Flowing With The Tide

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According to the American Bankruptcy Institute “household debt is at a record high relative to disposable income.” The Administrative Office of the U.S. Courts reported that the number of filings for the year ended March 31, 2003 “exceeded 1.6 million for the first time in any 12 month period,” a 15.1 percent increase from the previous year.

There are two basic types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 Bankruptcy and Chapter 13 are legal proceedings that are available to a person to cope with a financial crisis. Personal bankruptcy must be filed in a federal bankruptcy court. You will have to pay about $160.00 in court fees. Attorney fees are additional.

Chapter 7 bankruptcy involves the liquidation of all your assets that are not exempt from the bankruptcy settlement. Exempt property may include automobiles, some household furnishings, and property needed for work-related use; for example if you were a mechanic the tools you use to perform your work would be exempt from the bankruptcy settlement. Exemption amounts vary from state to state.

Under this plan the court appoints a trustee to handle the liquidation of your non-exempt property. The trustee can sell or turn over your property to your creditors. The court discharges your debts and you are now debt-free. You are allowed by law to file a Chapter 7 bankruptcy once every six years.

A Chapter 13 bankruptcy allows you to keep property, like a mortgaged house (provided there are no liens on it) or a car, as long as you have a steady income. A Chapter 13 bankruptcy is a court-ordered and approved repayment plan to your creditors. This plan allows you to use your future income to pay back your debts over a 3-to-5 year period without surrendering any property. Once you complete payments under the plan, your debts are discharged by the court.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both provide exemptions that allow people to keep certain assets, although exemption amounts vary. A bankruptcy will not erase most child support, alimony, fines, taxes and some types of student loans.

Financial experts agree that a bankruptcy should always be the last resort used for managing your debts. Bankruptcy has long lasting results. A bankruptcy remains on your credit report for a period of 10 years, making it more difficult to obtain credit in the future. You should also know that although your bankruptcy disappears from your credit report after 10 years, you may still be asked by future employers or lenders if you have “ever” filed for bankruptcy.

Disclaimer: The information contained in this article is for informational purposes only. The author is not herein engaged in rendering legal, insolvency, tax, or other professional advice and services.

© 2004, www.yourfreecreditreportnow.com
Author: James H. Dimmitt.
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In case you’re thinking of filing bankruptcy, the home that you live in will also form part of the assets that could be sold in order to pay the creditors.

If you are a part owner of the house, the house will still be sold and the creditors will be paid for with your share in the house while the remaining money will be paid to the other part owners. However, if your family is living with you in the house it is sometimes possible to delay the sale of the house for a year or so.

If the trustee is not able to sell your house he may still have a charge on it for a period that could last three years. In this period, if the value of your home increases it will belong to the trustee to pay off the debts. Even if the process of bankruptcy is complete and the house is sold – still the benefit of any increase will go to the trustee.

There is also a provision whereby your family, husband or wife will have the option to buy the stake in your house and in this way you will be able to keep that asset outside of the bankruptcy process and may continue living in it.

If before filing for bankruptcy you have transferred your home to your spouse with an intention to defeat the creditors such a transaction can be treated as void by the Trustee given that this was done in a time frame of within five years of filing for bankruptcy. For example if you think that finances are deteriorating and you will have to file for bankruptcy in about a year or so and feel that your house is the most valuable asset you have and therefor protect it. With this in mind, you transfer your share in the house to your wife so that she becomes the sole owner of the house thinking that now when you file for bankruptcy the house will not come under the hammer. Although, when you eventually do file for bankruptcy and the trustee feels that you have taken such an action with the view of defeating the creditors he may treat the transaction as void and may restore the home as your property and discharge it to help pay the creditors.

However, the good news is that some assets are exempt and while you may not be able to get away with them completely there is a certain relief period within which you can negotiate with the creditors and still keep possession of the house while you come to an agreement with them. For example in many states your equity in the house to the extent of $125,000 is exempt and the creditors cannot force you to sell it to pay them. What this essentially means is that while your creditors will not be able to sell off your home, you are also not exempt from paying their bills and will be expected to continue to pay your creidtors while continuing to owe money on your assets as well.

But this is not to mean that in all cases selling your home to your spouse before bankruptcy amounts to a void transaction. Cases have been reported where such an arrangement was made and successful. While it may surprise the reader, in many of the cases it was simply because the Trustee overlooked the asset of the spouse. This however does not infer that this is an ethical and safe practice especially when the state has many provisions to protect your home and ward off creditors from selling it. The best idea in such cases is to seek counsel of a law firm specializing in this area who understand how similar cases have been dealt with in your state. Also a lot depends on the amount of credit that you owe and their nature, primarily the amount that you owe and whether it is a secured or an unsecured debt.