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

The post The Truth About Bankruptcy first appeared on Michigan Bankruptcy Facts 734-722-2999.

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The following is a brief description of the relief afforded to individuals and businesses through Chapter 11, for more information please call Firebaugh & Andrews for a few evaluation at 734-722-2999

Chapter 11 Overview

Filing a Chapter 11 petition grants a debtor what is known as an automatic stay from the enforcement actions of creditors. This precludes creditors from continuing collection efforts, from bringing a lawsuit, or from filing liens against property or foreclosing on property.

In Chapter 11, a debtor generally remains in control of their estate. A trustee may be appointed for cause (i.e., fraud, dishonesty, incompetence or gross mismanagement) or if such appointment is in the best interest of creditors; however, this relief is relatively rare. A Chapter 11 debtor-in-possession generally has the same rights as a trustee would have if appointed, thus any reference to rights or authority of a debtor would apply to a trustee, if appointed, as well.

Exclusive Time Periods

A Chapter 11 debtor is granted the exclusive right to file a plan of reorganization for a period of 120 days and to solicit a plan of reorganization for a period of 180 days. A debtor can seek an extension of these “exclusive periods” for cause. Otherwise, once an exclusive period lapses, any creditor or party in interest can file a plan of reorganization for the debtor.

Similarly, if a creditor or party in interest can show that a debtor is mismanaging the estate, not negotiating in good faith with creditors or using the exclusive period as leverage in negotiation with creditors, they can seek to terminate exclusivity to allow non-debtors to file a competing plan. Competing plans are rare; however, the threat of a competing plan is often sufficient to keep negotiations between a debtor and its creditors active.

Committee of Unsecured Creditors

Another tool available to balance creditors’ powers of negotiation is an official committee of unsecured creditors. The purpose is similar to that of a class action lawsuit – while each individual creditor may not have a large enough claim to justify retaining counsel, aggregate creditors’ claims can be quite large and their collective voice could benefit from legal representation. The creditors’ committee is made up of three or more volunteering unsecured creditors selected by the United States Trustee. The creditors’ committee can retain legal counsel and financial advisors to assist in the case, with the cost of such professionals carried by the debtor.

A creditors’ committee is not formed in every case and is usually limited to large, complex or highly contested Chapter 11 cases.

The Reorganization Plan

A Chapter 11 plan of reorganization provides debtors with important tools for rearranging financial affairs. For example, a plan may allow a debtor to reject certain contracts or leases with a cap on damages. This is helpful where a debtor has signed an expensive, long-term contract that is no longer beneficial.

A debtor may also refinance existing loans including increasing the time in which it must be repaid (i.e., stretching a two-year loan to five years), decreasing the interest rate if interest rates have declined since the loan was entered into, or changing/removing other arduous terms. Through Chapter 11, as with other bankruptcy chapters, a debtor can also sell an asset free and clear of all liens either through a plan or through what is a called a 363 sale. The ability to sell an asset free and clear of liens can garner a greater sale price as purchasers are assured that the property is unencumbered and the purchaser is subject to less liability.

Regardless of who files a plan of reorganization, certain creditors are entitled to vote to approve or disapprove a plan. Only those creditors that are determined to be partially impaired (e.g., reduced payments or payments over time) are entitled to vote on a plan. Creditors that are unimpaired are deemed to accept the plan and creditors that are fully impaired (i.e., will not recover) are deemed to reject the plan. However, even if they are not allowed to vote on a plan, a creditor still has the right to object to its treatment under the plan. In order for a plan to be accepted, two-thirds of creditors in number and fifty percent of creditors in dollars must vote in favor of the plan.

A Chapter 11 debtor can cramdown a plan over the negative vote of creditors in certain circumstances. Even if creditors vote to accept a plan, the bankruptcy court will review the plan and ensure that it meets statutory requirements before the plan can be confirmed. If a debtor is unable to get a plan of reorganization confirmed, the case may be converted to a Chapter 7 filing or dismissed. After a plan is confirmed, the debtor’s bankruptcy is essentially over. However, the bankruptcy court generally retains jurisdiction over the case at least until the last plan payment is made.

Chapter 11 for Individuals

Given the complexity and cost of Chapter 11, it is most often used by businesses. On the other hand, Chapter 11 may be the only option available to an individual debtor with income greater than that allowed by the Chapter 7 means test, and secured debt in excess of that allowed by Chapter 13. This is often the case where an individual owns large amounts of real property, but does not have sufficient liquidity to pay his or her debts as they come due.

