As a consumer bankruptcy attorney, I help people eliminate their credit card debt by filing Chapter 7 bankruptcy petitions in the United States Bankruptcy Court.  As unemployment is on the rise and frivolous spending continues, now more than ever people are relying on their credit cards to pay for everything that they do. 

Chapter 7 can provide debt relief to those who have run up their credit cards and cannot pay them back. 

It is not for people who have alot of property or who have run up their credit cards and created debt with no intention of paying it back.  That is fraud, and it is not tolerated.  In my experience, at least 90% of people who need to file Chapter 7 bankruptcy are good, hard working  people who, for a myriad of reasons, got in over their heads and need a fresh start. 

If you find yourself in that position, call me, at 734-722-2999, or fill out a contact form to the left and I will get back to within 24 hours.

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Let’s consider a basic timeline of events leading up to and following the housing bubble.

The United States saw a massive increase in mortgage fraud from 1997-2005. This contributed to the housing bubble that seemed to grow from approximately 2001 to 2005. In 2003, several actions were taken by the US government to make home ownership easier to accomplish for more Americans. In 2004, US home ownership peaked with an all time high of 69.2%. In 2005, we saw the bubble burst or, in other words, we saw the housing market correction in action. The booming housing market came to an abrupt halt in 2005. From the 4th quarter of 2005 to the first quarter of 2006, median housing prices nationwide dropped off 3.3%. As 2005 came to a close, 846,982 properties were in some stage of foreclosure and the market continued to experience substantial slow downs throughout 2006. Foreclosures were up 42% in 2006 in comparison to 2005, prices were down, there was an overwhelming inventory of housing, US Home Construction Index was down was down over 40% in comparison to the year before, etc. The problems created by the housing bubble bursting continued to escalate over the next several years with foreclosures hitting a peak in 2009 at 3,957,643. More than 2.21% of all households were in some stage of foreclosure in 2009. No one was living inside the housing bubble anymore.

This drastic halt to the real estate industry’s seemingly “healthy” housing market resulted in financial crisis for many Americans and American families. In a chain reaction that anyone could predict, the number of bankruptcy filings escalated right along with the number of families struggling not to lose their homes to foreclosure. Some experts suggest that the American public is recovering from their financial crises quickly in comparison to the housing market itself. The housing market will gradually correct itself, but the American public is actively taking steps to correct the situation. The immediate result of the housing bubble on Americans was financial panic in many households, but a few years after the fact, bankruptcy filings are at a much lower level. Some suggest that the American public is getting smart. They’re getting out of debt (with bankruptcy or other alternative methods) and cutting up their credit cards and socking away cash. They’ve learned the lesson handed down by the recent housing bubble correction and following recession.

Others point to the difficulty in obtaining new debt immediately following the burst of the housing bubble as the reason behind the decline in individual bankruptcy filings. If people don’t have debt, they don’t need to file for bankruptcy and for a few years, it was suddenly a lot harder to get approved for any type of loan. Whatever the reason, Americans seem to be getting back on track financially.

If you need help getting back on a healthy financial road, contact Firebaugh & Andrews for your free consultation 734-722-2999

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Bankruptcy Code section 104 requires the Judicial Conference of the United States to publish the changes at least a month before they take effect. On February 4, 2022, the Judicial Conference published this year’s increase in the Federal Register. The nearly 11% increase in statutory dollar limits will affect nearly everything in bankruptcy that has a dollar limit, including

• the amount of property that a debtor may exempt from the estate,

• the maximum amount of certain “priority” claims, such as for employee wages and for deposits for certain undelivered products and services,
• the minimum aggregate claims needed to file an involuntary bankruptcy petition, and
• the aggregate debt limits used to determine which debtors qualify to file cases under chapter 13 or the relatively new “Subchapter V” of chapter 11.

Anyone who relies on specific dollar limits in the Bankruptcy Code should be sure to take notice of these changes.

Michigan has dollar limits for its own set of state-specific bankruptcy exemptions, and its dollar limits increase every three years as well. They increase on a different three-year cycle, though. They were last increased March 1, 2020, and are not set to increase again until 2023.

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In simple terms, bankruptcy is a legal process a person can go through to clear some of the debts they’re unable to pay.

If you’re so overwhelmed by debt that bankruptcy feels like your only option, know these three things: 1) There is hope—and you will be okay. 2) There are other options—and you should try every single one before jumping into bankruptcy. 3) Bankruptcy does not define you and will not be the end.

Keep these three things in mind as you read through the rest of this article and learn the truth about bankruptcy, including a breakdown on these specific topics:

What Is Bankruptcy?

Bankruptcy is a court proceeding where you tell a judge you can’t pay your debts. The judge and court trustee look through your assets and liabilities (aka what you own and what you owe) to decide whether to discharge (or cancel) some of your debts. If the court finds that you really have no means to pay back your debt, you’ll go through the official process of declaring bankruptcy.

A Quick History of Bankruptcy

The term bankruptcy probably came from the Italian phrase banca rotta—which literally means broken bench—because in medieval days, if a merchant couldn’t pay their creditors, they could come break the merchant’s market stall (or bench).¹

Get help with your money questions. Talk to a Financial Coach today!

