Bankruptcy

Bankruptcy can have profound personal and professional consequences. While the protection of the automatic stay can be appealing, there can be other short- and long-term collateral consequences for the unwary.

A Chapter 7 bankruptcy remains on your credit report for 10 years. A Chapter 13 bankruptcy remains on your credit report for 7 years. The former is a liquidation of non-exempted assets to pay creditors, with the remaining balance being discharged. The latter is a payment plan over 3 or 5 years, with a discharge of any remaining balance at the end of that period.

Having a bankruptcy on your record can make it difficult to qualify for a mortgage, especially in the first few years after filing. Any other lines of credit you apply for will also likely have significantly higher interest rates to compensate for the perceived risk.

There may also be professional consequences. For example, those with a security clearance may lose that access. If you cannot access classified information for your job, you may be unemployed. This could also apply to professions such as lawyers. The board of professional responsibility may perceive a high risk of misappropriating client funds if the lawyer is in personal financial trouble.

If you are a partner or member of a business, the operating agreement may have a provision that causes dissociation upon filing bankruptcy. This is to protect the business from being caught up in the bankruptcy proceedings, because your interest in the business will likely become a part of the bankruptcy estate. It is especially critical to consult with a bankruptcy attorney if you have any part in operating a business to determine if this is possible.

Before running to bankruptcy, try to negotiate with creditors. Sometimes they will understand and be willing to work with you. There can be deferment plans available for temporary relief that will help you get caught up on other bills.

You could also consider doing a balance transfer to another account. This doesn’t solve the problem ultimately, but it can be a strategic move to put out a few fires for a while. But it is generally unwise to transition unsecured debt, such as credit cards and personal loans, into secured debt.

While there may be some equity in your house you could use, the transfer of risk goes from a drawn-out court process for unsecured debts versus an out-of-court foreclosure proceeding. Secured debt is more favorable for the creditor, so stick with keeping unsecured debts as unsecured if you have the ability to do so.

When dealing with the legal system, it really is advisable to engage with an attorney licensed to practice law in your jurisdiction. Bankruptcy is an exceedingly complicated process, with many forms and deadlines. If those requirements are not met properly, it could jeopardize the protections a bankruptcy offers if that is a necessary choice.

I don’t have any circumstances I would recommend someone handle a bankruptcy on their own. When dealing with an incredibly difficult choice like this, it is worth it to have someone there as an advocate and a counselor. Bankruptcy attorneys generally work legal fees into the payment plan for a Chapter 13 bankruptcy. For a Chapter 7, the advice is usually to pause all debt payments and save up the cash to pay the retainer, which can be between $750 on the low end up to around $2,000.

If bankruptcy is on the table for you, it’s not the end of the world. Lots of people have had to do this before because of difficult life circumstances. The purpose of this system is to allow debtors a chance at a fresh start.

The main thing to focus on isn’t what’s happened in the past. It’s what to do moving forward. Do some self-reflection. Ask what the decisions were that led you to where you are now. Sometimes life throws unexpected catastrophes our way and we have no way to prepare for them.

But we often make decisions that lead ourselves into hard financial situations. And we need to take ownership of the decisions we have made, good or bad. From there, we can resolve to do things differently in the future. We can’t change the past, but we can be determined to learn from it and try something new moving forward.
Before filing for bankruptcy, consider reaching out to a financial counselor or coach. These professionals help people make a good budget, pay off their debts, build savings, and adopt the mentalities that lead to financial freedom.

There is usually an investment to make with these professionals. However, the return on the investment can be many times over if you really engage with that person and submit yourself to a new process. And the overall investment is likely less than what working with a bankruptcy attorney would be. Not to mention that there is no adverse impact on your credit report. You will likely see significant improvement by doing what the counselor or coach recommends.

Ultimately, personal finance is mostly about the behaviors that we do on a daily basis. If we change those and truly believe we can overcome our financial difficulties, we have taken the first steps to living in financial freedom and conquering the things that hold us back.

A bankruptcy petition, often the last resort to debt relief, should be avoided or alternatives considered at any cost. Bankruptcy essentially is a reallocation of the rights and obligations between the debtors and creditors beyond the debt covenants. Bankruptcy laws either protect the creditor or the debtor or both. However, whose interests will be safeguarded during the bankruptcy period varies case by case. In general, the debtors risk losing control of their financial assets, real properties, privacies, and reputations and the ability to regain financing resources in the future. Moreover, not all debts can be forgiven under bankruptcy laws.

