Qualifying for a Discharge

Before debts will qualify for a discharge under Chapter 7, several criteria must be met:

• Debt discharges can only occur once during each nine-year period.
• According to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, individual debtors seeking discharge must enroll in and complete a personal financial management class.
• The debtor must have history of cooperation and honesty. If there were incidents such as poor record keeping before filing, fraudulent transfers, or ignoring orders made by the court after filing, the court is much more likely to deny the discharge.

When Your Discharge is Granted

Once a discharge is granted, the debtor is afforded some protections:

• Legal action cannot be taken for collection of discharged debts.
• Accordingly, any letters, phone calls or other communications related to the discharged debt must stop.

What A Discharge Does Not Do

Unfortunately, a debt still exists after it’s been discharged; the debt is not completely cancelled. Attempts to collect on the debt from the debtor who had it discharged must cease, as the debtor is no longer personally liable, but the discharge does not automatically protect any guarantor or co-debtor from continued or further liability.

A debtor filing for Chapter 7 relief must also consider any outstanding liens. Liens are not affected by bankruptcy discharge. Here’s an illustrating example: a debtor had previously secured a $6000 loan with a vehicle that was worth $2000, and the $6000 was left unpaid. The debtor files for Chapter 7 bankruptcy and is granted a discharge on the debt. In this situation, the creditor’s security interest is not eliminated with the rest of the debt; the car can still very well be repossessed. The protection provided to the debtor under the bankruptcy discharge only applies to the leftover debt that remains between the value of the car and the amount of the original loan, or $4000.

Discharges Can Be Revoked

Under certain circumstances, usually involving dishonest behavior on behalf of the debtor, discharges are revoked. A Chapter 7 discharge can be reversed by the court in these scenarios:

• A revocation is requested by a creditor or the trustee.
• The debtor misstated or omitted crucial information in connection to the audit of their case.
• The debtor acquired property and purposefully did not report that property or give it to the trustee.
• The debtor used fraudulent means to obtain the discharge.

Debt is handled different in each type of Bankruptcy, so if maintaining your assets is your largest priority, then a chapter 7 may not be the best option for you. In a chapter seven bankruptcy, debtor assets are sold, or claimed by creditors in the forms of liens or mortgages to pay off debt. A Chapter 13 bankruptcy differs in the fact that you may maintain all your assets, but must create a payment schedule to repay debts in full.

If you are underwater on a mortgage, or own assets that act as a drain on your gross wealth, a chapter 7 may be a good option for you. Debt from boats, cars, or other large purchases can be forgiven in a chapter 7.

There is a cost associated with filing a bankruptcy. This is not relegated to the costs of the process. You will also be legally required to inform potential employers or debtors about this, if asked. The bankruptcy will remain on your credit report for seven years in some cases, and may affect your chances of getting a home, buying a new car, or even landing a job. Consider this carefully before you plan to file bankruptcy, and ensure that you can handle this high price.

In a chapter seven bankruptcy, you must also be prepared to relinquish some of your property in return for being clear of debt. There is a list of items on the federal and state level that you will be allowed to keep. It’s important that you discuss your possessions with a qualified bankruptcy attorney, so that you can get a clear understanding of what items you will be able to keep, and which will be taken. You will also need help deciding whether the federal or state laws are the best for your situation.

If you file a chapter 7, here are some items that you will not be able to keep

• Collectibles, or large collections
• Cars, above one vehicle for personal transport
• Monetary assets, like CD’s or investments
• Family items with intrinsic worth

You may be able to keep the following, depending upon your profession and personal situation:

• Professional tools required by your job
• Everyday living items, such as clothing, basic furniture, or housewares
• Benefits supplied by the government, such as social security, Medicaid, or Medicare
• IRA’s, 401(k)’s or pensions

It’s advised that you work with a bankruptcy lawyer to make the difficult decisions you are going to be facing, such as whether or not to file, which guidelines to use, and how to fill out the paperwork.

A very common pitfall that many either commit or at least consider, is liquidating retirement assets. While cashing in an IRA, 401K or other types of retirement seems like an easy fix for a current economic problem, it is a big mistake. This only serves to take away the debtor’s hard earned security for tomorrow.

Your Retirement Funds Can Be Protected in Bankruptcy.

Working bankruptcy attorneys, you will understand how it is possible to get out from under the heavy pressure of debt without risking your financial future. Often, clients do not even realize that this is a possibility. Secure swift relief from debt and creditors. Protect the future that you have built for yourself and your family by working with a bankruptcy lawyer in New York.

Stay Away From Debt Management (Without an Attorney’s Help).

It is a common mistake to turn to debt management companies for relief. Consumer debt can be hard to manage, and debt management companies may seem like an easy way out. Unfortunately, many of these companies are just in it for a quick dollar, and not your best interests. Many of these companies present you with a debt structure, collect your money and never follow through with paying your creditors. You end off worse than you started.