What about bankruptcy in America, specifically? Well, several different bankruptcy acts popped up during times of economic crisis before the Bankruptcy Act of 1898. This one said bankruptcy didn’t require the creditor’s approval and stuck around until the Bankruptcy Reform Act of 1978—which set the laws we follow today.

Now when you file for bankruptcy, no one’s coming to smash your bench (thank goodness!), but it’s still a painful experience.

What Are the Types of Bankruptcy?

There are six different types of bankruptcy: 

Chapter 13 Bankruptcy

Chapter 13 is a bankruptcy method for individuals where the court approves a plan for you to repay some or all of your debts over three to five years. You get to keep your assets and you’re given time to bring your mortgage up to date. You agree to a monthly payment plan and have to follow a strict budget monitored by the court. (There’s no privacy in bankruptcy.)

People can file for Chapter 13 bankruptcy if their unsecured debt is less than $419,275 and their secured debt is less than $1,257,850.² 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common type for individuals. In this case, the court sells all your assets—with some exceptions—so you can pay back as much debt as possible. The remaining unpaid debt is usually erased.

You could lose your home (or the equity you’ve put into it) and your car in the process, depending on what the court decides. There’s no set amount of debt you need to qualify—the court just has to decide you don’t make enough money to pay off your debt.

Chapter 11 Bankruptcy

Usually just for businesses, Chapter 11 creates a plan for how the business will still run while paying off all their debt.

Chapter 12 Bankruptcy

Chapter 12 bankruptcy allows farmers and fishermen to get on a payment plan for their debts to avoid foreclosure on their property.

Chapter 15 Bankruptcy

International bankruptcy cases are handled in Chapter 15.

Chapter 9 Bankruptcy

Chapter 9 bankruptcy is a repayment plan for towns, cities, schools and the like to pay back their debt.

P.S. For specific information about bankruptcy laws in your area, visit the United States Courts website. There you’ll find info on the process and where to find help in your area. There’s a bankruptcy court for each judicial district in the United States—90 districts in all.

How Does Bankruptcy Work

You’ll see this theme throughout this entire article: bankruptcy sucks. If you can avoid it, avoid it. (See the What Are Alternatives for Declaring Bankruptcy section for practical ways to do just that.) But if you do everything possible to avoid bankruptcy and still come to that point, here’s a quick overview of how to file for bankruptcy and the paperwork you’ll need to get ready.

How to File for Bankruptcy

1. Figure out which type of bankruptcy to file for.
2. Gather and organize the necessary documents (listed below).
3. Take a credit counseling course.
4. Fill out your bankruptcy paperwork.
5. Make sure you have your fees (for an attorney and filing).
6. Print your bankruptcy paperwork.
7. File your bankruptcy paperwork.
8. Send all the necessary documents to your bankruptcy trustee (the person appointed by the court to handle your case).
9. Meet with this trustee in a 341 meeting (or a meeting of the creditors).
10. Take a debtor education course.
11. Finish the bankruptcy process (which varies based on the type of bankruptcy you filed for).
12. Rebuild your life and know you can rise from this situation!

Yeah—it’s going to feel like you’re digging up and showing off every bit of private information you’ve ever had. Really, the only upside is they don’t ask for that awkward eighth grade yearbook photo.

What Documents Do You Need to File for Bankruptcy?

There’s a heck of a lot of paperwork and forms and documents involved in bankruptcy, but let’s talk about what you need to gather up at the start:

• Tax returns for the past two years (for Chapter 7) or four years (for Chapter 13)
• Income documents (such as pay stubs from the past six months, your past two W-2s, and proof of any extra income sources like rental properties or Social Security)
• Mortgage information (like an appraisal, mortgage payment statements, and maybe the deed of trust and proof of home insurance)
• Vehicle information (such as proof of your vehicle’s value, any car loan statements, and maybe a copy of your registration and proof of car insurance)
• Retirement information
• Bank account statements
• Identification (meaning your valid photo ID and proof of your Social Security number)
• Other documentation showing any other debts or expenses, like alimony or child support

Yes, that’s a lot. Bankruptcy is not an easy out! Also, your particular state or court system may require more. Get ready to do a lot of hunting and have a lot of patience here.

What Happens if You Declare Bankruptcy?

If you declare bankruptcy, creditors have to stop any effort to collect money from you, at least temporarily. Most creditors can’t write, call or sue you after you’ve filed. But even if you declare bankruptcy, the courts can require you to pay back certain debts. Each bankruptcy case is unique, and only a court can decide the details of your own bankruptcy.

Let’s talk for a moment about what bankruptcy does and doesn’t cover:

What Does Bankruptcy Cover?

Bankruptcy can stop foreclosure on your home, repossession of property, or garnishment of your wages. (Garnishment is when the court orders part of your paycheck to be sent directly to your creditor—without you ever seeing the money). Bankruptcy cancels many—but not all—of your debts.

What Is Not Covered by Bankruptcy?

