It can be confusing to distinguish between the different types of bankruptcy and to know when it’s appropriate to file for it.

In this guide, we’ll cover Chapter 7 and Chapter 13—the two most common types of bankruptcy—and will explain what happens when you declare bankruptcy, how to do so, and questions you should ask yourself to determine whether bankruptcy is right for you.

Overview: What Is Bankruptcy?

Bankruptcy is a legal process for individuals or companies that are unable to pay their outstanding debts. You can go bankrupt in one of two main ways. The more common route is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to order a bankruptcy.

If you decide to file for bankruptcy yourself, there are several ways to do so. You may want to consult a lawyer before proceeding so you can figure out the best fit for your circumstances.

Chapter 7 vs. Chapter 13: What’s the Difference?

Chapter 7 and Chapter 13 bankruptcies are two different approaches to resolving outstanding debts:

• Chapter 7: Liquidate your assets and pay off debt with cash
• Chapter 13: Work out a payment plan for unresolved debts

What Is Chapter 11?

There are other types of bankruptcy filings that are less common and more costly for small businesses, such as Chapter 11. This type of bankruptcy is for businesses with $2.5 million or more in debt, or for businesses owned by LLCs or partnerships. A Chapter 11 bankruptcy is similar to Chapter 13 but is usually only for businesses.

This type of bankruptcy:

• Involves a creditors’ committee appointed by an independent trustee
• Reorganizes the company according to a plan that creditors vote on
• Sets up a payment plan for the company to repay its debts

The Small Business Reorganization Act of 2019 made Chapter 11 less costly for small businesses, allowing them more flexibility to negotiate terms of the bankruptcy with creditors. But this is still much less common than Chapter 13. You may want to speak with a lawyer if you feel like a Chapter 11 bankruptcy is right for your company.

What Happens When You Declare Bankruptcy?

Filing a bankruptcy petition automatically stays your creditors’ claims against you. This means that your creditors have to stop trying to collect the money you owe them. They will not be able to:

• Call you to collect debts
• Repossess your car
• Foreclose on your home

Your case will be assigned to a bankruptcy trustee, who is a lawyer who will oversee your case. The trustee will send notices to your creditors and schedule a hearing.

From there, the procedure depends on whether you’ve filed for protection under Chapter 7 or Chapter 13 of the federal Bankruptcy Code.

What Happens When You File Chapter 7?

Chapter 7 is one of the most common types of bankruptcy. In a Chapter 7 bankruptcy, you will:

• Forfeit many of your assets to be sold for cash
• Pay your creditors with the money from your asset liquidation

There are certain assets—such as a limited amount of cash, clothing, household items, and a car—that you are allowed to keep, but these exemptions vary depending on the state you live in.

Once your assets are liquidated and creditors are paid, any remaining debts you owe are forgiven unless you’ve reaffirmed the debt. Debt reaffirmation is when you voluntarily waive protection through the bankruptcy discharge and agree to remain responsible for the debt. Reaffirmation is chosen to retain certain assets and avoid liquidation.

Not everyone can file a Chapter 7 bankruptcy. If your income is too high, you may be required to file a Chapter 13 bankruptcy instead.

What Happens When You File Chapter 13?

If you can’t file a Chapter 7 bankruptcy, or if you have some money to pay creditors and there are assets that you want to keep, a Chapter 13 bankruptcy may be an option for you. In a Chapter 13 bankruptcy, you will:

• Develop a plan for making payments to your creditors over a three-to-five-year period, depending on your income
• Make all of your payments on time to said creditors
• Complete a budget counseling course

After these milestones are complete, the remainder of your debt that is eligible for discharge will be erased.

Chapter 13 is a good option for someone with a steady income who has some money left over every month to make debt payments but who needs some breathing room and extra time to get caught up.

How Does Bankruptcy Affect Assets and Liabilities?

Depending on how you choose to declare bankruptcy, your assets and liabilities will be affected in different ways. In a Chapter 7 bankruptcy, many of your assets are up for liquidation to pay your creditors with the proceeds. In Chapter 13, you retain assets while working on a repayment plan for your outstanding debts.

See how bankruptcy affects assets and debts in the following debtee categories.

