Any decent financial advisor will be careful to warn clients against the perils of taking on too much debt. Not only will a heavy debt load damage your credit score, it will put you at a much higher risk for bankruptcy, especially if you suffer a job loss.
Bankruptcy presents some major challenges for individuals and families, who may need to give up some major assets in exchange for a "clean slate," so one would expect them to do everything possible to avoid a second bankruptcy. But old habits die hard, and without good financial counseling a person remains vulnerable through poor decision-making.
After interviewing several financial consultants and bankruptcy attorneys, it is obvious that something needs to change. One bankruptcy should be enough for anyone's lifetime, so be sure to make these lifestyle changes immediately.
Four changes to make after bankruptcy:
Live within your means. This statement has different meanings to different people, but in an effort to keep it simple; "living within your means" is spending only the money you have coming in currently. This means no purchases on items you cannot afford, and paying the full balance of any credit card purchases every month.
Begin rebuilding credit scores only by purchasing what you know you can afford. While it may be true that buying a car, getting credit cards or renting an apartment will speed your post-bankruptcy rebound, it can be dangerous to take on too many obligations too quickly. Be smart about the method you use to rebuild your credit score, and keep your monthly payments affordable.
Build an emergency fund. This will help in many ways, but first and foremost it will keep you from incurring unnecessary debt. Examples include unexpected medical bills, job loss, or replacing major appliances. When the cash is in the bank, there is no need to pull out the credit card.
Create an honest budget. Start by knowing exactly how much you bring home each week or month. Be sure all your expenses and bills can be paid through this income. Only then will you be able to avoid racking up more debt and falling into a dangerous financial situation.
Other important changes to make right away:
The best way to avoid a second bankruptcy is to properly deal with the habits that got you into bankruptcy in the first place. You need to train yourself to recognize your own behaviors and make an immediate plan to combat them. However, if you still find yourself in a desperate financial situation there are things that can be done right away. A Colorado Springs bankruptcy attorney can help get you back on track.
If you plan to file for bankruptcy in Colorado Springs you will no doubt meet with an attorney who will walk you through all your options, but most people want a little preview before they visit a law office. Unless you've been through the bankruptcy process before it's likely you have a long list of questions, such as "will I go to court?" or "will I be able to keep my house?"
In an attempt to prepare for the inevitable it is better to seek the advice of an experienced bankruptcy lawyer and avoid the temptation to just "Google it." While there is plenty of data available about different types of bankruptcy, few online sources will accurately summarize what to expect/
Below are five things you can expect when filing for bankruptcy in Colorado:
1. You will have to go to court. Before you start worrying about a long, drawn-out court process, in most cases you will only need to attend one hearing, known as the "meeting of creditors." This is a short and simple hearing where the trustee will ask you a few very basic questions. Creditors are also allowed to attend and ask questions but they must abide by certain state bankruptcy guidelines.
2. Your case will be complete within 4 to 6 months from the date of filing. This doesn't mean you should just go ahead and file right away. While bankruptcy can be very helpful in resolving financial woes, it is not always the best solution for everyone. In addition, it's important to choose the right time to file for bankruptcy relief. Most experts recommend you wait as long as possible to file because you can only do so one time every six years. Saving this option until you absolutely need it, but you may not even need to file. For example, if you have no "non-exempt" property or wages, there is nothing that the creditors can take from you.
3. There are some very specific things that bankruptcy can do. One of the most important things is the "discharge" or elimination of debts. It can stop a home foreclosure and allow you to catch up on missed payments, and it can stop the repossession of automobiles or other property, sometimes even forcing a creditor to return property that has already been repossessed. If your wages are being garnished or a creditor is harassing you for payment, filing for bankruptcy will put a stop to that right away. It can also prevent the termination of utility services.
4. There are some very specific things that a bankruptcy can't do. One of these is the discharge of debts that arise after the bankruptcy filing. It also cannot eliminate certain rights of secured creditors, particularly with car loans and a home mortgage, which means payments must be made on a regular basis in order to retain ownership of the property. In addition, certain types of debt are never discharged in a bankruptcy. These include alimony, child support, most student loans, criminal fines or restitution, and most taxes.
