Over 750,000 American individuals filed for bankruptcy protection in 2019. The crushing burden of stacks of unpayable bills affects all types of people, not only low-income individuals with no college degree. In fact, roughly 20% of bankruptcies are filed by people with college degrees.
Corporate bankruptcy filings receive the most media coverage. But business bankruptcies account for only 3% of total bankruptcy filings. The other 97% of bankruptcies are filed by individuals, with the majority of filings—67%—stemming from unpaid medical expenses.
Whether you’ve lost your job and are mired in credit card debt or are struggling to pay outstanding medical bills despite having steady employment, it might be tempting to seek a fresh financial start by filing for bankruptcy. But here’s what you need to know first.
You’ve probably heard of Chapter 11 bankruptcy. But if you’re thinking about filing for bankruptcy protection as an individual, Chapter 11 does not pertain to you. Because of the media's attention placed on corporate bankruptcy, it’s probably the first to come to mind when someone thinks of bankruptcy.
Chapter 11 involves the reorganization of a corporate entity to help it recover from financial distress.
There are five other types of filings, each named after a chapter in the United States Bankruptcy Code.
Let’s start with the two that most affect individuals: Chapters 7 and 13.
The most common chapter filed by individuals, it’s also referred to as liquidation or straight bankruptcy.
With Chapter 7, all your assets, minus your home and car and other necessities, are liquidated (sold) to help pay down the debts you owe to creditors. The liquidation of your assets is overseen by a trustee that’s appointed by the court.
Although outstanding tax bills and student loans are not forgiven, other types of debts may be erased under Chapter 7 protection. Forgiven debts may include credit card bills and medical bills.
However, because most people don’t have enough assets to sell (minus their house), to cover outstanding debts, people who file under Chapter 7 may still have to pay their creditors, possibly with friendlier loan agreements.
To qualify for Chapter 7, which stays on your credit report for 10 years, a bankruptcy court must determine that you do not make sufficient income to repay your debts.
A restructuring plan of monthly payments, Chapter 13 is for those who earn enough money to pay off their creditors but can’t pay them in full all at once.
Typically, the monthly payment plan will take three to five years to pay off your past debts. If you have less than $419,275 in credit card, medical bill, utility bill, and other types of debts that are not backed by collateral (unsecured debt), you may qualify for Chapter 13, which stays on your credit report for seven years.
Due to the consolidation of giant food producers, it’s getting harder and harder for small farmers to earn a living. Chapter 12 bankruptcy protection was written specifically so that farmers—and those who earn a living fishing—can avoid liquidation and pay off their debts between three and five years.
In addition to Chapters 11, 7, 13, and 12, there is also Chapter 15 and Chapter 9. The former is the most recent chapter added to the Code (2005) and deals with international concerns while the latter covers cities, counties, and school districts.
If you feel burdened by your current financial situation, talking with an attorney about bankruptcy may help set your mind more at ease. However, to do that, you will need an experienced bankruptcy attorney.
A skilled bankruptcy attorney will guide you through various court proceedings to reduce or eliminate your debt, or to proceed forward with bankruptcy if necessary. The best place to find a bankruptcy attorney is with Attorney at Law.
At AAL, we match you with the best attorney in your area. Our partners have the resources, legal expertise, and experience to navigate you through the highly complex field of bankruptcy law. In addition to a proven track record, our partners also excel in client care.
Don’t wait. Contact AAL today for a free, no obligation consultation and begin your journey to financial independence.
Bankruptcy has long been a way for individuals and businesses to attempt to settle with creditors when their debts become unbearable. However, across the history of bankruptcy law, the treatment of creditors and debtors has not always been equal. In order to see how the system has evolved over time, this short summary has been put together.
Since 1800, the United States has passed laws intended to allow for creditors to recover their lost investment. These early attempts at a bankruptcy law were usually undone within a few years of their passage, and they almost all arose from times of hardship. During this period, almost all bankruptcies were actually involuntary and served solely as a way for the creditor to take back their investment from the debtor.
