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Bankruptcy Myths Debunked: Fact vs. Fiction

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When you think of bankruptcy, what words pop into your head? Failure? Broke? Bottom? The end? Humiliation?

Maybe once upon a time, but not so much anymore. While bankruptcy should never be a first choice, in some cases, it may be the only choice. Before you decide whether or not bankruptcy is right for you, we’re debunking the top five bankruptcy myths to bring you the facts.

1. Myth: All bankruptcy options are essentially the same

Fact: Not true. The three you may have heard of — Chapter 7, Chapter 11 and Chapter 13 – are very different. Many individuals file under Chapter 7, which usually allows them to erase most of their debt in a matter of months. Chapter 7 has a higher success rate and is cheaper to file than Chapter 13, which tends to take a lot longer because it requires individuals to use their disposable income to repay a percentage of their debt over a five year period. Whether you qualify for a Chapter 7 or Chapter 13 is dependent on your state’s median income. Then there’s the Chapter 11 bankruptcy, which involves the financial reorganization of a business and can take many years. To know which option is right for you, consult with a bankruptcy attorney. Most consultations are free and can give you a much clearer picture of which option is most realistic for your situation.

2. Myth: If you file, you’ll lose everything you own

Fact: This may be the most common myth, and, unfortunately, it keeps people from filing when it may be the best option for some. Bankruptcy laws vary from state to state, but all states protect certain assets, such as your house, car, retirement plan, household goods and clothing. Bankruptcy should never be the first option for dealing with overwhelming debt, but it may be the best option depending on the individual circumstances. Before deciding on bankruptcy, research and consider all of your options — from hardcore DIY budgeting,  consumer credit counseling, or negotiating a settlement — bankruptcy should be your last option, but it doesn’t mean that it can’t be the right option depending on your financial situation.

3. Myth: You’ll never be able to qualify for a loan again

Fact: Nope. It’s true that filing for bankruptcy will stay on your credit report card for 10 years, but it doesn’t mean you won’t ever be able to borrow or qualify for a loan again. The best way to recover from bankruptcy is jump back into the game and work at gradually rebuilding your credit — start with a secured card and manage it wisely.  You’ll get credit card offers in the mail long before that 10 year mark. They will be from lenders offering cards with very high interest rates. Resist the temptation. Another tip, if you have a credit card with no balance when you file for bankruptcy, you don’t have to list it as a creditor since you owe it no money, and you might be able to keep that card after you file. Because it will cost you a lot more to borrow money after you file, if you’re planning to buy a house or a car anyway, you might want to consider your options before you file. Having said that, don’t max out all your credit cards and then file for bankruptcy. Bankruptcy judges and the trustee assigned to your case will review your purchases before you file and they very well may conclude that your attempt to file for bankruptcy constitutes fraud.

4. If you file for Chapter 7 bankruptcy, all debts are wiped clean

Fact: Dream on! Certain types of debts cannot be erased, including child support, alimony, government-issued student loans, legal settlements you’ve been ordered to pay and debts incurred as the result of fraud. This is a major issue for consumers defaulting on student loan debt and definitely an important fact to consider before opting to file.

5. Myth: If you’re married, both of you must file

Fact: This is true a lot of the time but not always. If the debt is in one spouse’s name, there is no need for both to file. In fact, in that case, they shouldn’t both file. Before you decide, consult with a bankruptcy attorney for the best advice –initial consultations are usually free and worth the time. More often than not, debt is in both their names, so both must file.

Bonus Myth: Only “losers” file for bankruptcy

Fact: Most people who file didn’t do anything risky or reckless that led to their financial mess. They file because fate has dealt them a blow – divorce, loss of a job, identity theft or a serious illness – that wreaked havoc other finances. Most file after months — or even years — of struggling to pay their bills and falling more and more behind. Bankruptcy is not always the answer, but for some it may be the only answer.

Call Firebaugh & Andrews today for your free consultation  734-818-0948

Nine Reasons to File Bankruptcy in the New Year

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Is this the year you’ll get your financial house in order? Here are nine reasons why this may be the year you take stock finally do something about that debt you’ve been struggling to manage.

