Bankruptcy allows debtors to embark on a “fresh start” allowing debtors to shed excessive debts. The two most common forms of bankruptcy are chapter 7 and chapter 13. Most consumers with substantial credit card debt seek after a chapter 7 filing of bankruptcy as it allows for more “debt-forgiveness.” We will go into these two forms below. Bankruptcy often arises as a solution when individuals are working with attorneys or others who may not fully understand the industry. The issue for attorneys comes from their education and training. They are trained to assist you in your bankruptcy filing and therefore do not understand the other options. When one knows little about alternatives, one tends to believe there are no good ones. This, of course, is false more often than not. If you speak with a bankruptcy attorney, of course the attorney will suggest bankruptcy!
Chapter 7 Bankruptcy is a form of bankruptcy is the most sought after as it is the “clean-slate” option to bankruptcy. It is important to recognize that calling it a “clean slate” is far from accurate and that the most accurate part is not only the hopeful elimination of debts but the liquidation and elimination of personal property and assets, including those which have been “hidden.” It is also very difficult to qualify for. This causes people to be forced into Chapter 13. Even if you qualify, Chapter 7 may not be the best answer for you if you want to decide your fate and protect yourself and your assets while avoiding a 10 year bankruptcy filing on your credit.
Chapter 7 bankruptcy starts when a debtor (person in financial distress) files a petition. Debtors then have to satisfy a means test (an income limit) and attend an approved credit counceling program before the chapter 7 filing will be accepted. Debtors also must file a “schedule” under oath which explains in detail the financial information of the debtor. A schedule lists out the value of the property, income, debts, creditors, or any debt or obligation they wish to discharge in bankruptcy.
Upon approval, the case is assigned a “trustee” whose job it is to liquidate or sell the “nonessential” assets of the debtor. What may be considered “essential”? Usually one home and one car. These must NOT be excessive or they may be sold off for more modest assets. The trustee reviews the schedules provided and conducts an investigation called “the meeting of creditors.” The court notifies all creditors involved in this meeting. Each Creditor will have the option to contest the filing and whether the debt is dis-chargeable. This will extend the proceeding 3 to 6 months and, if the creditor wins, potentially dismiss the filing altogether. The creditors will continue to try to collect until the court orders an automatic stay, which is a “stop sign” for creditors to cease collection efforts. The trustee determines that nonessential assets can be sold for the benefit of the creditors, i.e. investment properties, 2nd homes (regardless of who lives there, including your grandma), additional vehicles, recreational assets, excess equity in essential assets, etc.
Any secured debts (mortgages, liens, etc.) will STILL retain their first positions and repossess these related assets. Bankruptcy usually does nothing to protect these assets. It is important to understand that Bankruptcy deals primarily with unsecured creditors and, in many cases, may allow them to become secured as liens on available assets.
If, during the course of the “meeting of creditors”, it is determined you have too few assets, the trustee will pursue a more thorough investigation in search of assets that have not been admitted with the schedule forms which were delivered under oath as being 100% accurate. The Federal Rule of Bankruptcy Procedure 2004 conveys broad powers of investigation on trustees and creditors to question parties under oath among other demands for documents and information. The trustee WILL perform an investigation if they, or a creditor, deems it prudent. This is to allows creditors maximum recuperation through access to assets that may have been hidden by the debtor. They may use this to find assets that may have been sold or given away that should have been available to creditors. 11 U.S.C. s 547 & 548 allows the trustee to sue individuals who received preferential treatment – that is the transfer or payment of $600 or more in assets or property to an “insider” (defined as a relative, friend, partner, etc.) within the last year. The trustee may sue in order to recover this property as it is considered an attempt to defraud creditors. This includes property or assets sold, transferred, given, and hidden from creditors and/or the court. In essence, NO ASSETS ARE PROTECTED.
This is only a brief explanation of possibilities and process for Chapter 7 bankruptcy. An endless number of issues may require the debtor to appear in court for defense and continuation of the filing in order to complete the bankruptcy proceeding. The creditors may contest, judges may require explanation, debtors may fail to comply with conditions of bankruptcy, and ultimately you may not qualify for Chapter 7!
As of October 2005, you are LUCKY if you qualify for chapter 7 bankruptcy! The statutes and requirements were tightened considerably, causing the vast majority of those seeking chapter 7 protection to look at other alternatives. If your evaluating bankruptcy be very careful or you may be forced into a government mandated 3-5 year payback plan under chapter 13 bankruptcy.
Ultimately, Chapter 7 leaves you with nothing more than a roof over your head and transportation, a bankruptcy on your credit file, and continued issues with secured creditors as they pursue foreclosure and repossessions that the bankruptcy did not cover. Now available for a limited time is the FREE e-book How To Control Your Creditors ($99 value) receive this FREE book will be immediately emailed to you after submission of your email on our website at http://ww.freedomfromcreditors.com or at www.freefromcreditors.com This book will save you precious time and begin to ease your financial woes.
Allan Henry is the founder and creator of Freedom From Creditors and its programs. And has personally eliminated over $1,000,000 in personal credit card debt. It all started when Henry decided to get out of debt and after he consulted not only with attorneys and settlement programs, but debt collection managers themselves, Henry concluded that making no payments until he was financially solvent would best serve his interests. He believed then and still does that serving the interests of himself first better enables him to meet obligations he has to others.
At first he was terrified. He received collection notices in the mail and rude phone calls to try and coerce him into making payment commitments over the phone. But he had his own plan and he was following it. He spent many hours in the law library studying the federal and state laws regarding the collection process and more importantly, what most attorneys never consider advising their clients of, what exactly is at risk if you don’t pay what or when creditors and collectors demand.
He discovered that with all of the legal requirements imposed against the collection process, if they were simply followed, the perception of overwhelming debt collection problems could be diminished to a point where most people would feel comfortable dealing with them. So he did. He took advantage of every legal requirement imposed against collectors. They had to respond to him in writing, they had to stop calling him at home and at work, and all the while, he knew exactly what he was risking. This was the big secret, in the worst case collection, his usual credit card payments would be cut in half if he were sued and had his paycheck garnished. He didn’t tell the collectors that he knew this; he simply followed a process that developed as he received each correspondence from collectors. He was never sued for any collection account, and today he has the use of credit just like before, but pays his balance every month. This real life discovery was so empowering that he began sharing his story with others. At the time, it was not very acceptable to admit having debt problems. Times have certainly changed though. Once he explained his story, others were opened to discussing their own debt problems. He shared his experience and knowledge freely until one day he realized that it was about all he was doing, the phone would not stop ringing and his email box was always full. Using his education from business college about business finance and human resource management, he believed that he could successfully share his research with others and help them achieve the same benefits. So in 2005 he decided to compile all of his research into one program and call it “PlanB Consultants”.
Over the years he has substantially expanded the research to a point where it goes into every detail about how your attorney could successfully defend
you against a collection lawsuit (if he or she really wanted to). Instead of fighting a lawsuit many creditors are offering settlements, attorneys for the creditors routinely agree to settle instead of going through with the court discovery process which would force creditors to produce evidence that would support their complaints. In many cases, creditors do not even have a signed agreement or proof of damages. If everyone knew this, negotiating settlements as low as 5% or nothing would be accepted practice.