5. You will need to decide between Chapter 7 and Chapter 13 bankruptcy. It's not enough to show up a bankruptcy attorney's office and just "file for bankruptcy." You must know the differences between Chapter 7 and Chapter 13 as well as which one you prefer. Below is a description of each type of bankruptcy.
Is bankruptcy an option for you? Only you know the honest state of your finances and whether you are being threatened with foreclosure, repossession or garnishment. Bankruptcy is a great way to proactively deal with these problems, but everyone's situation is different. If you have questions about filing bankruptcy in Colorado, talk to a professional bankruptcy attorney at the Colorado Springs law offices of Stephen J. Swift.
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According to federal law and the United States Bankruptcy Court, the rules concerning personal bankruptcy in Title 11 were passed by Congress in accordance with its Constitutional grant of authority. While states may pass laws that govern other aspects of a debtor-creditor relationship, they may not regulate bankruptcy itself. It is important to understand this as so many individuals are uninformed about bankruptcy laws.
If you are considering filing for personal bankruptcy, you will only need to be concerned with two types – Chapter 7 and Chapter 13. While it's certainly not required that people use an attorney, it is usually best to seek legal advice at some level and preferable to let a lawyer handle everything. Bankruptcy is one of those things that could be very costly if not done properly. In other words, the cost of your mistakes could far outweigh an attorney's fees.
Most bankruptcy lawyers will tell you; consider any realistic alternatives before filing for bankruptcy, such as reducing your debt or paying your bills. Filing for bankruptcy will be an irreversible step that will have a long term impact on your creditworthiness.
What are the two types of personal bankruptcy?
Chapter 7 and Chapter 13 are both named after the numeric title of its corresponding statute in the U.S. Bankruptcy Code.
Chapter 13 Bankruptcy
When one files under Chapter 13, it is possible to keep some property that might have otherwise been liquidated in a bankruptcy. It also allows you the chance to reduce the amount you pay toward your debts. Whenever possible, a Chapter 13 bankruptcy should be considered before any other type of bankruptcy.
The requirement for Chapter 13 bankruptcy is that the amount owed cannot exceed $250,000 in unsecured debt or more than $750,000 in secured debt. These limits were expanded in 1994, allowing Chapter 13 accessible to be more accessible to individuals.
Unsecured and Secured Debt
Unsecured debt, also known as "uncollateralized debt" includes credit card debt, medical bills and signature loans. When preparing a reorganization plan, your unsecured debt will be the lowest priority for payment.
Secured debt, which is often called "collateralized debt," is secured with the property itself, such as the house, car, boat or other big-ticket item. When a debtor defaults on secured debt, the lender can seize the property to recover what is owed.
How does Chapter 13 work?
Chapter 13 requires you to repay your debts over three to five years. You must begin paying on the plan 30 days after you file the petition with the court. It is customary for the petitioner to make one monthly payment to a trustee, who then distributes the funds to their creditors according to a payment schedule.
Chapter 7 Bankruptcy
When a person files for Chapter 7 bankruptcy protection, most of their debts are wiped out and will never have to be paid. However, once a Chapter 7 bankruptcy is filed one cannot file again for six years.
In Chapter 7 bankruptcy, petitioners provide the court with a full list of debts and a complete list of everything they own. They may also be required to answer questions about past financial dealings. Certain property is exempt and allowed to be kept by law but the trustee has the right to liquidate everything else, the proceeds of which are applied to repay debt.
For property that is excluded from liquidation, one must still purchase pay "purchase-money liens" or contractual payments in order to keep the car or house.
Which debts are not discharged in Chapter 7 bankruptcy?
While most of your major debts will be eliminated in a Chapter 7 bankruptcy, it may be impossible to get a fresh start from everyone.