• Student loans
• Government debts like taxes, fines or penalties
• Child support and alimony
• Expensive items purchased right before filing bankruptcy, like cars, boats or jewelry

What Are the Consequences of Declaring Bankruptcy?

Let’s not sugarcoat it: Bankruptcy takes a huge emotional toll on a person. It ranks up there with divorce, loss of a loved one, and business failure. Beyond the emotional impact, here are other effects of declaring bankruptcy:

Your bankruptcy becomes public domain.

This means your name and other personal information will appear in court records for the public to access. That’s right . . . Potential employers, banks, clients and businesses can access the details of your bankruptcy.

Filing bankruptcy is expensive.

Filing fees for Chapter 13 bankruptcy will cost around $310 plus attorney fees, which can be anywhere from $3,000 to $3,000. For a Chapter 7 bankruptcy, you’ll shell out $335 for filing fees and $1,500 to $3,000 for an attorney.³

Buying a home can be more complicated after a bankruptcy.

Unless you pay cash for a home, it could take one to four years before you qualify for a mortgage loan.⁴

Bankruptcy affects your credit score.

We aren’t pro-credit scores, but it’s important for you to know a bankruptcy dings your FICO. Hard. And that ding lingers. Chapter 13 bankruptcies stay on your credit report for about seven years, and Chapter 7 stays on there for 10 years.

Bankruptcy doesn’t clear all debts.

We’ve touched on this some, but declaring bankruptcy doesn’t make all your problems go away—and it doesn’t even make all your debt go away. Most student loans, alimony, child support, any reaffirmed debt, unpaid taxes, government debts or court fines aren’t cleared in a bankruptcy.

Should You Declare Bankruptcy?

Listen. We’ve said it before, and we’ll say it again: Bankruptcy should be your very last option. Check out all the alternatives (aka how to avoid bankruptcy) below. Try each and every one. If nothing works, and you’re still so overwhelmingly underwater that you simply cannot swim—then and only then do you declare bankruptcy.

What Are Alternatives to Filing for Bankruptcy

Before you even start gathering up that giant pile of documents you need to file for bankruptcy, go through this list of alternatives:

Get on a budget.

Budgeting may seem intimidating, but it’s just a plan for your money. And if you’re planning to get out of debt and avoid bankruptcy, you can’t do it without a budget. You need to see exactly what money you have coming in and where all of it is going.

Once you see what your money is doing, you can start telling it what you want it to do. And what you want is to have more money freed up to pay off that debt.

That means cutting extras and spending less money. That means learning tips on how to save money on everything. That means being super intentional with every single dollar you make and spend.

Yes, it’s work. But it could be the exact thing that keeps you from bankruptcy. Don’t. Skip. This.

Cover your Four Walls.

When you’re making a budget that will work for you right now, where do you start? What’s the main stuff you need to focus on covering? Start with what we call your Four Walls: food, utilities, shelter and transportation. These are the main essentials.

Keep everyone fed, the lights on, a roof over your heads, and gas in the car to get to work. If these Four Walls are only things you can pay for while you’re getting out of debt, that’s called survival mode, and that may be what you need to jump into right now.

Sell. Everything. You. Can.

Here’s the deal: If you declare bankruptcy, you’re probably going to lose some of your stuff anyway. So right now, sell everything you can. Be the one in charge of what goes and what happens to the money coming in from those sales. Put all of that money straight toward your debt.

Talk to a financial coach.

You don’t have to walk this alone. Read that again: You don’t have to walk this alone. Get with a financial coach and talk about your situation. They aren’t here to judge—they’re here to help.

A financial coach can help you figure out a personalized plan of action for your specific situation. And yes, talking about money can be terrifying, but if you declare bankruptcy, your financial privacy will be out the window immediately. Opening up to a trustworthy financial coach now can help you avoid having to open up to a whole courtroom of people in bankruptcy.

Create extra income.

Another way to avoid bankruptcy is to bring in more money. Get yourself a side hustle. There are plenty of ways to work extra hours that fit into your schedule, and also plenty of work-from-home jobs that will keep you from spending extra drive time or gas money.

If that is still not enough give Firebaugh & Andrews a call for your free consultation 734-722-2999

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The COVID-19 pandemic and the subsequent economic impact has already affected millions of Americans and thousands of renters in Michigan are at risk of homelessness due to inability to pay their rent. Fortunately, tenants are temporarily getting protection from eviction for non-payment of rent under various emergency government measures.

Federal CDC Eviction Moratorium

Because of the unemployment and financial struggles due to the pandemic, there was a statewide ban on housing evictions in Michigan that came into effect on April 1^st 2020. This moratorium on evictions has been extended five times over the course of six months but ends July 31st.

The last Michigan eviction moratorium, which expired on September 1^st, has been extended to December 31^st under the Centers for Disease Control and Prevention (CDC) recent order. The 2^nd stimulus package extends this moratorium until January 31, 2020. The CDC federal moratorium puts a temporary ban on landlords taking action against tenants for non-payment of rent and other utility service charges and was change to July 31st 2021.

