Bankruptcy statistics at historic levels

The world is going bankrupt

By the end of the first decade of the new millennium bankruptcy cases will have reached tens of millions in the US alone. More people will have filed bankruptcy than have acquired a college degree, retired, or have died of cancer. Current bankruptcy statistics show that businesses, banks and insurance companies are going bankrupt as well as individuals.

Banks and mortgage companies are going bankrupt because of the mortgage crisis that’s been sweeping the country for the last couple of years, while other companies and business are suffering the economic change due to lack of consumer confidence, where people are mostly willing to hold on to what they have rather than continue spending on non-essential items.

Other reasons that contribute to the high number of bankruptcy filings, including loss of employment for a great number of individuals, medical bills, credit card debt, becoming disabled, loss of a primary income provider and of course identity theft, which is becoming less rare. Is spite of the changes implemented in bankruptcy law in October of 2005, making it more difficult for individuals to qualify and discharge their debts through bankruptcy, the number of bankruptcy filings seem to have kept up the pace.

Bankruptcy alternatives become less feasible

Although bankruptcy alternatives have always been encouraged, the current bankruptcy trends provide proof that it has become less effective for individual filers to properly rely on bankruptcy alternatives such as debt consolidation, credit counseling or negotiating directly with their creditors.

The pressure that creditors put on debtors only adds to their inclination to end it all by going with the one option that can and that is by “filing bankruptcy”. Even after making the decision of filing bankruptcy, individuals become weary of the fact that bankruptcy is a decision that will impact their lives severely in terms of credit worthiness.

The most common alternative to bankruptcy is usually debt consolidation, however this often results in an even larger problem for the debtor as these types of programs often carry high fees for the service. Also there are a lot of companies that often pose as non-profit companies helping people to get rid of their debt through debt consolidation but in fact have a number of hidden fees and leave the debtor with even more debt.

Realistically the best option today for someone who’s heavily burdened by consumer debt and have little or no income, is bankruptcy chapter 7 in which all unsecured debts can virutally be wiped out. For consumers who have assets they want to hold on to and have predictable and stable income, the best option is bankruptcy chapter 13 where their debts can be restructured for easier more manageable payments.

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Reasons to file bankruptcy

Stop foreclosure of your home

Without bankruptcy protection you have nothing to help you stop your mortgage lender from repossessing and foreclosing on your property if you’re behind on payments. Bankruptcy law can stop the foreclosure process at anytime before the sale occurs, typically you’d want to file bankruptcy chapter 13 since this chapter will allow you to reach a new agreement for paying the arrears on the mortgage. Chapter 13 makes more sense for filers who want to keep possession of a particular asset such as home. No part of your loan balance or past due payments will be discharged, this will only allow you catch up on payments.

Discharge credit card debt and other unsecured debts

When settling credit card debt with your creditors proves to be impossible because of the terms they impose, consumers have the option of filing for chapter 7 bankruptcy in which typically all unsecured debts may be discharged. Discharging unsecured debt is a way to get a fresh start, if the debt can not be discharged because the means test does not back up the level of financial hardship, the debt can be reorganized under chapter 13 bankruptcy instead with a new repayment plan that normally let’s you, the filer, come up with the repayment plan.

Stop Wage Garnishment

When judgments are brought against you by your creditors or collections agencies, one of the many weapons they use to collect payments from you is wage garnishment. This typically means that a percentage of your salary is legally withheld by your employer to send to the collectors. This percentage is not usually something that you determine but it is decided by the collectors and this often creates serious financial complications for the debtor. Filing personal bankruptcy will end of all of this, restoring the full transfer of your earnings directly to you. Early in the process of filing bankruptcy it will be determined whether you’ll benefit from either chapter 7 or chapter 13 bankruptcy, then ultimately the outcome will be that either you get a discharge of your unsecured debts or a rearrangement of your total debts under a new repayment plan, but either way the collectors no longer have the right to garnish your wages again.