Small Business Owners

For small business owners with lots of personal debt, bankruptcy may help them continue to stay in business. It’s important to note that business debts aren’t alleviated with Chapter 7 or Chapter 13 unless you’re a sole proprietor and are personally responsible for them.

• Chapter 7: For sole proprietors, business and personal debts can be wiped out in a single bankruptcy case. You’re not obligated to meet income requirements if your business debt exceeds your personal debt.
• Chapter 13: Your business assets aren’t liquidated, but only your personal liability for business debts can be wiped out. The business remains responsible for its debts.

Some business assets can be exempt from Chapter 7 bankruptcy filings. For instance, if your business is service-based and doesn’t maintain equipment or significant inventory, you can likely continue to run your business after discharging business debts through bankruptcy.

Student Loan Holders

No form of bankruptcy can relieve student loan debt. Certain people, such as some government employees, are eligible for student loan forgiveness unrelated to bankruptcy filing.

If you need help managing your student loan debt, you should look to your creditor to help manage repayment options or look into debt consolidation.

Mortgage Holders

In a bankruptcy petition, your home and mortgage will be noted as assets to determine your ability to repay. Depending on the type of bankruptcy filing you pursue, your mortgage might be affected in different ways:

• Chapter 7: Your home can be liquidated to repay your debt unless you reaffirm your mortgage and assume responsibility for repayment post-bankruptcy.
• Chapter 13: Your home is not liquidated, and you’re responsible for paying your loan under the terms set by your repayment plan under the bankruptcy.

If you choose to reaffirm your mortgage in a Chapter 7 bankruptcy, you could be stuck with the liability for your loan after your bankruptcy proceedings. If you’re unable to repay, you won’t be able to declare Chapter 7 bankruptcy again for several years, and creditors may be able to sue you to collect on the loan.

How Do I Declare Bankruptcy?

To declare and file bankruptcy, you are required to complete a credit counseling class to learn about bankruptcy, alternative options, and managing your finances on your own.

After completing the course, you must submit a petition to the U.S. bankruptcy court in the federal judicial district where you live. This petition will list your:

• Assets, such as cars, homes, and bank accounts
• Monthly income and expenses
• Creditors and how much you owe them

You’ll also need to submit a copy of your most recent tax return with your petition. You can have an Firebaugh & Andrews prepare the petition for you.

Fling for Chapter 7

Chapter 7 is sometimes referred to as a “straight bankruptcy.” A Chapter 7 bankruptcy liquidates your non-exempt assets to pay off as much of your debt as possible. The cash from your assets is distributed to creditors like banks and credit card companies, and you typically receive a notice of discharge within four months.

To file Chapter 7, you must pass a bankruptcy means test. The only people exempted from this are disabled veterans filing for bankruptcy to discharge debt incurred while they were on active military duty or people with debt that comes from operating a business.

The record of your bankruptcy will stay on your credit report for 10 years. But for many people, Chapter 7 offers a fresh start.

Filing for Chapter 13

A Chapter 13 bankruptcy is also known as a reorganization bankruptcy. Chapter 13 enables people to pay off their debts over a period of three to five years. For individuals who have consistent, predictable annual income, Chapter 13 offers a grace period. Any debts remaining at the end of the grace period are discharged.

Once the bankruptcy is approved by the court, creditors must stop contacting the debtor. Bankrupt individuals may then continue working and paying off their debts over the coming years and still keep their property and possessions.

When To Declare Bankruptcy: 8 Questions To Ask Yourself

Most people take their financial obligations seriously and want to pay their debts in full, but knowing when to file bankruptcy and when to negotiate or use another strategy can help put you on the road to financial health.

Here are a list of questions that can help you assess your financial health and give you insight into whether bankruptcy may be right for you. You should also discuss these questions with an attorney.

1. Do I Only Make Minimum Payments on My Credit Cards?

Credit cards typically carry high interest rates on open balances. This means that your balance can quickly balloon if you’re only making minimum payments. If your balance was high to begin with, it could spiral out of control quickly.

2. Do I Get Calls From Bill Collectors?

Constant phone calls from collectors can be irritating and stressful reminders of your debt. Contact each of your creditors and see if they are willing to negotiate a lower balance or lower monthly payments.

3. Do I Use Credit Cards To Pay For Necessities?

Paying for basic necessities with a credit card causes those purchases to accrue interest. For this reason, you should aim to only pay for these items with a debit card.