Exclusions may include debts not listed on the petition, debts incurred by fraud, alimony or child support payments, or debts incurred from damages that occurred while intoxicated or in the course of a violent crime. Certain educational loans may also be excluded, as well as most types of taxes and debts from a prior bankruptcy. Some consumer debts may not be forgiven as well, such as purchases for more than $1,000 of luxury goods or services that were incurred within 60 days of a bankruptcy petition.
As you can see, it helps to know which type of bankruptcy is right for your situation. If you have questions about filing a petition for personal bankruptcy, consult with an experienced Colorado bankruptcy lawyer.
Having lenders forgive debt can be a godsend for those who are unable to pay their bills; however, depending on when this debt forgiveness occurs, borrowers may find themselves having to deal with some negative consequences when it comes to paying taxes. Also referred to as “cancellation of debt” (COD), debt forgiveness can translate into taxable income.
Specifically, when a lender discharges a borrower's debt, the lender is required to report the monetary amount of this discharge as cancellation of debt income to both the borrower and the IRS (Form 1099-C is the tax form used to report COD income to the IRS); in many cases, the borrower may have to pay taxes on this COD income.
Nevertheless, there are some exceptions to when forgiven debt qualifies as COD income, and these can include:
Given how complex the tax repercussions of debt cancellation can be, it's critical that those who are facing overwhelming debt and/or considering filing for bankruptcy consult with a skilled bankruptcy lawyer at the Law Office of Stephen H. Swift, P.C. Our trusted financial and legal professionals have extensive experience handling various matters of bankruptcy, debt consolidation, debt cancellation and other matters of debt relief. We can help borrowers in serious debt resolve their financial struggles in the most appropriate manner that will minimize future repercussions associated their taxes, as well as their credit score, remaining assets, etc. For more professional advice and an assessment of your best options, call us at (719) 520-0164.
A Colorado bankruptcy can provide you relief from a long list of creditors.
Our Chapter 7 bankruptcy attorneys know that this includes credit card bills outstanding medical balances and business debts.
However, there are certain debts that are almost never dischargeable. Generally, those are going to include student loans and taxes, though there are special circumstances in which you can apply for an exception.
Child support payments, however, you will almost certainly continue to pay.
That was the issue in the case of Florida v. Davis, recently heard by the U.S. Appeals Court for the Eleventh Circuit. Although this was a Florida case, the same general principles with regard to child support and bankruptcy apply here in Colorado.
Here are the facts, as outlined in court documents:
Mr. Davis and his wife were married in 1997. They divorced in 2003 in Illinois. Mr. Davis moved to Florida, and it was that state's department of revenue that oversaw the child support payments for which he was obligated.
Then in 2008, an involuntary Chapter 11 bankruptcy was filed against Mr. Davis. This is a rare situation in which creditors seek relief from the bankruptcy court.
In the list of creditors spelled out in the filing, there was $180,000 that Mr. Davis owed Ms. Davis for child support. The bankruptcy court required proof of claim from each of the creditors. However, neither the state's department of revenue nor Ms. Davis filed any paperwork.
The debts were formally discharged by the court in May 2009.
The following month, the state department of revenue filed a proof of claim for the $180,000 owed to Ms. Davis.
The bankruptcy court, however, determined that neither Ms. Davis nor the department of revenue could seek relief due to res judicata, or in other words, the case had already been decided and closed.
The case was then taken to the appellate court.
The appellate court determined that while Mr. Davis did have to pay the child support - it was not a debt that could be discharged in the bankruptcy process - the department could not seek interest or liability because it had not properly met the court's deadlines.
Although child support can't be discharged in a bankruptcy, filing frees up your income from other obligations so that you will be able to pay.
Contact us today for more information.
There are a large number of so-called debt settlement agencies advertising services that boast that they can help you avoid a Chapter 13 bankruptcy in Colorado Springs.
If you have overdue medical bills, late car payments and credit cards with sky-high interest, you know you have to take some form of action. And it can be tempting to want to avoid any negative marks on your credit.