So Michigan families who can’t pay rent due to Covid-19 related financial hardships such as layoffs, loss of household income or huge out-of-pocket medical expenses can continue to get protections under this CDC eviction moratorium.

Criteria: Tenants who are seeking relief under the federal moratorium must meet the criteria outlined by the CDC. To qualify for protection, the tenant:

• Must expect to earn no more than $99,000 or $198,000 if filing a joint return in 2020
• Has received an economic stimulus check under the CARES Act@
• Was not required to report any income to the IRS in 2019
• Has sought all available government assistance to make their rental payments

Limitations of Eviction Moratorium

The moratorium looks like a panacea for all problems but this is not true. The most important thing about the eviction moratoriums is that they are temporary and do not forgive or reduce rent payments. This means, unfortunately, the moratorium will not help renters pay rent but it just delays the threat of eviction and there are some loopholes in it that put certain renters at risk of removal.

This federal protection is quickly disappearing and, it is already expired. You are already several months behind on rent and continue to accumulate debt during this period and when this temporary halt of evictions end on December 31, 2020, your landlord may demand payments in full that you’re not made prior to and during the temporary halt.

Without the extension of eviction ban and other federal financial support, many renters could be facing homelessness when the eviction moratorium expires on July 31 (now extended by one more month under the new coronavirus stimulus deal, lasting through January 31, 2021). On top of that, most landlords will not even consider a tenant with a previous eviction record.

Housing is undeniably a basic human necessity and those who are evicted often lose their jobs, possessions, community connections, and even health. If you are depending on the anti-eviction provisions of the CARES Act to protect you from being evicted from where you’re living, then it would make more sense to consider filing for bankruptcy.

Using Chapter 7 Bankruptcy to Stop an Eviction for Rent Arrears

Filing Chapter 7 bankruptcy can put an automatic stay on eviction actions and also prevent the landlord from collecting any past due rent that you owe. You can receive a discharge of past-due rents by filing a Chapter 7 bankruptcy, but you can still be evicted. So if you plan on moving but only looking to get relief from the past due rent you owe, then filing Chapter 7 is the best option for you.

In general, the automatic stay can provide relief to tenants by preventing the landlords from beginning or continuing with eviction proceedings. But in 2005, the bankruptcy law was revised that give landlords more power to evict tenants who file for bankruptcy, despite the automatic stay. There are two situations where bankruptcy will not stop an eviction:

1. The landlord obtains a judgment of possession of the property before the tenant filed for bankruptcy
2. The landlord claims that the tenant is endangering the property or illegally using drugs

Waiting too long to file for bankruptcy can limit your power to retain control over the situation and comes with the consequence of losing your home. So in order to stop an eviction through bankruptcy, it is critical for you to act immediately by filing your case before the landlord gets an order of possession. Please call Firebaugh & Andrews for a free consultation 734-722-2999

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A New Albany, Ohio, music school offering piano, guitar and violin lessons racked up under nearly $1 million in loans and $35,000 in credit card debt.

A fine-dining restaurant in Providence, R.I., received more than $450,000 in federal small-business funds to help pay workers but still had to close its doors.

A nonprofit overseeing the Kit Carson Home and Museum in Taos, N.M., welcomes visitors to learn about the famous frontiersman but listed just $17,000 in assets even after every bone-handled knife, buffalo hide apron and flintlock musket had been tallied.

Nearly a year since coronavirus-related shutdowns began affecting large swaths of the American economy, more businesses are filing for bankruptcy as Chapter 11 filings were up nearly 20 percent in 2020 compared with the previous year, court records show.

Data on a subset of businesses ― those registered as corporations ― shows that some sectors are faring much worse than others, with restaurants, retailers, entertainment companies, real estate firms and oil and gas ventures filing for protection in far greater numbers than in previous years, according to New Generation Research.

Bankruptcies filed by entertainment companies in 2020 nearly quadrupled, and filings nearly tripled for oil and gas companies, doubled for computer and software companies and were up 50 percent or more for restaurant owners, real estate companies and retailers, compared with 2019, data from the research firm shows. Among those industries most affected, there were 5,236 Chapter 11 filings in 2019 but 6,917 last year, a tally at least 30 percent higher than any of the previous four years.

Economists are predicting strong economic growth this year overall. But the bankruptcy data show that despite $3.7 trillionin federal stimulus spending to combat the recession triggered by the pandemic, and another $1.9 trillion being proposed by President Biden, businesses in certain industries have become particularly vulnerable and may take years to recover enough to pay their bills. Others will not recover at all.

Other sectors have so far not fared as badly as one might expect, as only 77 hotel or gaming companies filed for protection in 2020, down from 92 in 2019 ― a year when the tourism industry thrived.https://3ac7c9fe1e80353cf95a10043cb8e49b.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

Because bankruptcy filings lag other signals of economic distress, experts say the worst may be yet to come. Bankruptcies stemming from the 2007 financial crisis didn’t peak until 2010.

“Bankruptcies don’t cause damage to the economy,” said Ed Flynn, a consultant to the American Bankruptcy Institute. “The damage has already been occurred when the bankruptcy is filed. Higher bankruptcies is more a symptom of economic harm than the cause.”

