An Overview of Debts That Are Discharged in Bankruptcy

A bankruptcy discharge implies that the debtor is no longer legally stipulated to pay any debts that were booked in the court. The signaling of discharge issue - a permanent order, indicates that creditors are prohibited from going on any type of collection drive on discharged debts including legal action or contacting the debtor through phone calls or e-mails.

Generally the bankruptcy discharge takes place around four months after the debtor files the petition with the clerk of the bankruptcy court. However, this is subject to certain legal conditions such as litigation involving some objections to the discharge. Barring such incidents, the debtor automatically obtains a discharge.

When the petitioner has a personal liability for a debt, a creditor with judgment can use legal processes like levy and garnishment to reach the petitioner's non-exempt assets and earnings even though these assets were not pledged as collateral and the debts were unsecured. The bankruptcy discharge eliminates the debtor's personal liability for a discharged debt. The discharge encompasses not only debts that were liquidated with the filing of the case but any liability that arises from events before filing as long as the affected creditors received the bankruptcy notice.

In chapter 7 bankruptcy case, the following types of debts are dischargeable:

Business debtsLeasesJudgment against the petitioner including car accident claimDeficiencies existing after repossession of vehiclesPersonal loansCredit card account balancesNegligence claimsLiabilities under guaranteed agreement

It is vitally important for the petitioner to be aware of the types of debts that are non-dischargeable in bankruptcy.

The most common types of non-dischargeable debts are:

Certain types of tax claimsDebts which were not exposed by the debtor in the documents and schedules that he / she had filed at the courtDebts for spousal or child support in alimonyDebts to governmental units for fines and penaltiesDebts for most government- funded guaranteed educational loansBenefit over paymentsDebts for personal injury caused by debtor's operation of motor vehicle in an intoxicated stateDebts owed to certain tax advantaged retirement plansDebts for certain cooperative housing fees

Adversary proceedings and contested matters are methods of handling disputes that arises in bankruptcy cases. An adversary proceeding is basically a civil trial within the context of a bankruptcy case. Contested matters are more informal. They are initiated by a motion and usually do not require a filing fee. The Bankruptcy Rules establish the type of disputes that fall into each category. For example, adversary proceedings include objections to discharge of debts while contested matters include objections to sales of the debtor's properties. The procedures used in the court include mediation, arbitration, early neutral evaluation, summary jury trial and settlement week.

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Budgeting Before and After Filing Bankruptcy

When it comes down to it no one really wants to live on a budget. The first thing a bankruptcy attorney will tell someone that comes into their office and is on the cusp of filing bankruptcy but trying to avoid it, try living on a budget for a year and see if you can avoid bankruptcy altogether. Over the last 20 years Americans have learned to live way beyond their means using credit as a way of firing up the printing press when they get short on cash. Before filing bankruptcy, everyone should take a hard look at their spending habits and eliminate everything that is not completely necessary. We as Americans have blurred the line between wants and necessities. So many people think they need a luxury automobile as it's part of their image, when in reality all they need is transportation. So many times people put themselves in financial despair over items they believe they need and really don't. It doesn't mean you have to be a spendthrift to avoid a bankruptcy filing, but if you can't put away any extra money out of your paycheck because everything is going to what you "need" there is something wrong.

The three main causes that forces an individual into filing bankruptcy are, the loss of a job, an illness that runs up a large amount of medical bills, and a family breakup that causes divorce. Many of these things will not lead to bankruptcy filing if a person was not living beyond their means. However, if disaster strikes and an individual has no cushion, things get out of control quickly ending up in bankruptcy.

I know trying to live on a budget is about as much fun as having a colonoscopy. And for most of us it is the last thing you want to do. Living on a budget has many benefits with the goal being to increase your net worth to a place where life's small disasters won't destroy the family finances. When you budget you need to take in consideration all the necessities first including a mortgage or rent, transportation costs, utilities, medical costs and putting something away for the future like a 401(k). The first thing a person needs to get rid of is all their unsecured debt like credit cards. Credit card debt can destroy a person's budgeting because it's too easy to overspend. When using credit cards a person should try to pay it off at the end of the month and not carry the balance over.