But Colorado Springs bankruptcy lawyers know that first of all, a lot of these companies pose a buyer beware situation. A lot of them charge high rates for actions you may be able to take yourself, and some have even been pursued criminally for fraud.
A Chapter 13 bankruptcy, on the other hand, is a federally-approved process that is overseen according to strict legal standards, and when it's all done, you are free from debt.
The other thing about a Chapter 13, versus a Chapter 7, is that lenders and other institutions tend to look upon it less harshly because you are actually paying off a good portion of what you owe. Additionally, you have the protection of legally blocking your creditors from harassing you or coming after you for more once the process is done.
Now, if you decide to go with a debt settlement or credit management company, as mentioned before there is always the possibility of fraud. But also, you're generally going to be looking at higher monthly payments than what could be arranged in a Chapter 13 plan. Plus, in a Chapter 13, you're paying back a portion of the debt, rather than all of it, which is what you'll do with a debt management plan.
With a debt management plan, you're also looking at likely paying on those debts for a longer period of time. Plus, your creditors might not all agree to the terms of the plan (whereas in a bankruptcy, they would be legally compelled to do so). This is probably going to mean you'll be paying higher fees and balances for those agencies.
And also, it's not clear that there's really even much benefit to your credit score, as debt management plans are also reported to credit reporting agencies.
Chapter 13 bankruptcy attorneys in Colorado Springs know that when you're trying to keep your head above water, your credit score can get put on the back burner.
A late bill here, an unexpected expense there - it all begins to snowball. Some of things may be beyond your control. However, there are likely other actions you are taking that you may not even realize are negatively impacting your score.
A Chapter 13 bankruptcy works to help reduce the risk of a plummeting credit score while simultaneously helping you wipe out your debt. That said, working to rebuild your score going to be in your best interest and speed up your financial recovery.
Here is what you DON'T want to do:
1. Consolidating your credit. Now, if you're going through a Chapter 13, that actually is a form of debt consolidation. It's putting all your debts into a lump sum that you agree to pay back over a set period of time. But a credit consolidation is a little different. This is a way for banks to make money, and what they do is consolidate all your debts into one big, new loan. The general principal is that you are given a lower interest rate. The problem is that wiping out your old debt can actually hurt your credit score, which is partially calculated based on the length of your credit history. If you close all the old ones and put it into a new one, that could cut your score significantly.
2. Shopping around for your credit. Yes, you're going to want to get the best deal when it comes to credit cards, car loans and mortgages - particularly if you are being mindful in the wake of a bankruptcy. But making a lot of requests for your credit score in short order could reduce your overall score.
3. Refusing to pay. This is a particular issue that comes up if you are disputing a charge, whether due to a product being faulty or because you feel the charge was unfair or unwarranted. Those marks can stay on your credit score a long time, so it's best to try to work those out with the vendors as soon as possible.
4. Cancelling your credit cards. This may sound like a smart move, particularly if what got you into debt in the first place was racking up credit card debt. However, credit scores are calculated using the amount of debt you have versus the amount of credit available to you. So even if you pay off the card, it could be in your favor to keep it active so that you have credit available to you that you aren't using. That looks good on your score.
Increasingly, cash-strapped companies are passing that pain onto their employees - with the end result being reduced or frozen wages and waning benefits.
Colorado Springs bankruptcy lawyers know that in this market, those are often things so many of us can't afford to lose.
To get a better sense of what's happening with employers and employees across the board, let's take a look at the numbers:
Since 2007, some 40 percent of employed adults have experienced their benefits declined or cut off completely. That's according to a survey conducted by the National Endowment for Financial Education (also known as NEFE).
Of those individuals, more than 70 percent said it was their health insurance benefits that saw the largest reductions. As employers were forced to cut back, it was their workers who burdened the majority of that cost for higher co-pays, premiums and deductibles.
In fact, the average out-of-pocket cost for workers' health plans climbed by nearly 8 percent, which equaled nearly $3,500 for an average family of four. That's a lot, especially when you consider that many families are already struggling to avoid losing their homes and put food on their tables.
