Part 1 from a 2 part series of articles 10 Things Bankruptcy Court Won’t Tell You
1. Personal bankruptcy is not just for the poor. Linda Johnson, an entrepreneur in Georgia, built a life around her six- figure income. But when her new business collided with the credit crunch, Johnson found herself facing a financial fate she never anticipated. “It’s a far way to fall,” she says. Meet the new face of bankruptcy. This nation’s worst downturn in 70 years pushed more formerly affluent people into bankruptcy than in previous recessions. Overall, personal bankruptcy filings were up 36.5 percent in the first half of 2009 from the same time a year ago, and experts predict the number of filings will keep rising even as the economy recovers. Last year the institute surveyed likely bankruptcy filers and found 8.1 percent made more than $60,000, up from 6.9 percent in 2007. Experts blame the increase on slumping real estate and job losses, which have cut deeply into professional positions.
2. When it comes to bankruptcy, one size doesn’t fit all. No type of bankruptcy will eliminate certain kinds of obligations, like child support, alimony and most student loans. But there are differences in the way debt gets handled in personal Bankruptcy, often depending on which kind you file for, either Chapter 13 or Chapter 7. And each has pros and cons. Chapter 13 allows those with regular income to repay debts over three to five years. That drags things out a bit, but it stops the foreclosure process, meaning debtors behind on their mortgage can keep their house and catch up on payments over time. Those without regular income must file Chapter 7, which involves no payment plan—all eligible debt, such as credit card balances, gets wiped out. But it’s hardly a free pass. Most debtors find the process pretty traumatic, not to mention severely damaging to their credit score. And Chapter 7 doesn’t stop foreclosure, so banks can still take the homes of debtors behind on a mortgage. How do you know which form is right for you? Bankruptcy law is complex, and certain provisions vary from state to state, so it’s often best for potential filers to consult an attorney before deciding.
3. We don’t want your house if we can’t get good money for it. A common belief about bankruptcy is that it will leave you with nothing, living out of a cardboard box. But that’s not necessarily true, even in Chapter 7 cases. In theory, Chapter 7 involves liquidating most of a debtor’s assets to pay creditors, including the home. But in reality, homeowners who end up filing often don’t have enough equity in their home to benefit creditors, either because they’ve taken out a second mortgage, the home’s value has fallen or both. In such cases, the trustee handling the bankruptcy can decide not to liquidate the home, in which case the debtor gets to keep it. Also, there’s something called the homestead exemption, which in most circumstances allows you to keep your primary residence if your equity in it is below a certain threshold. It can vary widely from state to state: from $30,000 for a married couple filing Chapter 7 in Illinois, for example, to $75,000 for the same in California. In Florida, if you’ve owned your home for more than 1,215 days the amount is probably limitless, depending on how the equity was obtained. But since Chapter 7 doesn’t stop foreclosure— although it tends to delay it by a few months—those behind on their mortgage often can lose their home regardless.
4. This could actually improve your credit score down the road. Yes, bankruptcy will pummel your credit score. Yet bankruptcy can be less damaging in the long run than juggling late payments on credit cards for years in a bid to postpone the inevitable. Bankruptcy stays on your credit report for 10 years, but you can begin repairing it immediately, if gradually. The fact is, most people go bankrupt with lousy credit. They’ll be able to return to (and maybe surpass) their prebankruptcy FICO score more quickly than the rare debtor with pristine credit who needs to file bankruptcy after, say, a serious illness—which could mean a credit score drop of 100 points or more. Since 35 percent of one’s credit score is based on payment history, the further consumers get from any missed payments, the more their score improves. How to quicken the recovery? Establish new credit as soon as possible, either through a new credit card or car loan, though bankruptcy filers will have to pay higher interest rates.
5. Debt-settlement firms may do more harm than good. Debt-settlement firms offer to play hardball with creditors and whittle outstanding balances by up to 75 percent. They bill their services as an alternative to bankruptcy, but in many cases they can hurt more than they help. Debt-settlement firms are unregulated, for-profit entities that require regular payments before taking any action on a consumer’s behalf. This business model works squarely against the debtors. They’re getting fees every month, so they have no incentive to settle [with creditors] as fast as possible. In fact, you don’t need a middleman to negotiate with creditors. But, most debtors don’t have the “time, stamina or desire” to do it themselves. Either way, you’ll owe taxes on any amount saved on your debt. (That’s right: The IRS considers forgiven debt taxable income.) Debt erased as part of bankruptcy, by contrast, isn’t taxed.
If you would like to schedule a FREE consultation with a Bankruptcy Lawyer Port St Lucie, please contact Jon L Martin Bankruptcy Attorney at (772)419-0057 or visit us online http://jonlmartinlaw.com/. With over 40 years of combined legal and business experience, we have helped hundreds of people in and around Martin and St Lucie County to relieve their financial problems. Bankruptcy Lawyer Port St Lucie Florida and a chairman of Martin County Bar Bankruptcy Committee Jon L. Martin helps clients throughout the following cities and surrounding areas: Hobe Sound, Jensen Beach, Palm City, Port Salerno, Port St. Lucie, Stuart, Vero Beach, and the entire Treasure Coast of Florida.