Michigan-based BarFly Ventures operated three small restaurant chains ― HopCat, Stella’s Lounge and Grand Rapids Brewing ― and had more than a dozen restaurants throughout Michigan and down to Florida at its peak. Although BarFly received $6.6 million in Paycheck Protection Program funds from the Small Business Administration, the company was forced to lay off staff and close some locations permanently, according to filings. It filed for bankruptcy in June.

“BarFly has faced a number of challenges in recent years, including increased industry competition and craft beer saturation,” founder Mark Sellers announced. “However, we were meeting these challenges, and operationally the business was sound until the recent global pandemic pushed us into an unforeseen economic crisis and a 100 percent drop in revenue for almost three months.”

BarFly owed more than $1.7 million to a food provider, according to its bankruptcy filing. Sellers said he hoped the move would “allow us to emerge as a financially stronger company.” In October, BarFly announced it was being purchased by two investment firms.

Restaurants have been one of the hardest-hit sectors on almost every measure during the pandemic, and experts say the worst of the fallout is likely still to come.

If your business needs help reorganizing call us today for your free consultation. 734-722-2999

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But why?

Why is the general consensus that filing for bankruptcy is a bad thing? While it is true that filing for bankruptcy is evidence of trouble with personal finances, that’s not the whole story.

A large part of the reason why people say bankruptcy is bad is because they don’t understand the process. No two bankruptcy cases are alike and consumers are forced into bankruptcy for a whole host of different reasons, most of which are beyond their control.

The country currently finds itself staring a recession in the face because of an unforeseen global pandemic called the coronavirus, or COVID-19. Most people who suffer financially because of this virus do so because of bad luck, not necessarily because of poor planning.

Below, we’ll go over some of the reasons people file for bankruptcy and how bankruptcy can sometimes be a good thing — if it’s right for you and your family.

Unforeseen life events can cause bankruptcy

If you can afford to pay off debt and file for bankruptcy instead, perhaps you’ve made a poor decision. Similarly, someone filing for bankruptcy with bad intentions or to defraud creditors is behaving poorly and cheating the system.

In a case like this, the peanut gallery would be correct: This type of bankruptcy is bad. But what about the family forced into bankruptcy after the breadwinner loses a job? What about the family who incurs enormous medical bills based on an unforeseen car accident? What about the ex-wife in a community property state who is left holding the bag on thousands of dollars of credit card bills charged by her ex-husband without her knowledge?

In these cases, bankruptcy can provide tremendous relief and an opportunity to start over. It’s easy for someone who hasn’t experienced hardship to say that bankruptcy is bad, but talk is cheap and people have families to take care of.

Why the bad reputation?

Filing for bankruptcy has a bad reputation in many circles due to the fact that it damages your credit and involves discharging debts that will likely never be repaid. Sure, Chapter 7 bankruptcy isn’t great for your credit score and will appear as a public record for 10 years after filing. However, most consumers who file for bankruptcy have already had their credit damaged by a series of late payments.

Whether your bankruptcy filing can be labeled as “bad” is really a function of whether you intend to defraud the system or whether you have a moral obligation to pay debts that you plan to discharge in bankruptcy. There are many types of debts that are eliminated by filing for bankruptcy. For example, perhaps your primary debts are a $50,000 credit card balance and a $10,000 personal loan that you owe to your brother that he loaned to you while he was having financial problems of his own. If you file for bankruptcy, both the credit card debt as well as the debt to your brother will be eliminated. Filing bankruptcy to discharge credit card debt at 29% interest would not be considered “bad” by most people.

On the other hand, some would argue that discharging a $10,000 debt to your brother might not be the right thing to do. Even if you fall into this camp, it is important to understand that there is nothing that prevents you from voluntarily paying back the debt after filing for bankruptcy. You could file bankruptcy, discharge your credit card debt and then once you have an opportunity to rebuild, write your brother a check for what you owe. This does not in any way violate the bankruptcy laws. For this reason, whether bankruptcy can be construed as bad is really a function of context.

When is bankruptcy a good idea? The answer depends on your situation

Bankruptcy is not inherently bad or good, but it is an important protection for honest consumers who find themselves in big trouble with debt. A small minority of filers try to abuse the bankruptcy process to hide assets and cheat creditors. These stories are dwarfed by the stories of honest people who have suffered through tough times and finally turned to bankruptcy because they can’t see a way out. Even the Bible calls for debt forgiveness every 8 years.

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Bankruptcy isn’t the end of the world. It may even be good for you.

Bankruptcy stops collection calls, lawsuits and wage garnishments. It erases debt. And despite what you’ve heard, bankruptcy may help your credit scores.

Credit bureaus and scoring experts often say bankruptcy is the single worst thing you can do to your scores. Foreclosures, repossessions, charge-offs, collections — nothing else can drive your scores down as fast and far as a bankruptcy.

But that’s not the whole story. Most people struggle so long with their debt that their credit is already battered by the time they file for bankruptcy. And once they do, their scores typically rise, not fall. If the debt is erased — which is known in bankruptcy court as a “discharge” — scores go up even more.