1.  Eliminate Crippling Credit Card Debt

Are you making the minimum payments on your credit card debts?

Are you missing payments on your credit card debts?

Are you taking cash advances or using your credit cards to pay living expenses like groceries, utilities or even car payments?

Have the credit card companies increased your interest rates?

If any of these is true, it’s time to think about how you’re going to retire that debt. If you’ve looked at how to manage the debt to get it paid off, and that doesn’t seem workable to you, consider filing a bankruptcy case. It may be the only way to eliminate the debt once and for all.

2.  Eliminate Unpaid Medical Debt.

Medical debt is one of the major reasons many people file bankruptcy. It’s often not something one can plan for. Even if you have insurance, the co-pays may be unexpected and more than you can handle. You can attempt to negotiate a reduced payment or set up payments, but if you find it a strain to make those payments, bankruptcy might be a viable alternative for you.

3.  Get Rid of Bill Collectors. 

This is a huge reason people file bankruptcy. They just can’t stand the calls and letters anymore. There are laws designed to protect consumers from unscrupulous collection agents, but those laws are ignored every day.

Even when the bill collectors follow the rules, you still may have too many accounts to manage successfully. Filing bankruptcy will stop the calls and letters.

4.  Stop a Foreclosure, Repossession,  Garnishment, Tax Levy, Eviction, Utility turn off or Lawsuit.

The same way that bankruptcy stops bill collectors from calling and demanding payment, bankruptcy can prevent a foreclosure of your house, repossession of your car or other collateral, a garnishment of your wages or bank account, a taxing authority like the IRS from taking your property, or a lawsuit being filed against you or continued.

It can also help postpone an eviction or prevent immediate turn off of certain utilities, like water, power or gas. The automatic stay usually goes into effect when the case is filed. Except for some limited circumstances, the automatic stay will prevent or stop all these collections actions from going forward.

5.  Include 2015 Taxes in a Chapter 13.

If you owe federal or state taxes for 2015, by waiting until January 1st to file, you should be able to include those taxes in a Chapter 13 case. Such recent taxes cannot be discharged in a Chapter 7 case, but their payment can be managed in a Chapter 13 case so that they are payable over a longer period of time than usual.

6.  Purge Holiday Debt.

It’s not pretty, but we know that some people do charge up debt to make their holidays merrier. You have to be careful with this one, however. If you charged debt intending to include it in a bankruptcy case, that could backfire on you. In addition, there are restrictions on the dischargeability of recent debts for cash advances or luxury purchases. You should consult a qualified bankruptcy attorney, who can help you determine the best timing for a bankruptcy after you’ve charged up debts.

7.  Manage Old Taxes.

Many old tax debts can be discharged in a bankruptcy case. The rules for determining which debts are dischargeable and which are not are tricky. Timing is often an issue because the dischargeability may be based on when and if returns were filed, when the IRS takes certain actions, and subsequent actions by the taxpayer. If you file your case too soon, before relevant dates and deadlines have passed, you could be forever barred from discharging that tax debt in a later bankruptcy case.

8.  Manage Student Loans.

Using bankruptcy to manage student loans can be one of the most helpful reasons to file. Student loans are notoriously difficult to discharge in a bankruptcy case, but filing bankruptcy can help in at least two ways. If you file a Chapter 7 case, you might eliminate other debt, like credit card or medical debt.

You can use those resources to pay student loans. In addition, you may be able to use a Chapter 13 case to force your lender to accept lower payments, at least for the short run.

9.  The Stress is Affecting Your Work or Home Life.

Of course financial issues can cause stress. It strains marriages. It causes excessive worry. It can lead to health issues. It can cause you to miss work or even lose your job. Check out these articles to learn more about managing your emotions during a bankruptcy case

Call Firebaugh & Andrews today for your free consultation 734-722-2999

How Much Time Does It Take to Complete a Chapter 7 Bankruptcy?