Filing for divorce

When you or your spouse file for divorce the marriage may end up with a pile of assets and debts, usually more debts than assets for the average American family. Filing for divorce and dividing up the assets and debts may leave one of you with more than your fair share of debt and not enough assets. Normally you would want to file for divorce first and then file bankruptcy, however it’s best to get a bankruptcy attorney’s opinion on this. Depending on which state you are in, all assets may be considered community property and used in the bankruptcy estate, otherwise only jointly held assets can be used, then individually held assets may be used to pay for the debts inherited after the separation. Bankruptcy law and divorce law are not under the same federal code, so it’s important that you seek professional help to accurately file for both.

Being the victim of identity theft

This is perhaps the worse situation to be in, having your identity stolen, not having the adequate protection to restore your identity and clear your name, bankruptcy can be an option. However, this is only if your disputes are rejected by your creditors and you have no way of proving that the fraudulent charges were not made by you. Depending on how long and how much was charged with your accounts you could end up with a huge collection bill. As a victim of identity theft you have rights and you should contact the Federal Trade Commission, should you become a victim of identity theft and find yourself in a situation where no creditor will entertain your dispute. In this case you should only file bankruptcy if you have no other way to stop creditors from collecting from you and you have no way of proving that your identity was stolen and used by someone else.

There are many other reasons to file bankruptcy and they’re typically very unique to each individual, but the most common reason is still large amounts of credit card and unsecured debt. There are also other reasons that can be beyond your control like the divorce, a death in the family where the primary provider passes on leaving a single parent to provide for children, having your identity stolen and not being able to resolve the fraudulent charges. These are special circumstances but are not that rare.

As always remember that bankruptcy should be your last resort, if you have already exhausted every option and have found no real alternative and no feasible way to come out of debt, then begin your research phase and understand what chapter 7 and chapter 13 are all about and how they can help you. Also take advantage of a free bankruptcy evaluation by simply contacting bankruptcy attorneys in your area or filling out an online bankruptcy evaluation form to get connected with an attorney in your area.

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Filing Bankruptcy chapter7 vs chapter 13

There are very significant differences between these two types of personal bankruptcy. Under chapter 7 of the bankruptcy code, also known as liquidation bankruptcy the filer’s non-exempt assets are liquidated so that his/her creditors can be paid as much as possible before any unsecured debt can be discharged. Under bankruptcy chapter 13, the filer may be granted a debt re-adjustment, typically meaning that his/her debts will be minimized however they must still be repaid.

It’s difficult to determine on your own what the most suitable chapter will be for you, and your circumstances will be unique to your own situation, so comparing your case to others can not guarantee a definite answer. The best thing any consumer can do to figure this out is to consult with a bankruptcy attorney. Most consultations are free and normally require filling out a simple and private online evaluation form. The form you fill out will give the attorney everything they need to perform an evaluation that will not only determine if you qualify for bankruptcy, but which bankruptcy chapter you can file.

Here are some tips that can “give you an idea” of where you might be and how you may qualify for one of these bankruptcy chapters:

Chapter 7 Bankruptcy

You could qualify for chapter 7, normally if you have no income or low income in proportion to your debts. Or if you have few or no assets outside of personal belongings like clothing, home furniture and such. If after paying all your necessary living expenses you have little or no money to pay for your consumer debts, then this could also qualify you for chapter 7 bankruptcy. The thing to understand about chapter 7 primarily is that if you have a large amount of unsecured debt, you could virtually get all of it discharged if you meet the necessary requirements after being evaluated through the bankruptcy means test, which must be done by an attorney.

Also keep in mind that secured debts on the other hand, are not discharged under any chapter, they must continue to be paid for or if the debt is secured against a home or car, they must be surrendered upon discharge.

Chapter 13 Bankruptcy

To qualify for chapter 13, you must have sufficient disposable income. You must be able to prove that you will have enough income to repay the newly adjusted (reduced) debt. Typically you’ll have to come up with a repayment plan that can stretch for up to 5 years, in which you will have paid in full the agreed upon amounts of your chapter 13 repayment plan. Some of the sources you may count as income are your employment income, social security benefits, pension plan payments, wages or commissions from seasonal or contract work, welfare benefits and disability benefits among others.

