It is suspected that Countrywide, among other lenders, had attempted to modify loan agreements it originally made with borrowers with questionable credit. The company is also under allegations of harassing borrowers who were under bankruptcy protection, threatening to foreclose even after court proceedings had legally arranged a repayment plan.

Violating the automatic stay is a serious liability, I have pointed out in several posts and in the chapter 7 page how the automatic stay becomes your shield when you’re under going bankruptcy proceedings. Lenders will take chances and sometimes, as it is actually the case with many, their automated computer systems take over when payments are not received. However when representatives of the company begin to call you in person, this is no longer considered an automated response by their system. All “humans” within that company should be aware that you’re account is on hold because of your bankruptcy petition.

If this should happen to you, you need to take action by reporting the event to your attorney at once. This is why it is important to have representation. Your attorney would know exactly what to do, should you become a target of collection during your proceedings. Lawsuits for punitive damages are not uncommon and though most lenders won’t take the risk, for some reason others do, and it not only complicates your process but it can add legal costs.

Countrywide admits to having handled some debts erroneously but denies harassing bankruptcy protected borrowers to collect money.

Foreclosures for the lender have risen dramatically causing share values to slide significantly, however I think the biggest burden the company faces at this point is the surplus of homes in the tens of thousands it now owns across the country that it must now unload at severe discounts.

Filing for personal bankruptcy is a tough decision and whatever the circumstances may be for you, it’s important that you educate yourself as much as you can and carefully assess your own financial situation before you proceed with filing bankruptcy. There are several types of bankruptcy that cover not only individuals but small and large businesses and of course special codes for corporations. Chapter 7 and Chapter 13 are the two types of personal bankruptcy and the most commonly filed, Chapter 11 is similar to chapter 13 though this is what an LLC, partnership or corporation would want to file.

This is a quick explanation of what filing bankruptcy is all about, what it does and the effects it can have on your financial future. Please check out the links above for detailed explanations on bankruptcy chapter 7, chapter 13 and chapter 11.

Please take note that none of content here is meant as legal advice nor is it intended to encourage anyone to file for bankruptcy. This option should be a last resort, there are alternatives to bankruptcy that you should consider before filing.

What is bankruptcy?

Bankruptcy is a legal proceeding in which people, companies or corporate entities who can no longer afford to pay their creditors, can get protection through a court order called “The Order of Relief”. Bankruptcy offers a fresh financial start and these benefits are afforded to all by federal law, therefore all bankruptcy cases are handled in federal courts. Bankruptcy puts into effect the order of relief also known as the automatic stay which stops your creditors from attempting to collect payments from you, that is until your debts are sorted out through court proceedings. The automatic stay is further explained in the Chapter 7 page.

During the process of filing bankruptcy you will need to provide specific documentation such as past tax returns, proof of income, a breakdown of all your debts, all property and assets you own, etc. It is possible to file your bankruptcy case alone but the paperwork is complicated and can be confusing. Hiring a law firm that specializes in personal bankruptcy cases is usually the best thing to do. These services aren’t always cheap though, and if you’re struggling to pay your creditors you may have trouble paying the fees for these services, which often need to be paid up front. So it’s important you prepare in advance and allocate some funds early on when you begin to consider filing bankruptcy.

There are a few chapters in the US bankruptcy code. Chapters 7, 9, 11, 12, 13, and 15. You will get a detailed explanation of chapters 7, chapter 11 and chapter 13 on this site since they are the most common forms for individuals, partnerships and small businesses. It’s easier for a bankruptcy attorney to determine which bankruptcy chapter you qualify to file, however by learning about what each chapter does and how they work you will get a good idea for which one will fit you best. Here’s some of the information you’ll need to provide before you file:

What happens after bankruptcy?

Neither one of these chapters will make it easier on your credit once you get a bankruptcy discharge. The difficulties after bankruptcy obtaining credit, renting a place to live, and qualifying for certain jobs will be the same. Unfortunately the fresh financial start can be hard to embrace when you file bankruptcy since it takes time to rebuild you financial life again. The hardships can continue if you do not prepare to file bankruptcy in advance. Normally after bankruptcy, most credit providers will not want to deal with you. The ones who will, can impose high interest rates and/or high security deposits because of your recent bankruptcy case.