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A Chapter 7 bankruptcy begins upon filing a bankruptcy petition. Once the petition is filed, the court will issue a case number and an automatic stay is invoked. The automatic stay prohibits creditors from collection activity. This affords the Debtor relief from phone calls, foreclosure, repossessions, garnishment or other collection activity. Approximately thirty days after filing the petition, a meeting is scheduled called the First Meeting of creditors. At this meeting, creditors may attend to ask questions about the case. The meeting is conducted by a Trustee who is appointed by the court. The purpose of the Trustee is to review the schedules and collect any nonexempt property or preferences on behalf of the creditors.

Approximately sixty days after the first meeting the court will issue a discharge. During the sixty day waiting period prior to discharge, the creditors can file objections to their claim being discharged. The most common reason for a creditor to file an objection is fraud. If no creditor files an objection which is called an adversary proceeding, all debts are discharged. The Trustee can also file an objection to discharge during the sixty day waiting period. The most common reason for a Trustee to file a complaint to deny discharge is hiding assets or failure to cooperate with the Trustee in providing documents and records. Even if a creditor files an objection to their debt being discharged, the court will still issue a discharge, which will apply to the remaining creditors. Once the discharge is issued creditors are permanently barred from any collection activity. Even after the discharge is entered the Trustee may hold the case open for collection of assets. This usually happens when the Debtor has some asset to collect such as an unexempt tax refund or personal injury action that has not been resolved. The Trustee keeping the case open should have little effect on the Debtor. In general most Chapter 7 bankruptcy cases are completed in approximately ninety days.

Call Firebaugh & Andrews for your Free Consultation 734-722-2999

Can you file Emergency Bankruptcy Filing Without Full Fee ?

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t is possible to file bankruptcy without paying the attorney fee in full. Generally, the attorney fee must be paid in full prior to filing the bankruptcy. This is because any fee owing at the time the bankruptcy is filed is discharged. Sometimes a client needs to file bankruptcy immediately due to an emergency such as a utility shut-off, garnishment or property seizure. In those cases it is possible for the attorney to file a case and bifurcate his services.

Firebaugh & Andrews in this case will provide certain services such as an emergency bankruptcy petition filing for a set fee. The client will then need to sign a second retainer for the attorney to provide additional services such as completion of the schedules and representation at the creditor’s examination. If you are facing an emergency situation which requires the immediate filing of a bankruptcy petition but do not have the full fee required to file the case, this option should be explored.

In filing Ch 13, it is not necessary to pay the attorney fee in full. Often times the attorney can file the case for the filing fee of $331.00 . The Firebaugh & Andrews can provide for the remainder of his fees to be paid through the Ch 13. In such a case the attorney is essentially accepting zero down towards his fee to file the case. This is often helpful for clients who are facing serious financial problems and need quick relief.

Call Firebaugh & Andrews for your free consultation 734-722-2999

Excessive Automated Debt Collection Calls Violate Consumer Rights

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Have you been getting too many automated debt collection calls? If so, you may be entitled to compensation under the Fair Debt Collection Practices Act (FDCPA). The question is, how many calls does it take to violate the FDCPA or the Telephone Consumer Protection Act?

Illegal Debt Collection Practices

If you owe someone money, they certainly have a right to try and collect it by calling you. However, it matters how many times they call you a day, week or month using automated debt collection calls, also known as robocalls, which are automated phone calls that use both a computerized autodialer and a computer-delivered pre-recorded message.

While there’s no rule to define how many calls it takes to constitute an illegal debt collection practice, a U.S. District Court judge in Tennessee recently ruled that 17 calls a month was too much and that consumers who received these calls are entitled to file suit against the debt collector. In his opinion, he reasoned:

Consumer Debt Protection Laws

Consumers are protected by several laws to make sure that debt collection practices are fair and reasonable. The Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA) are two of those laws which, if violated, can result in up to $1,500 in fines per violation. Here’s how they work:
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What is Michigan Bankruptcy Means Test?

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Who Can Qualify for Bankruptcy Under Chapter 7?