Living on a cost-effective budget is not rocket science and it's pretty easy to turn around. Some people will need to file for bankruptcy because there's no way they will ever be able to pay the debt that they have accumulated. The basic idea behind budgeting is a person needs to spend less than they are making. By spending less than you're taking in should be able to avoid filing bankruptcy and start building a nest egg. For those that are too far upside down, they should consider speaking with a bankruptcy attorney about filing Chapter 7 bankruptcy.

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Best Way to Handle Bankruptcy Case in Court

The bankruptcy court exercises control over property and debts by appointing the official called "Trustee" to manage the petitioner's case and proceedings. The trustee (or staff) examines the papers to ensure that they are fully documented and look for property to sell for the benefit of creditors. Their primary duty cover responsibilities from scrutinizing the legal papers to ensuring that the creditors are paid off as much as possible. They also check all the financial transactions carried out by the petitioner during the previous year.

Shortly after filing the bankruptcy papers, the petitioner receives a notice of the date of the creditors' meeting. The trustee convenes the meeting and, after the petitioner is sworn in, may ask him / her questions pertaining to bankruptcy and about the documents filed. He may also enquire whether any asset had been sold in the previous year or if the documentation furnished is 100% authentic.

As the question of domicile residence requirements are in force at the court of law, it is mandatory to be aware of the length of stay of the petitioner in the state from where he / she is filing. With the filing of bankruptcy petition, an "Order for Relief" under the bankruptcy law would be initiated. This order of relief includes an "Automatic Stay" that prevents creditors from harassing the petitioner further with collection drives.

This also includes most law suits or legal proceedings pending or currently active against the debtor and debtor's properties. Filing the petition is the initiator of the processes that may lead the debtor experiencing genuine financial difficulties to find the means to eliminate substantial portion of their financial obligations.

Any filer seeking relief from bankruptcy court must be fully cooperative in handling all matters related to the bankruptcy, including dealing with the trustees. After the hearing between the petitioner and the trustee, the bankruptcy relief may not be meted out immediately after the creditors' meeting. The petitioner should be patient and be aware that the case would proceed through the bankruptcy court process in an orderly manner. Only when there are no objections or problems with the bankruptcy proceedings, then the court may move forward to grant bankruptcy.

The whole process is a fact-finding procedure. But in the event of any alarming facts emerging at the meeting, then either trustee or creditor(s) can file a motion or an adversary proceeding in the bankruptcy court for judge's consideration.

In addition, after filing a bankruptcy case the individual debtor must complete a financial management instruction course before he / she is entitled to receive a discharge. Throughout the years, the debt relief team has seen many challenging and unique problems arise during the course of bankruptcy but these have been in most cases successfully addressed as the objective of the bankruptcy law is to help debtors start afresh.

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A Creditor Sent You A 1099 C? Don't Worry, Filing Bankruptcy Can Fix That

With a large number of Americans filing bankruptcy every year, creditors and debt collectors alike have gotten more aggressive with their collection tactics. I guess they believe that they have to be quick in today's economy or they will get nothing at all. Creditors are now quick to sue so they can get a judgment, followed up by a wage garnishment when people start getting behind on their debts. It doesn't take a rocket scientist to figure out that the debt ratios of most Americans are unsustainable. People just don't make enough money for the lifestyles they are trying to keep.

Recently, I was walking through the mall and noticed some women that appeared to be house cleaners carrying designer purses. My grandpa would roll over in his grave to see the foolishness of people spending in living beyond their means. My grandfather did well for himself and at the time of passing had 20 pieces of property, a successful business and an old beat up car. Sure, all the assets are nice, but he thought it was a waste of money to try to drive a new car just to impress a bunch of people that you really don't care about. Americans have let your egos rule their pocketbooks. The media has pushed for the idea that image is everything, no matter what the cost. What happened to the wisdom of our elders?

Creditors are not stupid and are in business to make money. They know if they can keep someone in bondage just one more month, it will be just that much more profit for them. The credit industry also has to follow the rules and regulations of the dreaded IRS and if they want to write something off on their taxes as a loss, they will have to send it out to somebody as income. That's why many creditors will send out a 1099C for individuals that have settled debts, had their car repossessed, gone through a foreclosure and anything else where there was a deficiency on the entire balance.

