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Alternatives to Bankruptcy

July 22nd, 2007 by Shenron

When you are experiencing financial difficulties, it can be very tempting to file for bankruptcy. Remember however that bankruptcy should not be taken as an immediate answer but as a last resort. After all, records of bankruptcy will remain on one’s credit file for up to ten years. Try to consider the following options first before you finally decide on filing for bankruptcy:

There are effective ways for you to lessen your debt. For one, you have to cut monthly expenses in order to allow more cash flow that will be used to pay off debts. Analyze your personal budget and find areas where expenses can be lessened. Luxuries will have to take a backseat to the needs. Impulse purchases and frequent dining out can be done away with. Little steps taken everyday can have a huge impact on your overall financial health. You could also consider other ways of earning money – a part time job or a better – paying primary job for example.

It is always better to negotiate with creditors first before taking any legal action. This avoids disputes which could turn really ugly. Creditors understand that while bankruptcy is an option for the debtor with excessive debts, they risk losing everything when it is filed. Most would rather settle on a plan that would enable them to get back a portion of their money. Professional help should be sought in order for the negotiations to be handled properly.

Participating in a debt counseling service is a good start in addressing your financial difficulties. A little bit like filing for Chapter 13 bankruptcy, debt counseling agencies will help you come up with a plan to pay your creditors. This option both has its advantages and disadvantages: no bankruptcy record will appear on your credit file (a good thing of course), but you will not be protected from harassing creditors if you miss a payment. A creditor may not honor your plan and you therefore have to resort to other measures.

If you are buried in debt but are living a relatively simple life, you can do nothing about your excessive debts. Anybody who sues you will most probably take nothing from you because you do not have anything they can legally take in the first place. In ordinary cases, you can’t be thrown into jail for your inability to pay debts (except if you’ve defrauded your creditors, refused to pay taxes or willfully failed to fulfill child support obligations). So you may not file for bankruptcy if you do not have a steady income or properties your creditors can repossess. Most probably, they’ll just write off the debt and treat it as deductible business loss. After several years, the debt will become legally uncollectible and after seven years will disappear from your credit record.

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Bankruptcy Domestic Effects

July 15th, 2007 by Shenron

Filing for bankruptcy does not discharge one from his child support responsibilities. While the creditors are prohibited from filing lawsuits and repossessing property when bankruptcy is filed and automatic stay has been enforced, the custodial parent can still demand that support obligations be paid. In fact, in a Chapter 7 bankruptcy case, domestic support obligations precede other creditors in terms of payment priority. Domestic support actually has higher priority than taxes. If the debtor could show solid proof of the amount needed for child support, most of his liquidated estate can be used to pay off his child support obligations. In a Chapter 13 case, the debt resettlement plan is proposed by the court in a span of three to five years, with five years being the maximum period. Child support, being a priority claim, must be paid in full during the duration of the Chapter 13 plan.

Although automatic stay does not relieve one of his child support obligations, it nevertheless makes it easier for him to pay off the support. This is because, upon enforcement of the automatic stay, creditors are prohibited from claiming payment; thus, the debtor, having “fewer debts”, can easily plan how to pay off his child support debts. The parent having custody of the child should not be too worried about the long – term effects of bankruptcy on child support payments. On the short – term basis though, problems may arise as the debtor may not have enough money at present to fulfill his domestic obligations.

There are cases wherein the debtor may be exempted from paying for child support. The United States Bankruptcy Code, in Section 523, states that a) the debt will not be paid when it has been assigned to another entity, voluntarily, by operation of law or otherwise; or b) when such debt includes a liability designation as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support .

For example, Joe owes Lisa $1,000 every month for child support. Since Joe wasn’t able to pay, Lisa borrowed the same amount from a friend. The friend now has the right to claim that amount from Joe. However, since the debt was assigned to a third party, the debt can be discharged if Joe applies for bankruptcy.

Joe is also not liable to pay Lisa in this case: During divorce, a decree states that Lisa be paid a certain amount as marital debt. If Lisa claims the money, indicating that the money will be used as child support, Joe may argue to discharge the debt as it was not originally a child support debt.

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Secured vs Unsecured debt

July 15th, 2007 by Shenron

A secured debt is one wherein the creditor maintains a security interest on a tangible property or any piece of item that is attached to the debt. If you fall behind on payment with this kind of debt, the creditor can reclaim the property that is used as security for the debt. Common secured debts include house and car loans. Such things can be easily repossessed when repayment of overdue amount is not done on time.

An unsecured debt on the other hand is a debt acquired by borrowing from creditors without any personal property being used as collateral for the debt. When payment for this kind of debt is overdue, creditors may take legal measures against the debtor but will usually arrange a debt resettlement scheme. Common examples of unsecured debts are credit card loans, medical bills, commercial debts and personal loans.

A secured debt may however turn into an unsecured debt. This happens when the sale of the property does not cover the full amount of the debt. The deficiency will still be paid by the debtor and since he does not have any more property attached to the debt, it has become an unsecured debt. Just like most unsecured debts, this is usually resolved through a debt resettlement program.

