Personal Loans and Bankruptcy

When you file a bankruptcy petition, you are required to list all your debts and creditors. This includes informal, personal loans like loans from family members or friends that may not be documented in a formal written loan agreement. Depending on the chapter you file these types of loans are handled differently. For of the time, these types of personal loans may be eligible for discharge or inclusion of a repayment plan schedule such as in Chapter 13 bankruptcy.

One thing you must remember is that just before filing for bankruptcy, you should avoid making any more payments to your creditors, including personal loan creditors. The reason for this is so that your repayment is not viewed as showing favoritism to any particular creditor (in this case your family member or friend who gave you the loan), neither can it be misconstrued as bankruptcy fraud.

Due to the personal and informal nature of such loans, there is often a possibility of conflict when you are not able to repay the loan. For this reason, you should work out a reaffirmation agreement instead that includes talking to your family member or friend about a payment arrangement. If that is not practical or possible, then filing for bankruptcy will give you other options.

Depending on which type of bankruptcy you opt for, your personal loan can either be fully or partially forgiven or repaid over a period of time. If you file for Chapter 7 bankruptcy, your personal loan will be paid for through liquidation of assets. If your asset sales are not enough to repay your personal loan in full, then the balance of the loan may be discharged (if unsecured). If you file for Chapter 13 bankruptcy, your personal loan may be included in the repayment plan, with part, if not all of the debt being repaid based on disposable income and secured debt obligations.


How to Qualify for Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a popular type of bankruptcy you can consider if you are very cash-strapped and under heavy pressure from creditors. In chapter 13, you do not have to liquidate your assets (like in Chapter 7) but you do have to honor a payment plan set by the bankruptcy court. This type of bankruptcy will only be granted if you have a means of steady income, such as a job.

So in order to qualify for Chapter 13 bankruptcy, you must be employed. But this does not mean your income from your job is the only source of finance that qualifies you for Chapter 13 bankruptcy. Your income can also include fees paid on contract basis, commission earned, alimony or child support received, royalties earned, compensations, public benefits (such as welfare) given, part-time income earned, Social security benefits received, pension payments paid etc. In short, any other form of legal income can qualify your for Chapter 13 bankruptcy.

Your total income is meant to pay for two categories of financial obligations namely your debts and your living expenses. As such, if your total income from all your income sources can cover these two obligations, you will be approved for Chapter 13 bankruptcy. Needless to say, you would have to lower your living expenses substantially in order to pay off your debts. The bankruptcy court will be quite ruthless in setting the lowest survival income you would need to pay for basic living expenses based on your own peculiar circumstances (household size, location of residence etc).

In certain cases, you may qualify for the plan if you are married, but have income earned in the name of your spouse. If a spouse is unemployed, but files a joint petition with a working spouse, you may still qualify.
You should consult a bankruptcy attorney to examine your case to see if Chapter 13 bankruptcy is suitable for you. Call us at (813) 200 4133 for a free consultation.

Medical Expenses Bankruptcy

These days, medical costs are astronomical and keep rising with hardly a limit in sight. Without sufficient medical insurance, the cost for medical and hospital care can be crippling. Most of the time, those who file for bankruptcy do so because of insurmountable medical bills usually due to prolonged illness. Some people have been asking me about medical expenses bankruptcy. This means filing for bankruptcy only for their humongous medical bills. But is this permitted?

The answer is “No”. There is no such provision in law for a medical expenses bankruptcy. For that matter there is no such thing as a credit card bankruptcy, a personal loan bankruptcy, a house damage bankruptcy etc. In other words, you cannot file for bankruptcy based on only one type of debt that is causing you financial problems. When you file for bankruptcy, you must list ALL your debts, both large and small. Bankruptcy is to help you eliminate all debts, not just the large ones.

Most debts are classified as either unsecured or secured. The secured ones are backed up with an asset collateral or third party guarantee. So the collateral or guarantee will be called upon once you default on your payment. But for unsecured debts, the creditor does not have any means of repayment once you default. That is where bankruptcy comes in.

The law governing bankruptcy is designed to treat debtors and creditors fairly. This means if you have credit card debt, personal loans or other outstanding debt, you have to include them all in your filling since they are all treated the same. This can also be said for other debt obligations. So if you have medical debt you want to eliminate, you can’t file for bankruptcy for only this expense that you want to have discharged.