Five years from now, it's expected that roughly 50 percent of the largest Fortune 1000 companies are going to simply drop health care coverage altogether. That's going to have an enormous impact on struggling employees.
Now the majority of employers (more than 60 percent) are saying that if they did drop health care coverage, they would make up for it by offering their employees some other incentives, such as higher pay, more vacation time, etc. However, what we're seeing of those companies that have already dropped health care coverage is that that hasn't historically been the case.
Workers are making less money and their ability to save for retirement has been significantly hindered. A quarter of those workers surveyed said they had to scale back their 401(k) contributions, and another nearly 15 percent said they had to stop contributing to it altogether.
That leaves the future looking quite scary.
A Colorado Springs bankruptcy attorney can help.
Recent news reports suggest that Colorado's unemployment rate dropped to 7.9 percent, continuing a steady drop, which is certainly good news.
But even at 7.9 percent unemployment, which is better than the national average, that still leaves many people without work and steady income. Whether employed or not, months spent looking for work can lead people to considering Colorado Springs bankruptcy protection.
Much is made about bankruptcy and much of it is negative, due to successful lobbying on the part of the credit card companies. They despise bankruptcy because they know that people who file for bankruptcy are allowed to get rid of years' worth of debt. And that means the debt they attempt to sell to investors is going to be less and less attractive if consumers are using these laws to their advantage.
According to The Denver Post, analysts believed 10,000 jobs would be added statewide in 2011, but they had hoped to see the number be closer to 17,700. The 7.9 percent rate in December was a slight drop from 8 percent in November. In December 2010, the unemployment rate was 8.9 percent. The national rate in December was 8.5 percent.
In 37 states, the unemployment rate dropped in December, while in 10 states it was unchanged. The rate only increased in three states, The Post reports.
When people spend months at a time looking for work, they may be forced to consider unemployment benefits from the government. While this small influx of money may be beneficial, it's unlikely to maintain the person's bills and monthly expenses. This leads to credit card debt and dependence on loans. That puts people deeper and deeper into debt, which requires a way out.
With credit scores dropping and few positive prospects in sight, Colorado Springs bankruptcy can help. Filing allows consumers to lose the debt that has given them great frustration and kept them held hostage to their lenders. It allows a fresh start and a way to move on with life without the baggage of debt.
Colorado foreclosure rates have dropped over the last year, but they are still among the highest in the country, according to a a recent report by the Denver Business Journal, which cited figures released by RealtyTrac.
The report outlines a nearly 30 percent decline in the number of foreclosures filed in 2010 compared to 2011. But still, our state is ranked 9th in the nation for the most foreclosures.
Our Colorado bankruptcy attorneys know that filing for bankruptcy can help you to stop a looming foreclosure of your home.
What many homeowners may not understand is that they don't have to be current on their mortgages in order to save their home from foreclosure. Filing for a Chapter 13 bankruptcy in Colorado can allow you to pay your past-due debt over a 3 to 5-year period, rather than all upfront.
This is an option best-discussed with a legal expert with a great deal of experience, as well as the resources to challenge large banks, which often are more interested in their bottom dollar rather than keeping people in their homes.
The Journal's report indicates that there were nearly 40,000 foreclosure filings last year - or one for every 56 housing properties in the state.
That's a staggering figure.
Perhaps more encouraging is that in December, there were roughly 3,500 foreclosure filings, or an average of 1 property for every 620 - a 7 percent decline from November.
Nationally, the numbers appear to be falling at a faster clip. The Journal reported that there were 1.9 million properties foreclosed on across the country last year, representing a 34 percent drop from the year before and the lowest number of filings in five years.
But as RealtyTrac's CEO told the Journal's reporter, the dip in foreclosures likely has more to do with legal entanglements than an improved economy.
“Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year,” Moore told the publication.
He added that a lack of clarity with regard to much of the documentation, as well as legal issues that plague the foreclosure industry, means that the entire process is dysfunctional and inefficient.