The means test is required for anyone looking to file Chapter 7 bankruptcy. This is an income-based test designed to reserve the powerful benefits of Chapter 7 for those who truly cannot afford to pay back their debts.

If you’re left with little disposable income each month to pay your bills, you’ll likely be able to file Chapter 7 bankruptcy and discharge your unsecured debts. Learn more about the means test:

The Bankruptcy Means Test: Who Can File?

The bankruptcy law was designed to ensure that Chapter 7 bankruptcy protection is given to those who need it most. The means test is the qualifying step for those looking for file Chapter 7.

The Chapter 7 means test is actually a formula that is used in determining whether or not an individual would have enough money available to make minimal payments to creditors in a Chapter 13 bankruptcy plan. In many cases, those who want to file Chapter 7 are able to do so.

One of the court’s fundamental goals in bankruptcy is to reserve Chapter 7 for men and women who have no means to repay their debts. Before the law change, there were fewer restrictions on eligibility for those who wished to wipe out credit card debt, medical bills, and most personal loans through Chapter 7 bankruptcy (regardless of their ability to repay their debts).

Are you wondering if Chapter 7 is right for you? Talk to Firebaugh & Andrews about your eligibility to file bankruptcy under Chapter 7 or 13:

Step One: Median Income Comparison

The first step in the Chapter 7 bankruptcy means test is simple: it compares your income to the median income in your state for a family the same size as yours.

The median income for your family size may differ dramatically depending upon where you live, and an attorney can tell you whether you are above or below the applicable median income.

If your income is higher than the median income, it doesn’t necessarily mean that you can’t file for Chapter 7 bankruptcy; it just Intriggers the second step in the test.

Homestead (Michigan Income Guidelines)

  • $30,000 for your residence
  • $45,000 if debtor is 65-years-old or older or disabled

Wages

  • Up to 60 percent of wages, but not less than $15 per week, for householders with family
  • Up to 40 percent of wages, but not less than $10 per week, for anyone else

Automobiles

  • Up to $2,775 for one vehicle

Other Property

  • 100 percent of family pictures, clothing, fuel for six months, burial plots, health aids
  • Up to $450 per item, with a total value of no more than $3,000, for household goods, furniture, utensils, books and appliances
  • $500 in value of a church pew
  • $2,000 in value of crops, farm animals and feed
  • $500 in value of household pets
  • $500 in value of one computer and accessories
  • $2,000 in value of tools, implements, materials and other things to enable a person to carry on a profession.
  • 100 percent of worker’s compensation, unemployment and ex-servicemen’s benefits

Step Two: Calculating Disposable Income and Unsecured Debts

The second step is a bit more complicated, and actually breaks down into separate pieces.

Certain allowable expenses (determined by IRS guidelines) are subtracted from your income to find your “disposable income.”

If your projected disposable income over the next five years equals less than $6,000 ($100/month), you will likely “pass” and become eligible to file under Chapter 7.

If your disposable income is greater than $10,000 over the next five years, a presumption arises that you do not really need to file for Chapter 7 bankruptcy. If you can demonstrate special circumstances, you may still be allowed to do so.

In the grey area, between $6,000 and $10,000, another calculation is typically required.

This calculation compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible.

If your disposable income over that five years is greater than 25 percent of your unsecured, non-priority debts, you’ll probably find yourself in the same circumstances as if you’d had more than $10,000 in disposable income.

If your disposable income over a five year period is less than 25 percent of your unsecured, non-priority debts, you will likely “pass” the means test.

You Don’t Need to Go Through the Chapter 7 Means Test Alone

Firebaugh & Andrews can crunch the numbers for you and tell you whether or not you qualify for Chapter 7 bankruptcy under the means test.

The calculation can be complicated, not only because of the numerous steps that may be involved, but because it requires an understanding of the rules concerning how your income is calculated for means test purposes and which debts are classified as unsecured and non-priority.

Many people who want to file for Chapter 7 bankruptcy find that they are still eligible to do so. Firebaugh & Andrews  can help you determine how the means test may affect your bankruptcy options.