When you file you will be required to take bankruptcy counseling courses, also known as credit counseling, from an agency approved by the US Trustee . You can find a list of approved agencies at this link: US Trustee Approved Credit Counseling Agencies. The costs are usually moderate, $20 to $30 dollars should be a good range to stick to. You will need to take the first part of this personal bankruptcy training before filing and then the second part before you get discharged.

Consider your case carefully and don’t forget that there are bankruptcy alternatives that depending on your situation may be feasible options to consider before going through with filing your case.

One way to prepare for bankruptcy is to ask yourself if you’ll be secure in your present job if you file. People who work in government programs that require security clearances will need to consider this factor very carefully. This event must be reported to your employer’s security center as required by the government for individuals holding a security clearance. The U.S. government will run an investigation on your case to determine whether you can keep your clearance or not, so in this case filing bankruptcy needs to be considered carefully. Even if you work for a commercial employer, find out what their requirements are for reporting life changing events such as bankruptcy. If you don’t have a job, you should do your best to get employed before you file your petition, since more employers are now doing credit and background checks on their applicants before hiring.

If you’re married, if at all possible, try to file alone, if both you and your spouse file together you will both suffer the same consequences afterwards. If only one of you files then at least you got the other to be the face of good credit for both of you. This can be more challenging especially if you have joint accounts, and if both your names are on the house and car titles. These are typically all known as community properties and are considered to be part of the bankruptcy estate, this is not the case in every state. You will want to consult with a professional on this point to see if it is possible in your case.

Stop using your credit cards at least 90 days before you file. This is a very important point especially if you’re filing bankruptcy chapter 7 in which unsecured debts like credit card balances are discharged completely. Having a history of continuous use of your credit cards will make the bankruptcy trustee want to investigate the charges you made in more detail to determine if you’re really eligible to file. Your credit purchases should not reflect anything that’s not considered a necessity. So do not make the mistake of making luxury type purchases with your cards, to include TVs, stereo systems or any type of expensive gadgets. Remember your transaction history will be reviewed by the bankruptcy trustee and these types of purchases will make it hard to pass that you’re truly in financial hardship. Necessities such as food, utilities and medical expenses can be acceptable, but don’t over do it.

When your bankruptcy case is filed, make sure you take advantage of the benefit of not having to pay your creditors and put this money away in a money market account. Your creditors will be expecting you to continue to make payments but legally they can not pursue this if you’re in the process of filing bankruptcy, this is called the automatic stay. Saving this money will prepare you for what’s to come after bankruptcy and you’ll be glad you did. The process can last for up to 3 months for bankruptcy chapter 7 from the time you file, so save that money, this is not the time to live it up. The process can last several months for bankruptcy chapter 13 while your repayment plan is reviewed and accepted.

Also do not transfer your savings account or any other assets to any of your relatives, and try to pass it as payment for a loan you owed them. All of this will be investigated during the bankruptcy process and the trustee will find out, and when he does find out, the trustee can sue to get that money back and repay your creditors. You must understand that the bankruptcy trustee’s role is to look after the interest of the creditors not yours. So the trustee is concerned with making sure you are being honest and that your creditors get paid with the proceeds of any assets that can be liquidated if you’re filing chapter 7 or mediating a fair repayment plan if you’re filing chapter 13, if you try to hide your assets you will most likely get caught.

On that same note, you should also not make any large donations either in cash, jewelry or any other valuables. This is another question you’ll be asked and it can look suspicious if the donations were made to people you know and/or the items donated were high valued items that could have been listed as assets.

Consider other options, there are alternatives to bankruptcy and they’re not always obvious, so take a look at the alternatives post to find out some options. Only once you have exhausted all options or see no feasible alternative to bankruptcy then you should proceed with your case. Also remember to take advantage of a free bankruptcy evaluation, many bankruptcy law firms offer free consultations and even if you don’t file with them you’ll gather great information about the process and a definite idea about the costs.