Bankruptcy:  Is there a right time? 

We fully understand that bankruptcy should be the choice when all else fails -- only then do we recommend bankruptcy.  A prevailing reason for filing a bankruptcy petition is when your liabilities exceed your assets.

Many times when a client is in consultation with us, the discussion revolves around real estate - and what to do when there has been loss of income and mounting bills.  We explore what the client most desires and what are the best solutions.  Sometimes a decision involves a loan modification or a short sale for real estate and sometimes the decision leads to a bankruptcy filing.

Coming to the choice to file bankruptcy is a difficult and emotional decision and we understand that.  This link is a valuable resource provided by the City Bar of New York in helping persons decide if personal bankruptcy is the right decision.

In her January 3, 2009 article, The Case for Walking Away, Jane Bryant Quinn, Newsweek columnist and financial advisor, writes about the realization that bankruptcy is often the best option among bad choices: “It’s painful and humiliating even to consider bankruptcy, let alone join that crowd in the courthouse corridor, waiting for your name to be called.”

►The following are questions many persons have asked:
Does a bankruptcy case automatically remove liens (such as mortgages) against my property?

No, not at all. Secured creditors get extraordinary rights in a bankruptcy case. Bankruptcy may temporarily delay secured creditors, but most voluntary liens (those granted by agreement on houses, cars and household goods) have to be satisfied one way or another.

However, you have some opportunities to remove or avoid involuntary liens and a small category of voluntary liens. The term "avoid" is used in the Bankruptcy Code for removing liens.

Chapter 7
You can avoid some involuntary liens (except for liens securing alimony or support obligations) that are on property that you could exempt. You can also avoid some voluntary liens on property that you could exempt. For these voluntary liens, you can only remove liens on certain household goods, "tools of the trade" and professionally prescribed health aids. Moreover, the term "household goods" includes only certain types of items (for example, clothing, one radio, one television, one VCR).

Chapter 13
If you file chapter 13, you have the additional ability to remove liens by completing payments under the plan (3 to 5 years). In some cases, the plan will reduce the amount that you must pay or change the time period over which you must pay the debt. In the case of homes and cars, the ability to change the payment terms is very limited.  Student loan debt is not dischargeable.

This is the government link for the "means test" which is a determination of where you fall within the bankrtupcy income guidelines for entering your income and expense information.  Bankruptcy Form 22A is the form chapter 7 debtors will complete for “means testing” purposes; Form 22C is the form chapter 13 debtors will complete.

How long does a bankruptcy remain on my credit report? 10 years -- Your bankruptcy can be reported on your credit report for 10 years from the filing of the case.  If you file a bankruptcy and voluntarily dismiss it before the discharge, the credit reporting agency must report the dismissal as well as the bankruptcy filing. 

Assuming you have income, you should be more credit worthy after a bankruptcy than you were before, since your old debts no longer have a claim on your future income. 

After the discharge (the legal elimination of debt through bankruptcy), you are entitled under federal law to have the balance of each discharged debt reported as "O".  The history of delinquencies can be reported, but the balance must be zero.  If it is not so reported, dispute the debt. 

Note:  The Commentary to the Fair Credit Reporting Act affirms that a debt discharged in bankruptcy must be listed as having a 0 balance. FTC OSC section 607, item 6 states: "A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy itself), as long as it reports a zero balance due to reflect the fact that the consumer is no longer liable for the discharged debt." 

• Collection - Seven years from date of last activity
• Foreclosure - Seven years
• Garnishment -Twelve years from the date of entry or seven years from the date satisfied
• General credit information - Seven years
• Judgment - Twelve years from the date of entry or seven years from the date satisfied
• Tax lien - Twelve years from the date of entry or seven years from the date satisfied
  

Dismissed garnishments, judgments, and tax liens are not reportable.  A consumer can request a copy of their credit report from the three credit bureaus. Under the Fair Credit Reporting Act, you can challenge information that you believe is inaccurate.  If the reporting agency can't verify the accuracy of the information, they must remove it. 

Repairing Your Credit Report - Self Help or an Agency? 

Perhaps among the largest scams thriving today, are companies that claim to “correct”, “cure” or “repair” your credit. 

The Federal Trade Commission (FTC) cautions consumers to be wary of companies that make claims regarding credit repair. These companies, commonly called credit clinics, do nothing for consumers that consumers cannot do for themselves at little or no cost. Beware of any organization that offers to create a new identity and credit file for you. 

Credit Counseling 

Credit clinics need to be distinguished from court approved credit counseling services.  Court approved credit counseling companies can assist persons whether or not they are filing bankruptcy.  They can not offer legal advice.  

• If you find yourself entering into the decision to file bankruptcy, it is required that you speak with a court approved credit counseling service and receive a certification of completion of the financial course. The companies charge a nominal fee (about $50.00) and in many cases the fee can be waived depending upon circumstances.  The companies organized by State are available here: Court Approved Credit Counseling Companies. 
• One example is a firm called Greenpath which offers bankruptcy and non-bankruptcy credit counseling.

A copy of your certification will be attached to your bankruptcy petition. There are very rare exceptions to this rule. 

If I file bankruptcy, can I keep my bank accounts? 

Many people believe that if they file bankruptcy, their bank accounts will no longer exist.  This isn’t necessarily true.   If you don’t owe the bank money, (for instance in the form of overdraft protection accounts, personal loans, or mortgages) meaning that the bank is not a “creditor”, than a bankruptcy will not affect your accounts.   

Keep in mind that if your accounts are with a bank that is also a creditor (you have borrowed money from the bank) the money in the account may be subject to a bank claim to pay any debt you owe.  But that is true even if you have not filed bankruptcy.   

Please speak to us regarding options and recommendations.

Where do I file my bankruptcy petition?

• Where you live - the address where you file your income tax returns - will be the bankruptcy court where you will file your bankruptcy petition.  This is the court's website where you can click to find the court you will use.

Should you decide that you wish to go forward with a bankruptcy petition without the aid of an attorney, this is the U.S. Court's website of information and forms that you will need.  Keep in mind that each district court additionally has what is known as "local rules" that guide the forms and procedures; but the courts try to assist bankruptcy debtors filing themselves or what is called, "pro se".

Should I reaffirm my debts in bankruptcy?

So many debtors are not aware that they have been led into reaffirming debts that could have been discharged (eliminated) in their bankruptcy.  Creditors want you to reaffirm your debts.
Before and during a bankruptcy, creditors will encourage you to reaffirm your debts. What that means is that this particular obligation won't be included in bankruptcy's debt-cleansing process. You'll go into the bankruptcy with the debt and, when you finish, you'll still have the debt.

"As a general rule for consumers, the presumption should be that it's never a good idea to reaffirm debt, particularly in bankruptcy," says Jack Williams, resident scholar for the American Bankruptcy Institute.

• Ask yourself: Will you really be able to afford it? And do you have access to a less expensive option?

There is one benefit to reaffirming a debt: If you reaffirm one debt and maintain a good payment history on it, you'll at least have one current loan showing in your credit report. That can build back your good credit that much faster after bankruptcy.

There is much information available for you on the web and we always recommend going to the specific court website located where you live.  In the Resources section of this website, we have created links to the various court websites.  We invite you to review this information.