Call us today for your fee evaluation 734-722-2999

Have you filed recently for bankruptcy?

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Have you filed recently for bankruptcy? Are you worried that your chances for credit are gone? If so, here’s some good news: you can still get a credit card. And here’s some better news: you can start taking steps immediately to rebuild your credit. With careful planning, you’ll soon be back on financial track. Read on to learn more about applying for a credit card after bankruptcy.   Credit After Bankruptcy  A bankruptcy filing can stay on your credit report for up to ten years. Yet you do not have to wait a decade before applying for a credit card. Lenders decide to approve or deny credit on an individual basis. Many companies offer cards specifically designed for those with poor credit. This means that you may be approved for a credit card quickly after bankruptcy.

Before you apply for a credit card, keep in mind that due to the bankruptcy filing, you may be viewed as a higher risk customer to lenders. This means that it might be more expensive to obtain and keep a credit card. Cards for those with poor credit usually come with higher interest rates and lower credit limits. Remember that having a credit card is a privilege. If you use it wisely, you will be able to enjoy the many benefits involved.   Imagine Gold MasterCard   The Imagine Gold MasterCard is a smart card to apply for after bankruptcy. It accepts all applications and does not require a security deposit. Even better, it reports to three major credit bureaus. There are several fees involved with this card, including an annual fee of $150 and a one-time processing fee of $4.95. As you use the card and pay off the balance each month, you can improve your credit score.
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Can a Chapter 13 Bankruptcy Affect Your Student Loans?

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It is fairly common knowledge that you can’t get rid of your student loans by filing for bankruptcy. While there are rare exceptions, student loans are non-dischargeable and will be with you even after the bankruptcy is over. But there are other ways a Chapter 13 bankruptcy affects your student loans. Find out what to expect before you decide if filing is right for you.

This blog post will cover how a Chapter 13 Bankruptcy payment plan can affect your student loans. It will describe how the process affects your payments, collections, and whether you may pay less than the full amount when the Chapter 13 bankruptcy is over.

Student Loans are Non-Dischargeable Debt

Students coming out of college or graduate programs bring with them thousands of dollars of student loan debt. The Class of 2017 owes an average of $28,650, according to the Institute for College Access and Success. Nationwide, that adds up to a total of $1.56 trillion in student loans spread out over 44.7 million borrowers.

Employment trouble, health problems, or other financial concerns can make it hard, or even impossible to keep up with your student loan payments. With such a large debt looming over your head, bankruptcy may seem like a logical choice. But if you choose to file, you will likely come out of bankruptcy still owing your unpaid student loans. That is because student loans have been labelled “non-dischargeable debt”. That means even when all your medical debt or credit cards are wiped clean, your will still have to pay back your student loans. This is true no matter which consumer bankruptcy choice you make: Chapter 7 or Chapter 13.

A Word About Undue Hardship

There is one small exception to the rule that student loans are non-dischargeable debt. Former students who qualify for an “undue hardship” exemption can sometimes get some or all of their student loan debt discharged as part of a bankruptcy. To qualify for an undue hardship exemption you will need to demonstrate that:

  • You couldn’t even maintain a minimum standard of living with your current income and expenses
  • Whatever is causing your hardship will probably continue for a significant period of time (such as a permanent disability)
  • You have made a good faith effort to repay your student loan debt as your income allows

However, this is very rare. Most borrowers will not qualify under this three-part test. While it may be an option in certain unusual circumstances, you should not count on an undue hardship exemption to rescue you from your student loan debt. Instead, you should talk to Firebaugh & Andrews for your free evaluation and help you decide if Chapter 13 bankruptcy is best for you.

Chapter 13 Bankruptcy Puts a Hold on Student Loan Collections

Neither Chapter 7 nor Chapter 13 bankruptcy options discharge student loan debt. But a Chapter 13 bankruptcy can affect your payments, and how you deal with collections efforts. A Chapter 13 bankruptcy puts an automatic stay on all debt collections, including student loans. That means once your Chapter 13 bankruptcy and payment plan have been filed, you won’t have to deal with collections companies trying to get you to pay back what you owe. That stay can last for 3 to 5 years as you work through your Chapter 13 payment plan.