“Within a year, you’re way better off,” says Jaromir Nosal, assistant professor of economics at Boston College, who co-authored a study for the Federal Reserve Bank of New York about the effects of bankruptcy. “It’s a pretty rapid rate of recovery.”

How much and how soon credit scores can rise

Using data from Equifax credit bureau, researchers at the Federal Reserve Bank of Philadelphia found that filers’ Equifax credit scores plunged in the 18 months before filing bankruptcy and rose steadily afterward.

Among the findings:

• The average credit score for someone who filed Chapter 7, the most common type of bankruptcy, in 2010 was 538.2 on Equifax’s 280 to 850 range. (Scores in the low 600s and below are generally considered poor.) By the time the filers’ cases were discharged, usually within six months, their average score was 620.3.

• The other type of bankruptcy, Chapter 13, requires a three- to five-year repayment plan, which most people don’t complete. (Half of Chapter 13s filed between 2007 and 2013 were dismissed, and an additional 12 percent were converted to Chapter 7s or other types of bankruptcy, according to an American Bankruptcy Institute analysis of Justice Department figures.) Those who did and got a discharge, though, saw their scores rise from 535.2 to 610.8, the Philadelphia Fed researchers found.

A recent study by FICO, the company that created the leading credit score, found much smaller gains. Median credit scores for people who filed for bankruptcy between October 2009 and October 2010 rose from the 550s before they filed to the 560s afterward, says Ethan Dornhelm, senior director for FICO’s scores and analytics group. (Most FICO scores are on a scale of 300 to 850.)

After two years, 28% of bankruptcy filers had scores of 620 and above. After four years, 48% had scores of 620 or above, and only 1% scored 700 or above.

But the FICO study didn’t distinguish between Chapter 7 and Chapter 13, or between people who got a discharge and those who didn’t. Those with undischarged debt could be skewing the results. In other words, people with completed bankruptcies could have seen bigger gains than what’s reflected in the median figures, Dornhelm says.

Saving your credit score is only one reason

Credit scores aren’t the only factor to consider, of course. Some of the others:

An end to collection hell: Nosal’s study found that once people fell seriously behind on their debt — with at least one account 120 days overdue, for example — their financial troubles tended to get worse. Balances in collections and the percentage of people with court judgments grew.

By contrast, people who file for bankruptcy benefit from its “automatic stay,” which halts almost all collection efforts, including lawsuits and wage garnishment. If the underlying debt is erased, the lawsuits and garnishment end.

Freedom from certain debts: Chapter 7 bankruptcy wipes out many kinds of debt, including:

• Credit card debt.
• Medical bills.
• Personal loans.
• Civil judgments (except for fraud).
• Past-due rent.
• Past-due utility bills.
• Business debts.
• Some older tax debts.

Some debts, including child support and recent tax debt, can’t be erased in bankruptcy. Student loan debt can be, but it’s very rare. But if your most troublesome debt can’t be discharged, erasing other debts could give you the room you need to repay what remains.

Better access to credit: It can be difficult to get credit right after a bankruptcy. But Nosal’s study shows people who have completed bankruptcy are more likely to be granted new credit lines within 18 months than are people who fell 120 days or more overdue at the same time but didn’t file.

Your credit limits after bankruptcy are likely to be low, however, and your access to credit — like your credit scores — won’t recover completely until a Chapter 7 bankruptcy drops off your credit reports after 10 years.

That’s a long time in the penalty box. But let’s dispense with the idea that people facing bankruptcy are choosing between paying their bills and not paying their bills.

When to stop digging a hole you can’t escape

Most of us feel we have a moral obligation to pay what we owe — if we can. But typically that ship has sailed by the time people realize they need to consider bankruptcy. They can continue trying to chip away at debts they may never be able to repay, prolonging the damage to their credit scores and diverting money they could use to support themselves in retirement. Or they can recognize an impossible situation, deal with it and move on.

If you can pay your bills, obviously you should. If you’re struggling, check out your options for debt relief. But bankruptcy may be the best option if your consumer debt — the kinds listed above that can be erased — equals more than half your income, or if it would take you five or more years to pay off that debt even with extreme austerity measures.

Here’s what you need to know:

You need to call Firebaugh & Andrews for your free consultation 734-722-2999 It’s easy to make a mistake in the complicated paperwork, and an error could cause your case to be dismissed. If that happens, you end up with no relief — but still have credit scores tanked by the bankruptcy filing.

Raise cash the smart way: Trim unnecessary expenses, if you still have any. Sell stuff, if you’ve got anything to sell. If you’re still paying your credit cards and other consumer debt, you could stop and redirect the money to pay for an attorney. Another option is to borrow from friends and family. Don’t open new credit accounts to borrow the money, though, since that could be considered fraud. Working a second job can be problematic if you boost your income above the median for your area, since that complicates your filing. Discuss your options with an attorney; many offer a free or low-cost initial consultation.

Don’t wait too long: There’s a misconception that people file bankruptcy at the drop of a hat or when they still have other options. The reality for most is quite different. Some drain assets, such as their retirement accounts, that could have been protected from creditors in bankruptcy. People throw good money after bad until they have no money left to seek relief.