The major benefit of Chapter 11 for individuals is the ability to keep assets beyond just the statutory exemptions available under Chapter 7 and Chapter 13. Given that Chapter 11 individual cases are relatively infrequent and the language of the chapter is better applied to corporations, the law applied to Chapter 11 consumer cases has been largely unsettled. If you are considering an individual Chapter 11 you would be best served to give us a call for a free consultation at 734-722-2999 Firebaugh & Andrews

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District Bankruptcy Courts in Michigan

Michigan’s bankruptcy court is divided into the Eastern District, with the main court in Detroit, and the Western District, with the main court in Grand Rapids. Each district also has divisional offices where you may file so long as you file in the district where you live.

Can I File Chapter 7 Bankruptcy?

You may file Chapter 7 bankruptcy if your average monthly income for the six months before you file is less than Michigan’s median income for a family of your size. For example, if you are married with two children, you must earn less than Michigan’s median income for a family of four, which is $6,037 monthly for 2012. If you make more than this, you must pass a stringent means test to qualify for Chapter 7.

How Long Is a Chapter 13 Repayment Plan?

The amount of time you must spend paying your creditors also depends on your income as compared to Michigan’s median income. For example, if you make less than the median income, your repayment plan will usually be up to three years. If your income matches or exceeds the state median, your plan will be five years, unless you’re able to pay off all unsecured debt in less time.

Can I Keep My House and Car?

Both federal and state laws allow you to exclude certain personal property from your bankruptcy case. Michigan lets you choose whether to use the state or the federal exemptions, but you must pick one or the other, you cannot mix and match from both lists.

The federal and state lists include similar exemptions, although specific items and values vary. Some of these exemptions include:

• Personal items such as family pictures, clothing, jewelry, and household goods
• Public benefits
• Retirement accounts
• Tools of your trade

Exemption values for your home and car also differ. Michigan adjusts the dollar value of exemptions every three years. As of 2011, the state allows a homestead exemption up to $35,300 of equity or $52,925 for people aged 65 or older or disabled. The federal exemption is $21,625 or $43,250 for married couples filing jointly. The state allows you to keep up to $3,250 of equity in one vehicle, while the federal vehicle exemption is $3,450.

If you have moved to Michigan within two years prior to filing for bankruptcy, you must use the exemptions from your previous home state.

Call us today to get your free consultation 734-722-2999

The post Michigan Bankruptcy Facts first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Michigan Bankruptcy Facts appeared first on Michigan Bankruptcy Facts 734-722-2999.

But if the company failed to recover, then the investor has to accept the inevitable. After being fail to recover the company can file under Chapter 7 which put a stop to company’s all operations and making it asset turn it to a way to pay the creditors. In Chapter 7 investors are regarded as the lowest rung of the ladder. So they instead of crying over spilled milk need to accept the situation because while agreeing to invest in the company they accept the risks that are involve with an investment. Bankruptcy is one of such risk.

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There are instances that show the bankrupted company has made a successful comeback after filing under Chapter 11. It has done by re-planning their operations with the help of court appointed committee or trustee. But most of the time, and often, this conversion from being bankrupted to a profitable sector is not success. The company then has to turn to Chapter 7 for being free from the shackles of credits. And here lies the under breath relationship between the two Chapters.
When the company failed to resurface itself by Chapter 11 it can turn to Chapter 7. The flexibility of bankruptcies rule has lead to this transformation and also helped the company to pay off their debt. Thus, though, Eleven and Seven are dissimilar in many facts but ultimately they are acting as the savior in one form or another.  Call Firebaugh and Andrews today for your free consultation 734-722-2229

The post Corporate Bankruptcies: The Relationship between Chaper 7 & Chapter 11 Bankruptcy first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Corporate Bankruptcies: The Relationship between Chaper 7 & Chapter 11 Bankruptcy appeared first on Michigan Bankruptcy Facts 734-722-2999.

Michigan’s bankruptcy court is divided into the Eastern District, with the main court in Detroit, and the Western District, with the main court in Grand Rapids. Each district also has divisional offices where you may file so long as you file in the district where you live.
Can I File Chapter 7 Bankruptcy?

You may file Chapter 7 bankruptcy if your average monthly income for the six months before you file is less than Michigan’s median income for a family of your size. For example, if you are married with two children, you must earn less than Michigan’s median income for a family of four, which is $6,037 monthly for 2012. If you make more than this, you must pass a stringent means test to qualify for Chapter 7.
How Long Is a Chapter 13 Repayment Plan

The amount of time you must spend paying your creditors also depends on your income as compared to Michigan’s median income. For example, if you make less than the median income, your repayment plan will usually be up to three years. If your income matches or exceeds the state median, your plan will be five years, unless you’re able to pay off all unsecured debt in less time.

The post Facing Bankruptcy While Living in Michigan first appeared on Michigan Bankruptcy Facts 734-722-2999.

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