An experienced bankruptcy attorney can help you if you decide to go with a debt management company. Allow a knowledgeable attorney to work with both the debt management firm and your creditors to make sure that they actually follow through with the structured plan. Protect yourself from unscrupulous people and hire someone that has your best interests at heart.

A Fraudulent Transfer of Assets Is Asking for Trouble.

While transferring your assets to another individual may seem like a great way to “hide” your property from a bankruptcy trustee, this is a mistake. Laws have been established to curb this practice by making certain transfers illegal. Fraudulent asset transfer occurs when a debtor does so to defraud his or her creditor. Selling your asset for less than it is worth to a friend is also fraud. An experienced attorney will let you know what constitutes fraud and keep you on the right side of the law.

If a transfer is called into question, a qualified attorney will help you with your defense against the accusation. There are times when transfers are legitimate and a good lawyer will properly defend your right to do so. Applicable defenses include those transfers made in good faith or those made during the course of normal business procedures.

Credit Repair Scams Are Rampant.

Many legal counselors and attorneys will protect consumers against credit repair scams. We are constantly on the watch for predatory or deceptive practices made by credit card companies, credit repair businesses, banks and mortgages.

Certain collection agencies may threaten that they will go after your spouse for payment on a debt. This is a commonly used scare tactic. In most cases, collection agencies can only pursue payment from the person who holds the debt. Your spouse cannot be held liable for a debt unless it is a joint-debt, or your spouse was a co-signor for the debt.

If you have no joint debts, then one spouse’s bankruptcy will have no effect on the other spouse’s credit score. However, due to the bankruptcy, the spouse who filed for bankruptcy may not qualify as a co-signor in the future. This means that bankruptcy can have indirect effects on your spouse in the future. If your spouse has a supplemental credit card (an additional credit card on your account), this is another situation where your spouse can be affected by your bankruptcy. If your spouse has a credit card with their name on it, and if they have used the card, then they are responsible for the entire credit card debt.

Bankruptcy can also affect your spouse in non-financial ways. The emotional and mental distress of bankruptcy can be significant. Watching a spouse lose most of their assets and go through bankruptcy can be a very emotionally draining experience. When you file a bankruptcy petition, your spouse may begin to worry about what other people will think of them. Loss of reputation and concern over social status is something that certain spouses may experience.

If you file for Chapter 13 bankruptcy, your financial life during the reorganization process can get complicated. However, child support payments are considered priority debt – meaning that they must be paid before other obligations such as credit cards, medical bills, and other unsecured debt. If you are owed child support payments by someone who is filing for bankruptcy, understand that the payment may be delayed during the Chapter 13 reorganization process; however, it will not be discharged.

In bankruptcy, you are required to file a schedule of assets, liabilities, exemptions, and statement of financial affairs. This can be very valuable information for a parent who is owed child support by the person filing for bankruptcy. If you are owed past-due child support by someone filing for bankruptcy, you can intervene in the bankruptcy proceedings without charge and contest the amount that is owed to you (the debt in arrears).

If you pay child support, there is a good chance that child support payments will be a crucial component to meeting the Chapter 13 bankruptcy repayment plan. In other words, if a bankruptcy filer fails to meet his child support obligations (both current and past due) according to the plan, the bankruptcy can be nullified.

With credit counseling, you will be working an agency that will assist you with a wide variety of tasks, including debt negotiation, developing & maintaining a budget, developing financial management skills, and credit score improvement. Both credit counseling agencies and debt negotiation companies can help you avoid bankruptcy and manage your debt effectively.

Credit counseling agencies partner with major creditors to help you reduce interest, stop late payment fees, negotiation debt repayment, reduce monthly payments, and educate you on financial management. Your creditors work with consumer credit counselors because it is to their benefit to help you get out of debt. After making regular payments for a few months, your credit counseling agency can have your accounts re-aged and your credit file will show the new updates. This can help improve your credit history, and build decent credit ratings.

Credit counseling is probably a better choice for people who need help with financial management, budgeting, and assistance in eliminating their debt. Debt negotiation is probably a better choice for people who have good negotiation and communication skills. If you already know about budgeting and managing personal finances, then you may be better off working with your creditors directly (on your own) to reduce your debt. One of the benefits of credit counseling is that companies are often more inclined to work with another company, than to deal with an individual debtor. Both solutions have pros and cons, so you will need to consider your skills, time commitment, and needs before deciding between the two.

A judgment is the final act of a court (a court order) in defining the rights of all parties involved. If you do not pay your debts, a creditor can pursue a judgment against you. You and your creditor are summoned to appear in court. If the creditor wins the court case, a judgment will be issued. The judgment will say that you owe a specified amount of money to the creditor. Once the creditor obtains a judgment against you, he can pursue a variety of legal methods to force payment of the debt. You can stop the creditor from taking any of these steps by filing for bankruptcy.