There are two types of bankruptcy you may file for – Chapter 7 and Chapter 13 bankruptcy. If you file for Chapter 7 bankruptcy, your medical bills will be paid for through the sale of your assets. If it cannot be fully repaid, the balance can be discharged. If you file for Chapter 13, your medical bills will be paid through a payment plan over 3 to 5 years.


Bankruptcy FAQ (part 3)

Here’s the final article on frequently asked questions on bankruptcy.

1. Can bankruptcy stop creditors’ harassment?

The answer is “Yes” because once your bankruptcy filing is approved, the court issues an order for automatic stay. This is a court order that prohibits all creditors from making any collection efforts on you until the bankruptcy is over. Once you file for bankruptcy a notice is sent to all your creditors informing them of the bankruptcy petition.
At times, you may still receive notices demanding payment in the mail simply because either the creditor has not been informed of your bankruptcy yet or he is intentionally ignoring it. In such a case, you should inform your bankruptcy attorney of the matter. If harassment persists, you have a right to take your creditor to court.

However, if you are not interested in filing for bankruptcy but you do want to stop debt collectors from harassing you, you can do something else. You can request that debt collectors stop contacting you by sending a letter stating that you want the collection agency to cease all communications with you. This is provided for under the Fair Debt Collection Practices Act. All agency employees are then prohibited from contacting you except to tell you that collection efforts have ended or that the collection agency or original creditor intends to sue you or take advantage of some other legal remedy. But this only applies to debt collectors. Creditors can continue to contact you (except in some states that extend this remedy to the original creditor as well as collection agencies).

2. Can I file for Chapter 13 bankruptcy after getting dismissed the first time?

The answer is “Yes” but only if you qualify to file Chapter 13 now. The dismissal the first time is likely due to technical reasons like not having a source of income. But your circumstances may have changed by now, making you eligible to file for Chapter 13.

Bankruptcy FAQ (part 2)

Today I shall continue with part 2 of bankruptcy frequently asked questions. Two more of the common questions I have come across are:

1. Can bankruptcy help me avoid foreclosure?

The answer is “Yes”. In fact, one of the best uses of bankruptcy is to avoid foreclosure. You do so through filing a Chapter 13 bankruptcy petition. Chapter 13 bankruptcy allows you to pay up the arrears of your mortgage over the repayment period set by the bankruptcy court which is usually between 3 to 5 years. However, this means you should have at least enough income to keep up with your current payments as well as pay for your arrears at the same time. Although this may involve some belt-tightening, it could work out if you are not very far behind in your payments. Most banks would begin foreclosure proceedings after you miss 3 – 4 payments anyway, so to catch up on these 3 – 4 payments over a period of 3 to 5 years along with your current payments should not be a problem.

In addition, Chapter 13 bankruptcy may help you your second or third mortgage if you have one. So if your first mortgage is secured by the entire value of your home (which is possible if the home has dropped in value), you may not have any equity to secure the later mortgages. When this happens, the bankruptcy court may “strip off” the second and third mortgages and reclassify them as unsecured debt. Unsecured debts are last in priority under Chapter 13 bankruptcy and are usually not paid in full or not paid back at all.

If you wish to avoid foreclosure, you should not file Chapter 7 bankruptcy unless you do not have a steady source of income (if you do, you should file for Chapter 13). This is because if you’re behind on your mortgage payments, Chapter 7 doesn’t provide a way for you to catch up, and the bank can foreclose on your property.

2. I lost my job. Should I file for Chapter 7 bankruptcy?

Having a source of income is a prerequisite to file Chapter 13 bankruptcy, so if you do not have a job, you would have to file for chapter 7 bankruptcy instead. Chapter 7 bankruptcy will utilize proceeds from the sale of your non-exempt assets to pay off your debts. Whatever debts still remaining after the sale is eliminated.

With that being said, remember that debts incurred after you file for bankruptcy will not be eliminated by Chapter 7. So if you realize that you will be incurring substantial debt soon, you should delay filing Chapter 7 until after the debt has been incurred.