4. Have I Considered, or Am I Considering, Debt Consolidation?

Debt stems from many sources. Consolidating your payments into one large loan can help you more easily keep track of outstanding debts with one monthly payment. This can also extend more time to your repayment as the new loan will come with new payment terms.

5. Can I Pay Down Debts by Selling Some Possessions?

It can be hard to confront downsizing from a home or getting rid of a car, but taking these difficult steps could allow you to pay off debts and avoid a bankruptcy filing.

6. Do I Owe More Than I Pay?

Your expenses should ideally be covered by your income with some buffer room for emergencies. If your monthly payments exceed your take-home pay, you’re a potential candidate for bankruptcy.

7. Am I Unsure How Much I Actually Owe?

Uncertainty about your total outstanding debts is cause for concern. Whether your balances have grown larger and you’re unaware of the total, or you’ve forgotten creditors that have sent your debt to collections, you should consider alternative repayment options if you can’t tabulate how much you owe.

8. Will a Bankruptcy Actually Resolve My Debts?

Bankruptcy does not resolve all debt indiscriminately. Some debts, such as student loans, cannot be discharged in bankruptcy. If you’re having trouble making payments toward debts that bankruptcy won’t cover, you should speak with your creditors to determine your options.

Call us for a free consultation 734-722-2999

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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

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

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

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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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.

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

Although filing for bankruptcy is a very difficult and important decision, most of people’s fears are unfounded. Ironically, most people’s credit improves after they file for bankruptcy. The majority of people filing for bankruptcy in Michigan already have fairly low credit scores. This occurs because their creditors keep reporting delinquent balances or obtaining judgments. Once a person files bankruptcy, all of their debts are generally discharged. As a consequence, there are no longer delinquent payments being reported dragging down their credit score. It’s not unusual to see a person’s credit score rise a 100 points approximately a year after filing for bankruptcy.

Most People Keep Their Property

Another fear people have is that they will lose their property. This fear too is unfounded for most people. The Bankruptcy Code allows people to retain most if not all of their assets. For example, a person could have $10,000.00 in the bank and file for bankruptcy or even up to a $1,000,000.00 in a retirement plan. The code provides for protection for a substantial portion of a person’s property in order to help them obtain a fresh start. In addition, a person can keep their car or their house as long as they agree to continue to make payments on that property.

It’s Okay!

Filing for bankruptcy is difficult for most people because of the fear of humiliation or because they believe they have failed in some way. Nobody generally makes it a strategy to file for bankruptcy. First, if your neighbors and friends will not find out that you filed for bankruptcy unless they make it a habit of checking the court files. Filing for bankruptcy should be approached more from a financial point of view and less as a moral problem. Problems happen to people that often have a negative impact on their financial situation such as a divorce, illness, job termination, or substantial depreciation in the value of their house. These problems may wreak havoc on a person’s finances if not addressed.

Bankruptcy Stops The Harassment

Some people worry about being harassed at court by their creditors. What many of these people don’t realize is that bankruptcy stops creditors from harassing them.

If a person is unable to pay their bills, a creditor can obtain a garnishment of their wages or seize their property such as a car or household items. Bankruptcy stops creditors from collecting. Although creditors may appear at court to question a Debtor, it is rare that they do.

We understand that filing for Bankruptcy is an important and difficult decision. It is a decision that a person should make only after consulting a professional with expertise in the field. My Firebaugh & Andrews specializes in helping people file for bankruptcy. We have helped thousands of people discharge their debts under Chapter 7 or reorganize their finances under Chapter 13.Firebaugh & Andrews has been practicing bankruptcy law for over 50 years combined.

We offer free consultations to help people understand how bankruptcy would affect them and to take the unknown and fear out of filing for bankruptcy.

The post Are you Afraid of Filing for Bankruptcy in Michigan? first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Are you Afraid of Filing for Bankruptcy in Michigan? appeared first on Michigan Bankruptcy Facts 734-722-2999.

There are some differences between the documents required for a Chapter 7 bankruptcy petition and those required for a Chapter 13 bankruptcy petition.