In most states, you will receive a summons to appear in court if a creditor is pursuing a judgment against you. It’s a good idea to appear for the court case. If you do not appear, your creditor wins the judgment by default. Sometimes, you can have a default judgment vacated (or set aside) by filing a motion after the judgment is issued. You will need to have a valid excuse to explain why you did not appear for the court case. A judgment can remain on your credit report for up to 10 years, so this is something you want to take very seriously.

A judgment can also be issued on real property (i.e. home, car). This type of judgment is called a judgment lien. A creditor can obtain a judgment lien by recording a certified copy of the judgment in the real estate records of the county in which the real property is located. Real property liens last for 10 years (or until the debt is paid off), and they can be renewed for another 10 years.

Even though you are not required to try a debt repayment plan before bankruptcy, it’s a good idea to consider debt negotiation, and debt repayment plans before pursuing bankruptcy. Bankruptcy is a “last resort” solution for people who have run out of available options. Establishing a repayment plan can help you manage your debt, budget your spending, and start making a dent in your total debt owed.

Most credit counseling agencies can develop a repayment plan for you. Likewise, financial advisors, accountants, and attorneys can also help you develop a repayment plan before deciding to file for bankruptcy. If you feel that a repayment plan could work for your financial situation, try one for awhile. See if you are able to meet your financial obligations and stick to the plan. If you are planning to file for Chapter 13 bankruptcy, you should understand that you will be forced to follow a court ordered repayment plan. Therefore, if you can develop and follow your own repayment plan, you may not need to file for Chapter 13 bankruptcy.

Developing your own repayment plan may involve negotiating with creditors for a longer repayment period, better terms, reduced monthly payments, or lower interest rates. If you’re not comfortable building your own repayment plan, consider having a credit counseling agency or debt settlement firm assist you in structuring a repayment plan. Repayment plans are a voluntary solution that can be very effective for a number of debtors. Consider developing and following a repayment plan before filing for bankruptcy.

If you’re struggling with mounting debt and medical bills, you may be wondering if you can negotiate your medical bills. You can successfully negotiate with medical providers to reduce your medical bills, but you have to be willing to ask for what you want. Insurance companies are not the only ones who can negotiate with hospitals and medical providers. Most insurance companies receive a 60 percent discount. If a large insurer receives a 60% discount, you can certainly negotiate a 30 percent reduction in your total costs. If you visit the hospital in person and explain your situation, you may get a substantial discount. When you visit the hospital, ask for the CFO or the manager of accounts payable.

How much of a reduction can you get? The reduction amount is completely determined by the opinion of the billing office, CFO, or whoever makes decisions at the medical office. When negotiating your medical bills, it’s important to understand which bills to negotiate. If you are still receiving medical care from a provider, it’s very important that you pay the full amount. If you don’t, you could risk being denied future medical care, or having to prepay.

The key to successfully negotiating your medical bills is knowing what would normally be discounted if you were paying through health insurance. If you know what the standard charge is for a procedure (through health insurance), then you can use that information to your advantage. Ask the medical billing office to make an adjustment, based on the standard charge if you were paying through health insurance. Medical providers are not obligated to lower the charge; however, they may compromise to avoid confrontation and argument. When you reach a compromise with the medical billing office, it’s important to have them reissue the bill showing the reduced fee. Once you receive the invoice for the reduced bill, pay the bill immediately.

Do not wait until your medical bills are sent to a debt collection agency before trying to negotiate. If you wait until your medical bills are passed on to an agency, then your credit rating will suffer. Use the steps above to begin negotiating your medical bills so that you can get a handle on your debt.

If you pay off an old collection account, the “date last active” will change. Among other factors used to determine your credit score is the “date last active” on all accounts. For example, you may have a collection from a long-ago past due medical bill, with a last active date of 03/01, with a $600 balance. Since this is an old, inactive collection, its effect on your credit score is very minimal. It is probably only lowering your score slightly. Your recently active credit plays a larger role in your total credit score than very old accounts, even if they are collection items or past-due. If you decide to pay off the old collection account, you will bring the “date last active” to the current month. Your new balance will reflect $0 as the amount owed – however, since it is a recently active collection item it may negatively affect your score. Unfortunately, a recently active collection account (with a zero balance) is more harmful to your credit score than an old collection item with a past-due balance.

The company that manages credit reporting and scoring is called Fair Isaac. They claim that adjustments have been made to credit scoring (beginning in 2008) that allow you to pay an old debt without any negative movement in your credit score. Fair Isaac claims this is true for lump sum payments – and not a series of payments over time.

Fair Isaac’s claim that paying off old collection accounts will not negatively affect your credit score is very controversial, and it may not be true for all credit accounts. Consult with your financial advisor, credit counselor or bankruptcy attorney if you plan to pay-off very old collection items and judgments. Instead of paying these items, it may be better to wait for old collections & judgments fall off your credit report.