Bankruptcy FAQ (part 1)

Over the next few days, I’m compiling a list of most frequently asked questions I’ve come across when dealing with clients about bankruptcy. Here are the first three questions (in no particular order):

1. Can bankruptcy eliminate all my debts?

The answer is “No”, but the good news is that most debts can be eliminated. Bankruptcy is a good way to discharge credit card, medical debt, deficiencies resulting from a repossession or foreclosure, and other unsecured debt. In a Chapter 7 bankruptcy, this unsecured debt is paid for through the sale of your non-exempt assets and whatever is left thereafter is discharged at the end of your bankruptcy. But for secured debts, the elimination of the debt does not mean you get to keep the property. Usually Chapter 7 bankruptcy will delay but not remove foreclosure of your property.

In Chapter 13 bankruptcy, you may have to pay off your unsecured debt through your repayment plan. Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time. But you’ll need enough income to at least meet your current mortgage payment at the same time you’re paying off the arrearage.

Some debt is never discharged (canceled) in bankruptcy — including child support and alimony arrears, student loans (except in very limited circumstances), and tax debts first due within the previous three years.

2. Can bankruptcy help save my property?

The answer is “Yes” provided you file for Chapter 13 bankruptcy. Chapter 13 bankruptcy is where you repay all or a portion of your debts through a repayment plan over a period of three to five years. As long as you keep to your repayment plan, your property is safe. Your plan will also have to ensure that your creditors will get as much through the Chapter 13 bankruptcy as they would have received in a Chapter 7 bankruptcy. For instance, if you own non-exempt real estate valued at $10,000, your plan will have to pay your unsecured creditors at least $10,000 (less costs of sale and the trustee’s commission).

But if you file for Chapter 7 bankruptcy, you will have to liquidate your non-exempt properties to pay off your debts. Thus, Chapter 7 bankruptcy may not save your property unless the sale of your other assets can raise enough money to pay off your mortgage and save your property.

How Your Bankruptcy Trustee Treats Fraud

Fraud in a bankruptcy case may take on a variety of forms. Usually fraud in bankruptcy has to do with the treatment of debt, the transfer of property, perjury, embezzlement, filing false documents etc. Any and all of these is considered a federal crime. If your bankruptcy trustee suspects fraud, he or she must treat it with utmost seriousness. A report will be filed with the bankruptcy court once sufficient evidence is gathered. This evidence should show the perpetrators of the fraud and the type of fraud committed.

Your bankruptcy trustee will evoke Rule 2004 which authorizes him or her to make an examination of the situation by reviewing actions, property, debts and other matters related to you, the debtor. Your bankruptcy trustee will also review aspects of your bankruptcy estate including the right to obtain a discharge. In other words, you may not obtain a discharge of your debts if you have committed bankruptcy fraud.

Other actions your bankruptcy trustee may take include:

• Calling for an adversary hearing to recover property that was transferred fraudulently or to obtain undisclosed property

• Obtaining a turnover order to revoke the discharge of a debtor who tried to hide assets

• Retrieving property that was wrongfully taken during a business-related bankruptcy

• Obtaining a temporary injunction that would prohibit assets from being transferred to another party during the bankruptcy. This is done to help keep the assets in place until the adversary hearing is completed
Most bankruptcy fraud cases carry a jail term of up to 5 years. Often once bankruptcy fraud has been committed, other federal agencies such as the FBI and the Justice department would get involved with the case.

To know how you can have a smooth and incident-free bankruptcy process, call us at (813) 200 4133 for a free consultation.


Important Considerations in Bankruptcy

When considering bankruptcy, you should know some things about bankruptcy and your own financial situation that may help detail your next course of action. Firstly, you should be familiar with the types of bankruptcies that are open to you. Essentially, you may choose to file either Chapter 7 or Chapter 13 bankruptcy. Both have their pros and cons, depending on your situation.

Chapter 7 bankruptcy is known as liquidation bankruptcy and it eliminates or discharges qualifying debt, while Chapter 13 is workmen’s bankruptcy and it restructures debt into a repayment plan based on income. Understand the differences between each chapter and if you do decide to file, be sure you have a clear understanding of why a specific chapter is recommended for your situation.