That’s why we advise debtors in over their heads to investigate bankruptcy first.

“The worst thing that can happen is not being able to go bankrupt and not being able to pay,” Nosal says. “That’s when people really suffer.”

The post When Bankruptcy Is the Best Option first appeared on Michigan Bankruptcy Facts 734-722-2999.

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In response to the COVID-19 pandemic, President Donald J. Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to provide a $2 trillion economic stimulus package to support U.S. businesses and individuals impacted by COVID-19. The CARES Act includes revisions to certain provisions of the U.S. Bankruptcy Code in an effort to provide better and more effective bankruptcy relief to small businesses and individuals during this unprecedented time.

More small businesses will qualify for a more streamlined and affordable bankruptcy process under the Small Business Reorganization Act of 2019.

The CARES Act amends the Small Business Reorganization Act of 2019 (the “SBRA”), which became effective February 19, 2020, to temporarily increase the debt threshold for filing for relief under the new Subchapter V of Chapter 11 of the Bankruptcy Code from $2,725,625 of debt to $7,500,000.  The eligibility threshold will revert to $2,725,625 after one year.  The SBRA is designed to enable small business debtors to reorganize their financial affairs in a more efficient and cost-effective manner while also maintaining more control over their businesses.  Historically, Chapter 11 reorganization has not been a viable option for most financially struggling small businesses due to the length and unmanageable expense of the process.  Some of the key features of the SBRA are as follows:

• Debtors (businesses or individuals) with at least 50% of their debts being commercial debt and total debts not exceeding $7.5 million are eligible to file for relief under Subchapter V of Chapter 11 of the Bankruptcy Code.
• Subchapter V debtors can take advantage of many of the protections of Chapter 11 without being subject to the same timelines.  In an SBRA case, the bankruptcy process will be quicker.  In fact, the deadline for filing a plan is just 90 days (versus 120 days in a Chapter 11 case) after the case is commenced.
• Subchapter V debtors are not obligated to pay quarterly U.S. Trustee’s fees, which in a traditional Chapter 11 case can be significant.
• In an SBRA case, a creditors committees will generally not be appointed.  Among other things, this will help to minimize the chances of disputes and distractions that a Subchapter V debtor might face in a Chapter 11 case.
• A standing trustee will be appointed in every SBRA case.  The trustee’s supervisory role will include: (i) helping the Subchapter V debtor to formulate a plan; (ii) reporting fraud or misconduct, and (iii) and monitoring distributions under the plan.  Unlike a trustee that might be appointed in a Chapter 11 case, a SBRA trustee is not concerned with operating the Subchapter V debtor’s business.  Instead, the trustee’s goal is to help the debtor resolve issues with creditors and move the SBRA case along.
• In an SBRA case, only the debtor is permitted to file a plan of reorganization, eliminating the risk of competing plans being filed by creditors.
• In an SBRA case, a disclosure statement is not required, unless the Court orders otherwise.
• A Subchapter V plan may be confirmed even if all impaired classes vote to reject the plan.  In a regular Chapter 11 case, a Court cannot confirm the plan unless at least one impaired class of unsecured claims votes to accept the plan.
• Unlike a typical Chapter 11 debtor, in an SBRA case, a small business debtor may stretch payment of administrative expense claims out over the term of the plan.
• Equity holders may be able to keep their equity interests in the business without the need to contribute new value because there is no “absolute priority rule” under Subchapter V.  This means that business owners can keep their interests in the company even if unsecured creditors will not be paid in full under the plan.

More consumers will receive greater bankruptcy benefits and protections.

The CARES Act also amends certain provisions under Chapters 7 and 13 of the U.S. Bankruptcy Code to help consumers who will be or have been financially harmed by the COVID-19 pandemic.  The key changes that consumers should be aware of are as follows:

• Chapter 13 debtors with existing confirmed plans who have suffered a “material financial hardship” due to COVID-19 will be allowed to seek plan modifications, including extending their payments for up to seven years after their first plan payment was due, thereby reducing their monthly payment obligation.
• Coronavirus related payments received by families and individuals from the federal government, as a result of the CARES Act and other stimulus, will not be included in the definition of “income” for eligibility purposes, nor will such payments be included in the calculation of “disposable income” for plan confirmation purposes.  This change is designed to permit consumer debtors to receive the full benefit of stimulus payments

Call Firebaugh & Andrews for a free consultation we can help you make the right decision 734-722-2999

The post COVID-19 Changes Everything, Including the U.S. Bankruptcy Code first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post COVID-19 Changes Everything, Including the U.S. Bankruptcy Code appeared first on Michigan Bankruptcy Facts 734-722-2999.

1. Don’t file for divorce and bankruptcy at the same time

For the sake of simplicity, the two legal matters shouldn’t overlap with each other. Commonly, people choose to file bankruptcy before going through with a divorce – and there are several logical reasons for that. Once bankruptcy is filed, for both chapter 7 and chapter 13, an “automatic stay” is put into place. The automatic stay halts creditors from contacting you and puts a freeze on your assets and property – this is so the bankruptcy court can begin sorting out what debts you owe and what assets you have that can help compensate for some of it. This hold is effective throughout the bankruptcy process.

