick to your plan. If your score goes up great, if the score goes down rethink your recent activities and determine why that occurred. Maybe you made a large purchase or opened a new account. In this way, you will learn what makes a credit score go up or down and how best to manage your credit score. All of this will become important when you want to make that next big purchase of a vehicle or a home. If you are seeking a mortgage, try to not take on any new debt at least six months before applying. Keep your credit accounts active but with low balances in order to get the best credit score.