If you are a business owner, you can not file under chapter 13, instead you must file under chapter 11. You can, however, file under chapter 13 as an individual and you can include business related debts that you may be liable for. Because this complicates things you must consult a bankruptcy attorney for clarification and clear direction if this is your situation.

How should you file your bankruptcy petition?

That all depends on your situation; the best advice that can be given to anyone facing serious financial stress is to take advantage of the free bankruptcy evaluations that are offered by so many bankruptcy law firms and allow an experienced bankruptcy attorney to review your case and advice which not only which bankruptcy chapter is best for you, but give you a clear picture of what you can expect after filing your case.

Please do not conclude from this article that this is a definitive guide for you to determine which bankruptcy chapter to file. This process is a lot more involved and goes beyond what this article can offer. As mentioned before, all cases are different due the unique circumstances that surround each individual.

People file bankruptcy for a lot of reasons, having tons of debt does not automatically qualify you for any specific chapter, other reasons for an individual needing to file bankruptcy include going through a divorce, having suffered a death in the family in which the primary income provider passes on and also having been the victim of identity theft and not being able to resolve the debts with creditors. All these different reasons and the specific circumstances surrounding those issues will have to be analyzed by a professional attorney in order to determine the best route.

If you are still considering filing alone, read an earlier post where I discuss filing bankruptcy alone vs hiring an attorney.

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How to file bankruptcy

Assuming you have exhausted every option and found no clear alternative for bankruptcy, we’ll proceed with walking you through the process of how to file bankruptcy by addressing the two most common ways to do this. First by filing with a bankruptcy attorney and then filing bankruptcy alone.

How to file bankruptcy with an attorney

One way to do this and the most common, is by simply contacting a bankruptcy attorney to prepare your bankruptcy petition and file your case. Your attorney will explain the process of bankruptcy and the terms of his/her representation of you. Some consultations are free and some you have to pay for. It really all depends on the firm’s policies, I would suggest you stick to saving as much as possible so try not to pay for a consultation and make appointments only with firms that don’t charge for this. Bankruptcy consultations should really be free.

Your lawyer will determine which bankruptcy chapter is best for you, based on your financial situation and by completing the BAPCPA’s bankruptcy means test, which helps him determine your eligibility. Write down all your doubts, concerns and questions about the process and when you get the answers write them down also. I would also suggest you seek consultations from at least three firms, shop around because not all bankruptcy attorneys charge the same fees. You’re looking for somebody who’s modest in pricing and who’s also honest and a little sympathetic to your case. To some lawyers you’re just another case number, while others will treat you with a little more respect and dignity.

Once you have got all your information from your attorney, take some time to study it all, and read over the notes you made when you asked questions. Discuss everything with your spouse if you’re married, let it soak, do some more online research on your own and read other people’s posts on bankruptcy blogs and forums.

The fees will vary per law office. Some are as high as $2000, while you may find others that only charge $700. It all depends on where you are in the country. Remember also that just because a lawyer charges a high fee, doesn’t mean that they’ll have the best service. You’ll also need to pay the court’s $299 filing fee if you’re filing bankruptcy chapter 7 or $235 if you’re filing bankruptcy chapter 13. These are fees that the court charges to process your case.

Your attorney will most likely give you a list of things he/she expects you to bring back with you when you’re ready to file bankruptcy. Here’s a quick list:

• Income Tax forms for the last two years
• Income information - current employer, two to three weeks of pay stubs
• Debts spreadsheet - a list of all your current debts including utilities and such.
• Valid identification - Driver’s license, social security card etc.
• Your credit report

Once you’ve provided all this information, your attorney will prepare the bankruptcy petition for you. When that is completed you’ll get a call back to sign your paperwork and then that petition gets submitted to the local bankruptcy court. Prior to your paperwork being submitted you must complete the first part of the credit counseling course required by the court. The second part can be taken after your meeting in court and before your discharge. The credit counseling portion of the process are new implementation of the bankruptcy law changes from Oct of 2005.

One your petition is filed, you’ll be sent an appointment letter for you to show up to court for your hearing, about 30 days from the day of your petition and you’ll be notified in writing with plenty of time about this as well.