People may think filing for bankruptcy will solve their financial problems once and for all, but the cost of going bankrupt is high, if not the highest. For individuals, Chapter 13 filing may be an alternative to the Chapter 7 petition, and provides better protection to the debtors than Chapter 7. For a business that has high financial leverage and continues to generate good business cash flows, Chapter 11 filing could benefit both the debtor and creditors. However, the cost of filing Chapter 11 is a significant factor in the decision-making.

Filing for bankruptcy is a lengthy, time-consuming, and costly process. People and businesses may consider some alternatives:

1. Negotiate with the creditors for a new repayment plan, a new debt to replace the old debts, or a bridge loan to release repayment pressure temporarily.
2. Discuss a debt consolidation plan with several creditors or new creditors.
3. An equity business facing bankruptcy pressure should consider the possibility of a debt-equity swapping plan.
4. Individuals should consider Chapter 13 filing as an alternative to Chapter 11 filing.
5. Look into asset management companies specializing in troubled assets as some provide better solutions and financial resources.

Filing for bankruptcy requires specialized professional knowledge and skills. It is recommended that everyone hire a professional for this process.

Bankruptcy is not a cure-all for financial hardships or a solution for everyone. The cost of going through this process is very high. As a result, planning your finances well ahead is the key. One simple rule of thumb is using your financial leverage wisely. In plain words, this means not taking on an amount of debt that is beyond what you can manage.

Bankruptcy has two primary objectives: It protects debtors by giving them a “fresh start” without worrying about the creditors’ claims being held over their heads. Additionally, it works to protect creditors by ensuring that their interests are protected and they are treated equitably among other creditors competing for a debtor’s assets. Common misconceptions about bankruptcy are that you must be insolvent to declare bankruptcy and that bankruptcy is a bad thing. Both of these thoughts are false.

It must also be clarified that bankruptcy is a federal matter, not a state matter. While state laws may have some bearing on a bankruptcy estate, bankruptcy itself is governed by federal law (Title 11 of the U.S. Code, or the “U.S. Bankruptcy Code”) and is adjudicated in the federal courts (the U.S. Bankruptcy Courts, which are units of the U.S. Districts Courts and are provided for under Article I of the U.S. Constitution and the legislative acts of Congress given their constitutional power to establish these courts).

Under the U.S. Bankruptcy Code, different types of bankruptcy relief are available to the debtor. One factor is determining the debtor’s status — whether they are an individual or married couple, their profession in some circumstances, or whether they are a business entity (and what type of business) or a municipality. Another factor is ascertaining what the parties wish to achieve — whether for the debtor to sell what are known as nonexempt assets to pay their creditors (which is called “liquidation”), to retain ownership of their assets (and continue business operations) while they negotiate with creditors (which is called “reorganization”), or to establish a repayment plan where the debtor makes installment payments to repay their creditors. Depending on such, different chapters of the Bankruptcy Code might apply.

Also, depending on the type of bankruptcy, they can either be voluntary (on the part of the debtor) or involuntary (meaning that creditors could potentially “force” a debtor into bankruptcy). The amount of debt involved may have some impact on the types of bankruptcy employed as well.

While bankruptcy will potentially adversely affect the debtor’s credit, like any other debtor situation, it is possible to recover over the long run with due diligence and hard work. The impact will typically lessen over time as debt is reduced or discharged.

First and foremost, before it comes to bankruptcy, communicate with the creditors. It is important to remember that all the creditor wants is to get paid what is due to them. Sometimes they might be willing to work things out one on one to lower or spread out payments or even lower or waive interest as long as they get what they are due.

While creditors can employ a number of tools to protect their rights such as taking a security interest in collateral, attaching liens, and executing garnishments, various other types of legal instrumentalities are available to them. But debtors’ rights are protected, too. It is not a one-sided game. Several types of agreements exist where a debtor and their creditors can agree to accept a lesser amount due in full satisfaction of the debt (which are called creditors’ composition agreements) or other negotiated or settled agreements. In many cases, an agreement to accept at least something instead of nothing and to discharge the rest is favorable to the alternative.

Otherwise, depending on availability, debtors might have access to various debt management plans, debt settlement programs, and debt consolidation loans through third-party assistance. It is extremely important to shop around and find the solution that best fits that debtor’s situation. Also, it is a “buyer beware” world out there. Not all solutions or providers are the same, and some can actually worsen a debtor’s situation. Therefore, it is important that a debtor asks around and does some investigation into these programs.

Perhaps the best place to start down this path is to find a reputable consumer credit counseling agency that can assist (and sometimes even advocate for the debtor). In fact, in order to file for bankruptcy, it is now required that a debtor receive credit counseling from an approved nonprofit agency beforehand.