Off-topic, this is another reason why filing bankruptcy is a better solution for most people rather than using a debt settlement company. A debt settlement company will negotiate with the creditors to reduce the balances of typically about 50% of the balance owed. Most creditors usually take the deal knowing that something is better than nothing and digging their heels in will only lead to filing bankruptcy of the individual in trouble. For the creditor to write it off as a loss, they will need to send a 1099C to the individual as taxable income. This becomes a problem if someone went through foreclosure and gets taxed for $100,000.

To avoid being charged with this phantom income, an individual can file for bankruptcy and wipe out any past liability of these debts. If the individual is insolvent or bankrupt, the debt will no longer be treated as taxable income. This is once again something that needs to be discussed with a bankruptcy attorney because every situation is different. The last thing a person that is in financial trouble needs, is to have IRS trouble. It makes sense to spend the money on a bankruptcy attorney and file Chapter 7 versus signing up for some sort of debt settlement or debt consolidation program. Because those programs are unregulated, they leave the individual open to all sorts of liability. Nothing beats a bankruptcy discharge to put a definite end to debt problems.

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If You Need to File Chapter 7 Bankruptcy, Don't Get Forced Into Chapter 13

There is a common thread that runs throughout the American culture today and that's the economy sucks. This recession has affected everyone. There has been no one that has been immune from losing something. The only jobs that have until now been stable are that of the public sector. Everyone thought that if they were a policeman or a fireman, their job would always be safe because they are needed. Until recently this was true, now cities are having trouble making payroll nationwide. As cities continue to cut their budgets, departments are having to lay off employees including police and firemen. This is putting our local heroes even in danger of filing bankruptcy and losing their homes to foreclosure.

Back in 2005, Congress changed the bankruptcy code because credit lobbyists pushed for stricter regulations on filing bankruptcy. They believed that too many Americans were abusing the legal system. What came out of this was the BAPCPA of 2005. Included in the changes was a means test to qualify people to file Chapter 7 bankruptcy. Prior to this, when people thought of filing bankruptcy they thought of Chapter 7. Now, many people are being forced into filing Chapter 13 bankruptcy instead of the Chapter 7 that was originally planned. Since the changes to the bankruptcy code many bankruptcy attorneys have argued the negative ramifications it has had on Americans in financial trouble. Forcing someone into a Chapter 13 payment plan many times only sets them up to fail, totally opposite of the fresh start that bankruptcy promises. Don't get me wrong, Chapter 13 has its benefits for some individuals depending on their situation. For most people, Chapter 7 bankruptcy is the best Chapter to file.

Just ask any bankruptcy attorney and they will tell you the trouble with some people qualifying to file Chapter 7. There is a large group of people that should be filing Chapter 7 and is forced into Chapter 13 bankruptcy because they do not qualify. The majority of these ride on top of the fence and could go either way. Their income is just too high for the area in which they reside and their expenses are too low. The problem is, the majority of their debt is from credit cards which are not allowed to be included in the expense report.

Let's take a step back and discuss how the means test works. Basically, the means test takes a look at the last six months of the individual's household income. How it works is, a person will add up their pay for the last six months, then divided by six and multiply by 12. This will give them their average annual income to be compared with the median income chart for their state. This in itself does not qualify someone to file Chapter 7 bankruptcy. They will need to complete an income and expense report that includes all of their household expenses like rent, transportation, medical, and all other living expenses. Anything that will be included in the bankruptcy discharge like credit cards cannot be included in this expense report because it will be wiped out in the bankruptcy filing. Some people can qualify if the numbers are moved around a little bit by a bankruptcy attorney. A Bankruptcy attorney will know what will be excepted by the bankruptcy court for acceptable expenses. Some people don't qualify even if they make under the median income because their expenses are not high enough and the court believes they're capable of paying back at least a portion of their debt. The bankruptcy court wants to make sure the person filing bankruptcy has less than $150 disposable income each month left after paying all their living expenses. If they have more disposable income left over they could be forced into Chapter 13 bankruptcy.

As the economy has continued to decline, so have the median incomes of every state, making it harder to qualify to file Chapter 7 bankruptcy. This is another good reason why someone should use the expertise of a bankruptcy attorney to file bankruptcy. Never say never if you think you make too much money to file Chapter 7, it still might be possible.