Typical documents and information taken into account during a Chapter 7 bankruptcy case include:

• A list of your current personal property and its value. This includes assets such as:
  • Cash
  • Checking or savings accounts, certificates of deposit or annuities
  • Qualified educational or tuition accounts
  • Pension or profit sharing accounts
  • Household goods, furniture, electronics and computer equipment
  • Deposits with utility companies, landlords, phone companies, etc.
  • Collectibles such as books, art, antiques, etc.
  • Automobiles, trucks, trailers and other vehicles
  • Boats, motors and accessories
  • Aircraft and accessories
  • Clothing
  • Furs and jewelry
  • Firearms, sporting equipment, photographic or other hobby equipment
  • Interest in insurance policies
  • Stocks and business interests
  • Government or corporate bonds
  • Moneys due you by others, including tax refunds
  • Alimony, maintenance, support, or property settlements to which you are entitled
  • Interests in the estate of a decedent, life insurance or trust
  • Patents, trademarks and copyrights
  • Licenses and franchises
  • Office equipment, furniture and supplies
  • Machinery, fixtures and equipment used in business

A bankruptcy lawyer can help you determine which of this property can be included on the schedule of claimed exemptions and protected from liquidation.

• A list of real property (real estate), including your interest in the property, the current value and the amount of any secured claim.
• A list of your creditors, the amount that you owe them and any security on those accounts

A bankruptcy attorney can help you determine which debts belong on the secured schedule and which of your unsecured debts belong on the priority schedule and which on the non-priority schedule.

• A list of any current contracts or unexpired leases, whether the debtor is the lessor or the lessee of the property
• A list of the names and addresses of any co-debtors on any accounts, along with the names and addresses of the creditors on those accounts

Co-debtors can be affected by your filing. The impact on a co-debtor is different depending upon whether you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. A bankruptcy lawyer can explain how each one affects any joint account holders or co-signers on your accounts.

• The name and address of your employer, along with your occupation and the length of your employment
• Documentation of your income from employment, including payroll deductions
• Income from other sources, including alimony or maintenance
• In some cases, a list of current monthly expenses
• A list of any payments made to creditors during the past 90 days
• A list of all payments made during the past year to creditors who are ‘insiders’. (Creditors with whom the debtor has another relationship, like family members)

A bankruptcy lawyer can provide you with the exact legal definition of ‘insider’ and help you determine whether or not you have made any payments that fall within this classification.

• A list of any lawsuits or administrative proceedings the debtor was a party to within the year preceding filing
• A description of any and all property that has been seized, garnished, attached, repossessed, foreclosed or returned during the preceding year
• A list of any property that has been assigned for the benefit of creditors within the 120 days preceding
• Any property that has been in the hands of a receiver, custodian or court-appointed official during the preceding year
• Any gifts or charitable contributions you made within the preceding year
• Losses from fire, theft, casualty or gambling during the preceding year
• Payments related to debt counseling or bankruptcy within the preceding year
• Any property transferred during the two years immediately proceeding filing
• A list of any financial accounts closed, sold, or transferred within the preceding year
• A list of safe deposit boxes (along with locations and contents) held presently or within the past year
• A list of any set-offs by any creditor in the past 90 days
• Any property held or controlled by the debtor for another person
• All addresses at which the debtor has lived during the preceding three years
• Nature, name and location of any businesses owned during the preceding six years

Having these items ready will help speed up the process.  Call us today for your free consultation 734-722-2999

The post What Bankruptcy Records And Documents Are Needed? first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post What Bankruptcy Records And Documents Are Needed? appeared first on Michigan Bankruptcy Facts 734-722-2999.

For those who are struggling with debt and experiencing harassment from creditors, time is of the essence. This can be especially true when it comes to getting finances back on track and restoring a sense of normalcy to life. You, or someone you know, may be considering filing Chapter 7 bankruptcy but are unsure about how long the filing process takes.

Typically, a Chapter 7 bankruptcy case is relatively quick to complete. Your bankruptcy case could be completed and discharged within 3-6 months of filing bankruptcy.

However, there are some important dates that can affect your right to file a case and obtain relief. The following filing timeline illustrates the relevant dates in a typical Chapter 7 bankruptcy case.

The post How Long Does Filing Chapter 7 Take? first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post How Long Does Filing Chapter 7 Take? appeared first on Michigan Bankruptcy Facts 734-722-2999.