As with any legal matter, it is highly suggested that the debtor consult competent legal counsel before pursuing bankruptcy. That qualified professional can best explain the alternatives to bankruptcy, counsel their client on the proper form of bankruptcy to pursue and verify the accuracy of the petitions and schedules that must be filed. These are also the minimum requirements of counsel for consumer debtors.

A qualified, licensed attorney will advocate on the debtor’s behalf and should know the rules and what they are doing. They are simply in a better position to do so. They should also know what to do should creditors continue to try to collect against the debtor after bankruptcy has been initiated.
Remember that bankruptcy is a federal matter in the federal courts. Even appearing pro se (representing oneself) in municipal or small claims court can end in catastrophe. There are many complex rules and procedures that apply in the courts and deadlines and requirements that must be met. The federal bankruptcy courts, which have distinct rules and procedures, are certainly no exception.

Do your homework. Check out all the possibilities first to satisfy debts, consult a reputable credit counseling agency, and hire competent legal counsel should it come to bankruptcy.

The good thing about bankruptcy is the breathing room it gives debtors via the automatic stay of 11 USC 362 (though there are exceptions to the automatic stay) and the fact that litigation will move to a single bankruptcy court. Depending on the chapter, there are different effects of filing. Chapter 7 provides a faster discharge but appoints a trustee to handle the bankruptcy estate. Chapter 11 (mostly for businesses) leaves the debtor in charge but is significantly more expensive. Chapter 13 lets the debtor keep more assets in general, but the discharge happens after the plan is completed (about 5 years). People seeking bankruptcy protection probably don’t have to worry about their credit rating because it’s already indicating distress.

First, negotiate with a creditor for an extension. If someone has a problem with only one creditor, this can be effective. But don’t do it yourself — use a lawyer. There are also state law assignments for the benefit of creditors, but again, that’s not something for a person to do without a lawyer.

EVERYONE needs a lawyer. There are so many complexities that filing on one’s own without legal help is a very, very bad idea.

First off, don’t despair. Bankruptcy law is designed to provide a fresh start and is often better than being hounded by creditors and losing sleep. Second, look for a board-certified bankruptcy attorney if at all possible.

If you’re struggling financially and considering bankruptcy, there are some steps you can take to improve your financial situation before resorting to bankruptcy.

Paying down debt: Before considering bankruptcy, it’s important to explore other options for managing your debt. One approach is to focus on paying down high-interest debts first, as this will save you money in the long run. You can also consider consolidating your debts into a single loan with a lower interest rate. If you’re struggling to keep up with payments, try reaching out to your creditors to see if they’re willing to negotiate a payment plan or lower your interest rates.

Budgeting: Creating a budget can help you take control of your finances and identify areas where you can cut back on expenses. Start by listing all of your sources of income and fixed expenses, such as rent or mortgage payments, utilities, and car payments. Then, track your variable expenses, such as groceries, entertainment, and dining out. Look for areas where you can cut back like by reducing your cable bill or dining out less frequently. Stick to your budget as closely as possible and adjust it as needed.

Learning to save for emergencies: Unexpected expenses can be a major source of financial stress. Learning to save for emergencies can help you prepare for the unexpected and avoid resorting to high-interest loans or credit cards. Aim to save at least three to six months’ worth of living expenses in an emergency fund. You can start by setting aside a small amount each month and gradually increasing your savings over time.

By focusing on paying down debt, creating a budget, and learning to save for emergencies, you can take steps to improve your financial situation and avoid bankruptcy. However, if you’ve explored all of your options and still feel that bankruptcy is the best choice for you, it’s important to work with an experienced bankruptcy attorney who can guide you through the process and protect your rights.

If a person is struggling financially, the first step should be identifying what is causing financial problems, and the second is working out a plan.

Therefore, I would start by understanding how the cash flow looks — the major outflows (student debt, mortgage, rent, medical bills) and where the money is coming from. On the Internet, many free tools help people with that.

Once the details of the financial situation and the overall picture become clear, the next step will be to develop a plan to improve the financial situation. I would have short-term and long-term aspects of the plan. In the short-term: What costs can be reduced? What payments can be postponed without incurring significant financial penalties? What additional source of money (loan, mortgage refinancing) can be used in the upcoming weeks?

Next, look at the long-term picture. Maybe the current situation (cars owned, etc.) is not affordable. Maybe the current job won’t significantly increase your future income, and it is time to reconsider.