You should discuss your bankruptcy decision with a qualified attorney. Don’t get sucked into the many false notions about bankruptcy that has stopped many people from exercising their rights under the bankruptcy law. The truth is that filing for bankruptcy has helped millions keep their home, vehicle, retirement savings and other important assets from creditors.

Another thing to consider is the qualification for filing for bankruptcy and the requirements that come along with each type. To be qualified for Chapter 7 bankruptcy, you’ll need to pass a means test that compares your household income and debt with that of the median household income and debt set by your state. This median income and debt level vary by state which is why it’s important to find out your state’s means test from a bankruptcy attorney.

Finally, you should consider the benefits of filing bankruptcy. It may help you and your family obtain the financial relief you’ve been seeking. It may help get debt collectors off your back and stop harassing collection attempts from creditors. In addition, bankruptcy will help you start afresh financially. Whatever the reason that led you to bankruptcy, whether it was a serious illness, a divorce, a loss of your job or even being sued in court, bankruptcy may help get you get back on your feet and provide a new lease of life for you.

Which Chapter of Bankruptcy is Best for Small Business Owners?

If you small business is overwhelmed with debt, you can file for bankruptcy. Small business owners are either sole proprietors or partners in a partnership. The chapters of bankruptcy that apply to small business owners are Chapter 7 and Chapter 13 bankruptcy. These two chapters of bankruptcy offer the small business owner the protection for your personal assets. But which one is more suitable? That depends on a few factors.

Here’s the case for Chapter 7 bankruptcy. You would do better to file for Chapter 7 bankruptcy if you cannot keep up with the payment plan under Chapter 13. You may ask the judge for a review of the amount and pay a reduced monthly payment but sometimes, even a reduction is unaffordable (especially if your business is seasonal or not doing well).

Another reason to file Chapter 7 would be if you find it too difficult to run your business while under Chapter 13 bankruptcy. Under Chapter 13, you cannot do anything other than normal business operations unless you obtain the approval of the bankruptcy court. For example, borrowing money, buying or selling business assets, use credit cards etc. And every month you have to submit a report to the bankruptcy trustee. All the money you make from your business will have to go toward your debts.

Finally, if you want your bankruptcy case to be completed within a few months (instead of between 3 to 5 years under Chapter 13 bankruptcy), then you should opt for Chapter 7 bankruptcy. In addition, under Chapter 13 you’ll usually be required to repay at least some of your unsecured debt (although some courts approve what are known as 0% plans, in which unsecured creditors receive nothing), something you wouldn’t have to do in Chapter 7.

So for most sole proprietors and partnerships, Chapter 7 bankruptcy is usually the preferred option to Chapter 13.

The only reason why you may not be able to choose Chapter 7 would be if you do not pass the means test. The means test is the minimum household income for a household of your size in the state you live in. On the other hand, you may opt for Chapter 13 bankruptcy if you wish to keep certain assets or continue to operate your business while under bankruptcy.

If you wish to discuss which chapter of bankruptcy to file, call us at (813) 200 4133 for a free consultation.

What Happens to my Car after Filing Bankruptcy?

Have you ever wondered what happens to your car after you make a bankruptcy petition? Do you get to keep it or does it have to be sold to repay your debt? Most likely, you have fallen behind on your car payments (besides other debts) and you may wonder if you have to surrender your car to the repo men when you file for bankruptcy. Well, the good news is that you can most likely keep your car after you file for bankruptcy i.e. it does not have to be sold nor will it be repossessed. However, it does depend on the chapter of bankruptcy you file with.

When you file for bankruptcy, the court will enforce an automatic stay that prohibits creditors from collection attempts and other legal actions such as repossessions. So this would put an immediate halt to repossession as well. Then Chapter 13 bankruptcy can help you pay off defaulted payments on the loan over 3 to 5 years. Thus Chapter 13 will enable you to make your car payments current.

On the other hand, if you file Chapter 7 bankruptcy, your assets are to be sold to pay off your debts. However, you are allowed to work out a deal with the creditor while the automatic stay is in effect. This means you will need to negotiate a payment arrangements with the creditor that may include getting caught up on missed payments. Purchasing the car at fair market value may be something to consider if you can afford the option. In bankruptcy, some have been successful at obtaining affordable or reduced payments if the car is worth less than the total amount of the original loan.