During your hearing in court, you’ll meet the bankruptcy trustee assigned to your case. The trustee will examine your case and get a good idea for the reality of your situation. The trustee’s role is to make sure that your file is in order and that all expense reports are accurate and you’re not hiding anything, he also needs to find additional assets that can be liquidated so that your creditors can be paid before you can get a bankruptcy discharge.

You’ll be asked questions by the trustee during this meeting, but don’t get nervous and don’t sweat it, he’s only going over your paperwork and making sure everything you submitted is accurate. It’s not a court room scene from “law and order” it’s just a normal proceeding. Answer honestly and don’t bother providing any additional information outside of what’s being asked. Simply answer the question and wait for the next one.

Unless there is more information the trustee wants to see from you, you won’t need to go back to court again. At that point you can assume that your case is good to go and that it will be discharged. For this to occur another 2 to 3 months may go by if you’re filing bankruptcy chapter 7, otherwise if you’re filing chapter 13 your case can last longer since your repayment plan still needs to be submitted by you and approved. Don’t worry about the time it takes just use this time to save all the money you can and work out a plan of action for what you need to do after your discharge.

Filing Bankruptcy Alone

The procedure will be the same, though filing bankruptcy alone is harder and not recommended. When you file alone the court and the trustee will make the assumption that you have the knowledge to handle the proceedings on your own. If there are inaccuracies in your paperwork it will be your responsibility.

The first thing to do for your process is to download the bankruptcy forms from The US Courts website, these forms come with instructions and you must read these carefully since they also have detailed information on how to file bankruptcy for yourself.

Once you’ve filled out your forms, take the time to sign up for the credit counseling course and take the first part immediately, then you need to gather all your required documentation in the list above and head to court to file your case.

The same thing will happen here where you wait for your appointment letter then head back to court to meet with the bankruptcy trustee about your case. You’ll answer questions in the same fashion. Even when accompanied by a attorney, the questions will only be directed to you and your attorney will participate very little during this time, unless something specific is needed.

Often times when filing bankruptcy alone, you’ll end up returning to court because of something that’s missing from your file, and these are usually important pieces that most people will neglect. The instructions are there to guide you but often people forget or overlook certain things that can cost them to have to return to court or sometimes resubmit their bankruptcy petition again.

Another disadvantage of filing bankruptcy alone is that usually individuals think they can outsmart the bankruptcy trustee, and this is often where things go very wrong. People think they can hide assets or liquidate before filing without anybody knowing about it. This is very risky especially if these are paper assets or registered high valued items like a car or real estate property. That’s why hiring an experienced bankruptcy attorney is the best option, you’ll get all these instructions ahead of time an be advised about what to do and what not to do.

Once you get past the court hearing without any problems, then you should expect to get discharged within the next 2 to 3 months, in which case you should complete the second part of the credit counseling and be done with it.

You’ll receive your bankruptcy discharge via mail, when that arrives keep it somewhere safe and make sure you make copies to submit to any creditor that tries to collect afterwards, they may try, so keep your bankruptcy records in order and your discharge papers ready to present in case that happens to you.

Typically for pro-se filers (self filers) it is most adequate to file bankruptcy alone when there are no assets to liquidate and the filer is mostly burdened by unsecured debt like credit cards. In cases like this you would mostly likely file for bankruptcy chapter 7 and even if you don’t know much about how to file bankruptcy, you can, in most cases, handle your own file if you take the time to read the bankruptcy laws that apply to you. If you’re filing chapter 13 or a restructuring of your debts, this process will be awfully complicated and you should consult a bankruptcy attorney to handle your case.

The only other thing to do now is start all over, by monitoring yourself constantly and making the commitment that this will not happen to you again, many times people hear that this is not their fault and they take that to heart making them selves feel as the victims of debt. Unless you suffered unforeseen incidents such as identity theft, divorce or a death in the family, you have to realize that you were driving all along so take account of your previous actions and make sure you make a positive change.

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How to prepare for bankruptcy

Knowing how to prepare for bankruptcy is going to make it a smoother process and since you’re the one brewing the storm you need to do some planning before and during the process of your petition. This will have a huge impact on your life afterwards so you should prepare as soon as you begin thinking that filing bankruptcy is an option for you.

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.

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