Bankruptcy &Your Credit Report and Score

Your credit report is important if you want to borrow money – the potential lender will review the report to determine if lending to you would be risky. Those with good credit are a low risk and are more likely to get loans with good terms; those with poor credit are high risk and may have more difficulty.

These lenders will look at your credit score and your overall credit history when deciding whether to lend to you. Your credit score is based on a multitude of factors, including the amount of available credit you have, the ratio of your balances due to your credit limits, your total amount of debt and any judgments or bankruptcies you have on record.

Chapter 7 and Chapter 13 bankruptcy both affect your credit score the same – having a Chapter 13 bankruptcy on your credit report will not be any better for your score than a Chapter 7. However, the individual reviewing your report will look at more than your score.

Some Lenders Take Into Account the Difference Between Chapter 13 and Chapter 7

A Chapter 13 bankruptcy involves repaying some or all of your debt over a three- to- five-year period, while a Chapter 7 bankruptcy involves wiping out most of your debts without paying them back.

Both Chapter 7 and Chapter 13 theoretically leave you in a good position to take on new debt, as they both free you from the burden of old debts and give you a fresh start. Beyond that, if you have a Chapter 13 on your credit report, a lender looking at your report may see it as a responsible way to handle your debt, because you made a good faith effort to repay your debts despite your financial hardship. In that way, a Chapter 13 may be better for your credit than a Chapter 7.

Call Firebaugh & Andrews for your free evaluation today 734-722-2999

The post Chapter 13 Bankruptcy is it Better for My Credit Than Chapter 7? first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Chapter 13 Bankruptcy is it Better for My Credit Than Chapter 7? appeared first on Michigan Bankruptcy Facts 734-722-2999.

Prevent Foreclosure, Repossessions And Garnishments In Michigan

When you file bankruptcy, you are protected by the “automatic stay.” The automatic stay requires creditors to put an immediate stop to all debt collection efforts. The following are examples of creditor actions that can be stopped when you file bankruptcy:

• Home foreclosure: Filing bankruptcy will stop the foreclosure and give you time to decide whether to keep the home or give it up.
• Auto repossession: Filing bankruptcy will stop a repossession. As long as the car has not been sold, you can get it back.
• Harassing phone calls: Once you file bankruptcy, creditors cannot call you or your employer.
• Lawsuit judgments: Filing bankruptcy puts an immediate stop to collection of lawsuit judgments.
• Wage garnishments: Filing bankruptcy will stop the garnishment. If you act soon enough, it may allow you to get garnished wages back.
• Bank account garnishments: Filing bankruptcy will stop the garnishment. If you act soon enough, it may allow you to get your money back.

Call Firebaugh and Andrews we handle emergency bankruptcy filings in Michigan, call us today for your free consultation. 734-722-2999

The post When to use Emergency Bankruptcy Filings. first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post When to use Emergency Bankruptcy Filings. appeared first on Michigan Bankruptcy Facts 734-722-2999.

1. You receive a complete fresh start. After the bankruptcy is discharged the only debts you owe will be for secured assets on which you choose to sign a “Reaffirmation Agreement.”
2. You have immediate protection against creditor’s collection efforts and wage garnishment on the date of filing.
3. Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours, not the creditors or bankruptcy court.
4. There is no minimum amount of debt required.
5. Your case is often over and completely discharged in about 3-6 months.

Disadvantages to a Michigan Chapter 7 filing:

1. You lose your non-exempt property which is sold by the trustee. If you want to keep a secured asset, such as a car or home, and it is not completely covered by your Michigan bankruptcy exemptions then Chapter 7 is not an option.
2. If facing foreclosure on your home, the automatic stay created by your Chapter 7 filing only serves as a temporary defense against foreclosure.
3. Co-signors of a loan can be stuck with your debt unless they also file for bankruptcy protection.
4. If you filed a prior case and received a discharge of your debts, you can only file a second Chapter 7 bankruptcy case eight years after you filed the first case.

The post Advantages & Disadvantages to a Michigan Chapter 7 filing: first appeared on Michigan Bankruptcy Facts 734-722-2999.

The post Advantages & Disadvantages to a Michigan Chapter 7 filing: appeared first on Michigan Bankruptcy Facts 734-722-2999.