The difference between the two types of debts also becomes relevant when someone is applying for bankruptcy. When someone has applied for a Chapter 7 bankruptcy, he can choose not to give up the property and instead pay the debt in some other way. However, if he cannot do so, the bankruptcy court will have to take away the property (and even some of the properties not attached to the debt), and the debt is paid off that way. As discussed earlier, when the sale of the property that has been repossessed is inadequate to cover the debt, the debt becomes unsecured.

Those who have a steady income with disposable income, choose Chapter 13 bankruptcy. In this type of bankruptcy, one is allowed to keep the property or product and has to pay back his creditors according to the Chapter 13 plan. Most probably, the court will order that the creditor charge the debtor 10% interest although he was probably paying a much higher interest than that. Usually, the court will propose a repayment plan over a span of three to five years. The ceiling is set at five years and one cannot have a plan that exceeds this period.

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How to manage debts avoiding bankruptcy

July 15th, 2007 by Shenron

Bankruptcy usually occurs when an individual has failed to manage his finances properly. When deadlines for paying debtors are continuously not met and interests for debts build up, the pressure to pay intensifies, which could lead them to take the last resort – filing for bankruptcy.

Bankruptcy, although allowing an honest debtor to start afresh, does have its negative connotations. Since you are ranked according to your credit rating, your inability to pay your creditors on time will definitely injure your credit rating. This, in turn, will affect your future transactions. This legal measure should therefore be taken only as a last resort – when all other possible actions have been considered but have been found unsatisfactory.

Successful businessmen have stayed away from bankruptcy because of their ability to manage their finances properly. Here are a few financial advices to prevent bankruptcy:

Most debtors acquire a lot of liabilities because they spend too much – way beyond what they are getting. If it is necessary for you to have a debt – a car loan or a house loan for example – consider beforehand your other expenses and the income you’ll be getting. Don’t try to overestimate your income and make allowance for instances wherein the income may fall short of the average.

Limit yourself by setting a ceiling on the debts that you acquire. If you’re using your credit card for example, set only a certain amount that you can spend and set a pace wherein you can pay and withdraw in between periods. If you have enough debts and you’re having a difficult time handling them, do not accumulate another set of debts.

You can set aside an amount that will take care of your debts every month. Rank your expenses according to priority and pay off that which needs to be paid off first. Remember to pay your debts on time as failure to do so increase the interest on the debt.

Especially when you’re in the verge of insolvency, personal discussion with creditors is one of the best ways to reduce disputes. You can sign promissory notes and waivers just to assure them that you won’t run away from them. One of the most common mistakes that debtors make is to hide from their creditors, which could increase their misgivings on your ability to pay them back. Prevent harassment and abuse from creditors by talking to them and asking for a little consideration. Be sure to stick to your promises however because your inability to do so just might lead to your downfall.

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Going Bankrupt - Get a Lawyer

July 15th, 2007 by Shenron

When you are facing insolvency, it is crucial to seek professional help. Seeking support from someone who has extensive knowledge on bankruptcy proceedings prevents you from making false moves that could endanger your property. Careful assessment is the key in finding a good bankruptcy attorney – a checklist, including the criteria you wish to have in an attorney, should be prepared.

Where can bankruptcy lawyers be found? Usually they get themselves advertised, whether in classified ads or words of mouth. When you look lawyers up in classified ads, they usually give short and concise information about themselves. Find out their fields of specialization, the cases they have handled and the percentage of these they have won. Other lawyers (especially those connected to large law firms) are so popular that they rarely need any advertising. If you’re planning to have a large firm represent you, remember that you’re most probably going to be dealing with a paralegal rather than a lawyer. Try to find ways to have direct contact with a lawyer.

If you are considering a particular lawyer, ask for references from companies and individuals who already had dealings with this attorney. In the field of judicial dealings, a lawyer is identified by the case he handles. You may try to look up the cases this lawyer has handled and how successful he is in handling them.

In your first encounter with an attorney, you may immediately assess them by the way they speak and act. Remember that some lawyers attempt to impress their clients in order to convince them. It is important that you should be critical in your judgment. Even sensitive matters such as fees and payments have to be dealt with during the first meeting, if possible. If you feel comfortable in discussing these subjects with them, it could be a good indication that you can have a satisfactory lawyer – client relationship. If you are pleased with how a lawyer handles his cases, you could seriously consider him to also take your case. Your overall impression of a person can help you figure out if this is the lawyer you wish to help deliver you from your debts.

If you have already made a decision, an initial orientation must take place between you and your lawyer. He should be able to familiarize you with terminologies involved in bankruptcy cases, educate you on bankruptcy laws, and teach you how to personally evaluate bankruptcy. Before you decide on filing for bankruptcy, let the lawyer explain how bankruptcy processes proceeds and ask him how he handled his previous cases. Your lawyer should be able to help you weigh the pros and cons of the legal actions you intend to take. Let him help you clear some of the bankruptcy myths you originally believed in. Make sure that all of your legal questions have been answered before you finally decide on filing.

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