Now let’s say, you filed for bankruptcy and then immediately filed for divorce, causing the two to overlap. Since a large part of the divorce process is splitting up assets (among other more complex tasks), the automatic stay would make it virtually impossible for the family court to access and divide the assets, since they are put into a hold. Because of this, the divorce could be dragged out longer than necessary and become more emotionally stressful for you or your loved ones.

2. Which one you should file first depends on your situation

Although you shouldn’t file for divorce and bankruptcy at the same time, you can still choose which process to take care of first. While it is ultimately up to you, there are a few things to consider before determining which to file first. If you and your spouse are on amicable terms, it may be best to first file bankruptcy. Filing bankruptcy first allows you both to share the cost of attorney and filing fees and could possibly protect you from paying joint debt – which could be beneficial if you and your spouse own property together.

Some jurisdictions also allow double exemptions on assets if you file joint bankruptcy; for instance, if your home is exempt up to $50,000 with a single bankruptcy, some jurisdictions could allow a double exemption, allowing the home to be exempt up to $100,000. Since exemption laws vary from district to district, it’s always beneficial to consult a bankruptcy attorney in your area to see what options are available for you. Filing for bankruptcy first also simplifies the division of assets in divorce because they are typically divided during the bankruptcy process – although they can sometimes change.

If you and your spouse choose to file for chapter 7 bankruptcy, your joint income might put you over the income threshold for filing. If your individual incomes are below the threshold, you may want to explore the options of filing for divorce before bankruptcy.

3. Chapter 7 is ideal for a quick divorce

One of the benefits of chapter 7 bankruptcy is the timeline of the process. Chapter 7 eliminates all dischargeable debt typically within three to six months, allowing you to file your divorce sooner if you choose to file bankruptcy first. In comparison, chapter 13 bankruptcy sets up a three- to five-year payment plan instead of completely eliminating debt, and can possibly drag your divorce or separation out longer than necessary.

If you are involved in a chapter 13 bankruptcy and decide to file for divorce during the repayment period, you can choose to cancel or restructure the bankruptcy plan. By canceling, you agree to stop the agreed upon payment plan; however, all debt you and your spouse have assumed will still be your responsibility. If you choose to restructure the plan, it divides the plan into two cases – one for you and one for your spouse; you can then handle the bankruptcy separately from your partner. These cases can become complex if not handled properly and can cause a lengthy divorce if anything goes awry. It’s always best to speak with a bankruptcy attorney to see the best course of action for your situation.

4. Not all debts are included in bankruptcy

If you choose the route of eliminating all debt (chapter 7), it’s important to remember that not all debts can be eliminated or discharged. Debts that are deemed “nondischargeable” cannot be forgiven in the bankruptcy process, and you are still responsible for paying them back. The most common types of nondischargeable debts include:

• Alimony
• Child support
• Fines owed to government agencies
• Student loans
• Court fines and/or penalties
• Attorney fees for child custody or support cases

In addition to the debts that are outright nondischargeable, there are other ways certain debts can be barred from discharge. In a chapter 7 bankruptcy, dischargeable debts are considered a “privilege” more than a right, and debtors must abide by the rules listed in the Bankruptcy Code for the bankruptcy court to approve a debt discharge. If the debtor fails to follow these rules, the court may deny their debt discharge request. The chapter 7 discharge may be denied if the debtor:

• Fails to provide requested tax documents
• Hides property for the purpose of defrauding creditors
• Destroys financial books or records
• Commits perjury in connection to the bankruptcy case
• Violates a court order
• Fails to complete a mandatory credit counseling course

There are numerous rules and regulations regarding nondischargeable debts; the best way to determine which debts you can expect to have discharged is to meet with an experienced bankruptcy attorney to review your case.

5. If you file bankruptcy during a divorce, you may need to hire a new attorney

If you and your spouse hired a divorce attorney together, you may need to begin searching for a new one. If you, or your spouse, decide to file for bankruptcy during your divorce proceedings, your divorce attorney cannot represent both of you. This is due to the fact that attorneys are barred from representing clients that have a conflict of interest with each other. Filing for bankruptcy creates a conflict for the attorney because his or her clients are now opponents in another legal matter.

This can become a burden because of the time and effort it takes for one or both parties to find a new attorney and update them on the case so far. It also means that you and your spouse will be paying separate legal fees, creating a financial burden as well.

Divorce and bankruptcy are chances for a fresh start for you, your ex, and your families. By knowing these aspects of the two, you can make a more informed decision and come out stronger than ever. However, both of these processes can be extremely detailed and complex, and should not be handled without experienced divorce and bankruptcy lawyers on your side. It’s always best to consult with Firebaugh & Andrews so you make the right choice. 734-722-2999

The post 5 Things To Know about Divorce and Bankruptcy first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post 5 Things To Know about Divorce and Bankruptcy appeared first on Michigan Bankruptcy Facts 734-722-2999.