In the meantime, your Chapter 13 bankruptcy can also reduce your monthly payments and extend the time you have to pay back your student loan debt. When it comes to payments, bankruptcy treats student loans just like any other “non-priority unsecured debts” (including medical bills, credit card debts, and loans from family members). You and your bankruptcy attorney can propose a payment plan that divides up all your disposable income (after allowable expenses like rent and food) between your creditors on a “pro-rata” basis. That means whichever creditors have a higher balance get a higher percentage of your money, but no one creditor can claim to be entitled to everything you have to pay. While you will still be paying your student loans during your Chapter 13 bankruptcy payment plan, it may not have to be at the same, unaffordable amount every month.

What Happens to Your Student Loans When the Bankruptcy is Over

When your Chapter 13 bankruptcy is over, the non-dischargeable nature of student loan debt kicks back in. While the remaining balance on your credit cards and other unsecured debts will be forgiven, you will still owe the rest of your student loans. The loans will also have continued to accumulate interest during the bankruptcy process, which may affect your monthly payments or total loan repayment going forward.

Bankruptcy Rules For Alimony, Spousal and Child Support

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Divorce often puts tremendous strain on both spouse’s finances. One spouse is suddenly paying alimony, spousal or child support, while the other may be scrambling to find a job after staying home with the kids for years. Both have increased living expenses with the move to two separate residences.

Either of the parties may consider bankruptcy as a way to get rid of some of their debt burden from the marriage and move on. Filing for bankruptcy can free an individual from many of the debts they currently owe and help them start over. But if you’re divorced — especially if you pay alimony or other support — consider carefully whether bankruptcy is the right step for you.

You should be aware that your court-ordered obligations to pay alimony or other forms of support won’t go away in a bankruptcy. Court-ordered support cannot be discharged or eliminated in a bankruptcy.

After the bankruptcy concludes, you will still owe the same alimony or support payments you did previously, just as if the bankruptcy never happened. Other, unsecured debts such as personal loans or credit-card bills can be eliminated in a bankruptcy, possibly putting you in a better position to pay your ongoing support responsibility.

On the other hand, if you are the spouse collecting support payments, know that this money will be considered income in determining whether you can repay any of your debts. This helps determine what type of bankruptcy you will file.

If you have some ability to repay your lenders, you will need to use the Chapter 13 bankruptcy structure. In Chapter 13, you work out a repayment plan to pay off your debts over time. You must stay current in your alimony or support payments to keep your Chapter 13 repayment plan in effect and conclude your case. Property settlements from a divorce may be dischargeable under Chapter 13, though.

If your income is inadequate to pay off even part of your debt over time, Chapter 7 liquidation will be more appropriate. You will be able to resolve many debts in Chapter 7, but your child support or alimony payments will not be affected.

If you’re considering filing for bankruptcy in Michigan, call Firebaugh & Andrews for your free consultation. 734-722-2999.

Do I Have to List All My Credit Cards in my Bankruptcy?

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The Bankruptcy Code requires a debtor to treat all like creditors alike. This means  you cannot chose to list some creditors in a bankruptcy while keeping other creditors out of the bankruptcy. The Bankruptcy Code requires a debtor to list all creditors or people they owe money to in the bankruptcy.

However, if you have a zero balance on a credit card at the time you file the bankruptcy then that particular company is not a current creditor of yours because you do not owe them any money. Therefore, you are not required to list them as a creditor in your bankruptcy.

However, just because you do not list a particular credit card does not necessarily mean you can keep using that account. Credit card agreements almost always have provisions that allow the credit card company to close the account in the event of a bankruptcy or may close or suspend an account for any other reason permissible by law.  So even though you do not list a particular credit card on your bankruptcy if they discover you have filed a bankruptcy (and they do have ways of checking for bankruptcy filings) they may close your account.

Questions call Firebaugh & Andrews for your free consultation 734-722-2999