Among the options to consider, bankruptcy might be a possibility, too, but it requires a consultation with a bankruptcy specialist who would explain its advantages and disadvantages.

People should first be aware that there are several different alternatives when filing for bankruptcy, so the process is not nearly as easy as it may seem. Depending on the situation, debtors may file under Chapters 7, 11, or 13 of the Bankruptcy Code. As this is not usually an easy determination for the debtor to make on their own, it is strongly advisable to consult legal counsel before filing for bankruptcy with the courts. Additionally, consultation with the debtor’s accountant/CPA is strongly advisable beforehand to ensure that all assets, liabilities, and/or other financial holdings of the debtor have been properly accounted for prior to these proceedings. Also of note, any debtor contemplating filing for bankruptcy should be fully aware that doing so may have significant adverse future implications with regard to their ability to obtain loans, own a credit card, and/or maintain an acceptable credit score, so this should be seen as a ‘last resort’ within the debt resolution process.

Asset liquidation, debt consolidation, and debt renegotiation (as to the terms of a loan or credit card agreement) are all viable and preferable alternatives to filing for bankruptcy with the courts. Debtors are encouraged to explore all other possibilities that may exist prior to filing for bankruptcy, and this should only occur if all other avenues have been exhausted first.

My suggestion would be to first discuss these issues with the personal advisors whom the debtor trusts most (including an attorney, accountant, and/or financial advisor). This should be done to brainstorm ways of alleviating the immediate strain of debt on the consumer while finding a viable, long-term solution to these issues that won’t jeopardize their entire financial future. In many cases, solutions to these issues can be worked out before entering into the long, arduous process of filing for bankruptcy, saving the debtor a great deal of time, money, and effort.

Filing for bankruptcy can have significant consequences for both individuals and businesses. It can impact your credit score, making it harder to access credit and loans in the future. It can also affect your ability to rent a home, obtain a job, or even start a business. It is important to understand that bankruptcy is not a quick fix and should only be considered as a last resort after exploring all other options.

Some alternatives to filing for bankruptcy include debt consolidation, negotiating with creditors for lower payments, and seeking credit counseling. It is important to work with a financial planner or credit counselor to explore all your options and find the best solution for your unique situation.

Filing for bankruptcy can be complex, and it is generally advisable to seek the guidance of a qualified bankruptcy lawyer. They can provide legal advice, help you navigate the bankruptcy process, and ensure that you are taking the necessary steps to protect your assets and interests. In some cases, individuals or small businesses with relatively simple financial situations may be able to handle bankruptcy without a lawyer, but this is not recommended.

My advice to anyone struggling financially and considering bankruptcy is to seek the guidance of a Certified Financial Planner or credit counselor before making any decisions. They can help you explore all your options and develop a plan to manage your debt and improve your financial situation. It is important to remember that bankruptcy is not the only option and should only be considered as a last resort. By taking action early and seeking help, you may be able to avoid bankruptcy and improve your financial health over time.

When an individual files for bankruptcy, the immediate impact is that their current debt payments may be paused until the resolution of their case. They will also notice a dramatic drop in their credit score. As they go through the bankruptcy process, they may have to sell their car, home, and personal possessions. In the future, they will find it hard to obtain credit or loans, and if they can get a loan, the interest rate will likely be higher than for other people. Bankruptcies stay on your record for 7-10 years, which may affect your ability to work at certain jobs. There is also emotional stress associated with filing for bankruptcy. While filing for bankruptcy can provide momentary relief, in the future, it can have long-lasting consequences for both your personal and financial life.

An alternative to filing for bankruptcy is negotiating with your creditors. Possible negotiating points include paying a reduced amount, pausing payments for a period of time, and/or extending the repayment timeline. Some creditors may even change the terms of the loan, such as the interest rate on the remaining debt. Creditors may not receive anything in bankruptcy, so they have a possible incentive to be open to negotiations.

Working with a credit counselor can also be helpful. These professionals can help you understand your options and work with you to create a plan to manage your debts in the future.

Working with a lawyer when filing for bankruptcy is almost always advisable. They can advise someone on whether bankruptcy is the best option, what someone’s bankruptcy options are, and how bankruptcy will affect them. They can also file the necessary forms on their client’s behalf. In addition, people who cannot afford an attorney may qualify for free services.

Bankruptcy is a significant financial decision that should be considered as a last resort. Even if you are in a financially difficult situation, try to avoid bankruptcy if possible. Consult with a knowledgeable lawyer and/or financial professional like a credit counselor to help you understand all possible outcomes. Then create a plan for going forward.