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Dumb Things You Don't Want to Do When Filing for Bankruptcy

When it comes to filing for bankruptcy there many positive benefits, on the other hand the media still likes to draw their attention to the negatives. When considering the positives versus the negatives in a bankruptcy filing, the positives always win. The reason is the negatives will be there for the individual filing bankruptcy regardless if they file or not. For someone who cannot pay their bills, their credit is going to be in the tank and Chapter 7 bankruptcy won't make it any worse but could actually help by lowering the individual's debt ratios after the bankruptcy discharge. In fact, many people will leave Chapter 7 bankruptcy being debt-free from any unsecured debt. This is a powerful statement knowing that credit card debt has become one of the biggest problems for middle America.

Since you know that filing bankruptcy is not a bad thing, it's important to understand what not to do and to make sure to listen to your bankruptcy attorney. The bankruptcy attorney is not creating a bunch of extra paper work for an individual to complete for fun. All of this is necessary to be able to file a bankruptcy petition successfully.

The first thing to remember is successful bankruptcy planning is of utmost importance. Because of this the bankruptcy attorney will typically advise their clients prior to filing bankruptcy to not borrow from their retirement plan. It's foolish to pay down credit card debt with something that is protected by a bankruptcy exemption. Creditors cannot touch a 401(k),IRA or any pension, it's off-limits.

Next, don't take money out of your account to pay back family members first prior to filing bankruptcy. It's understandable to try to pay off friends and family members prior to the filing, but the bankruptcy trustee might see it as preferential treatment. They could even ask for the money to be returned to the bankruptcy estate and dispersed amongst creditors.

Another no-no that a bankruptcy attorney will tell their clients to avoid is transferring assets when the financial trouble begins. If a person has any idea they will be filing for bankruptcy, it's best not to sell or transfer any property as it will look to the bankruptcy trustee as a planned protection of assets. The best that could happen out of this is the assets will be taken back and given to the creditors. The bankruptcy trustee could also charge the individual filing with fraud in an attempt to keep the property away from the creditors.

It's common but not good practice for an individual filing for bankruptcy to exhaust their savings to pay unsecured creditors after losing a job or having a drop in income. If Chapter 7 bankruptcy looks like it might be on the horizon, it's stupid to burn through any liquidity that one might have. If you're going to pay somebody, pay a secured creditor like a mortgage company or auto loan. These will not be included in the Chapter 7 unless the individual wants to surrender the property prior to the bankruptcy discharge.

These are all things that should be discussed with a bankruptcy attorney prior to filing. Sometimes if mistakes are made, the bankruptcy attorney might delay the filing to let some of these errors fall to the wayside.

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How Can Filing for Bankruptcy Relief Help Me Secure Money for Retirement?

Let me show you how bankruptcy relief can help you secure your retirement, even if you have never invested a dime in your life. If you are struggling financially, why put a higher priority on the repayment of your debts than investment in your retirement? I don't know, but a lot of people make this mistake. Don't make the same mistake. It will cost you your retirement and you'll have nothing to show for it. Here's what I mean:

If you make minimum payments on credit card debt and have nothing saved for retirement, you may be a good candidate for bankruptcy. If you want to be self-sufficient and live a reasonably comfortable life in retirement, it will take significant savings over time to make that happen. Attention to retirement is extremely difficult if you are burdened by medical bills and credit card debt at high credit card interest rates.

Example: Assume that the credit card debt is $20,000, the interest rate is 18%, and the minimum payment is 2.5%. Which scenario makes more sense to you?

1) If you make the minimum payment and add nothing to the balance in the way of new purchases or penalty fees, it will take 37.5 years to pay the balance down to zero. Interest over the life of the repayment period would be nearly $30,000. What you have at the end of 37 years is nothing more than a paid off debt.

2) If, instead, you made the same payments required to pay off that credit card (approximately $50,000) into retirement savings at 6% for 37 years, you would have $315,874 in cash to fund your retirement. Which would you rather have after 37 years of making the same monthly payments: Nothing or $315,874? The older one becomes, the easier it is to give up on saving for retirement. It's normal to think the task of saving for retirement is too large, and the time remaining too small. However, every dollar saved is an investment for your cost of living in the future, and more money that you can leave your family.

Though the attempt to pay creditors all of the debt owed could be considered honorable by some people, the question is whether that is the best choice for you. Many would argue it is far more honorable to take care of one's self and family to secure future well-being and financial stability. Credit card companies don't have to retire, people do.

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