In 1898, however, this attitude began to soften. The Bankruptcy Act of 1898 at the turn of the 20th century gave companies filing for bankruptcy the option to be shielded from creditors and instead focused more intently on rehabilitating the debtor’s ability to pay by reorganizing the debt.
As the 20th century progressed, the attitude that bankruptcy was a way for debtors to find relief persisted. Spurred on by the great depression, the Bankruptcy Acts of 1933 and 1934 and the 1934 Supreme Court case Local Loan v Hunt officially stated that the purpose of bankruptcy law was to give the debtor a fresh start free from their oppressive financial burdens.
In 1978, the basis of modern bankruptcy law was established with the Bankruptcy Reform Act of 1978. This law created Chapter 11 and 13 bankruptcy to replace the older forms of bankruptcy and made it easier for businesses and individuals to reorganize their debts. From 1978 to the turn of the 21st century, a number of fine-tunings were made to ensure that the scope and reach of bankruptcy were appropriate and that individuals and companies were being awarded a fair chance to start again.
This historic work has come together to form the modern bankruptcy process, a more debtor-friendly system than ever before. As the laws continue to shape bankruptcy policy, it continues to be guided by the principle that bankruptcy exists to serve the debtor, not the creditor. However, this does not mean that there are not some laws in some states that can serve as traps for the unwary or confusing regulations designed to stamp out potential fraud.
If you are considering filing for bankruptcy for yourself or your business, you will need an experienced bankruptcy attorney to help you navigate the complexities of the process and attend to the fine details that could result in your case being dismissed. An experienced bankruptcy attorney can also find shelters and loopholes in bankruptcy law that can help to protect your assets that might otherwise be taken for liquidation.
With the right bankruptcy attorney, the process can be straightforward, simple, and low-stress. The best way to find the right bankruptcy attorney is with Attorney at Law.
At AAL, our nationwide network of attorneys and law firms helps us match you with an experienced bankruptcy attorney in your area. Our partners are experienced and empathetic. In addition to putting you at ease with their extensive knowledge, our partners also take care to ensure that you understand every part of the process and help you have the best possible experience during this stressful and difficult time.
Don’t wait. Contact AAL today for a free, no obligation consultation and begin your journey to financial independence.
When filing for bankruptcy it is easy for petitioners to assume that all of their possessions will be taken from them and they will be left with nothing. Fortunately, bankruptcy is not always so severe. With an experienced bankruptcy attorney, petitioners can find themselves keeping a surprising amount of their property.
Each state has its own bankruptcy exemption system. This system allows a petitioner to place property of a certain type into an exemption. For example, a petitioner may find that their state has a Chapter 7 vehicle exemption up to $6000. If the petitioner’s vehicle is worth less than the exemption, they will be exempt from giving it up. If the vehicle is worth more than the exemption, for example $10,000, then the vehicle would be sold for its worth and the petitioner would receive $6000 for the exemption amount.
Exemptions can allow petitioners to keep their vehicle, their house, their retirement funds, or a number of specific items. Some states allow petitioners the option of either the state exemptions or the federal exemptions and some states, like California, even have multiple exemption systems to choose from.
The best way to determine the most ideal exemption options for your bankruptcy is to consult with an experienced bankruptcy attorney. The best place to find an experienced bankruptcy attorney is at Attorney at Law. At AAL, our national network of attorneys and law firms ensures that we can match you with an attorney who best fits your situation.
Our partners are selected not just for experience and efficacy, but also for the level of compassion that they demonstrate towards clients. Our partners understand that bankruptcy is an upsetting time and will do everything in their power to wipe out your debts without wiping out your life.
Don’t wait: contact AAL today for a free, no obligation consultation and begin your journey to financial liberation.
Under the U.S. Bankruptcy Code, a bankruptcy trustee has the right to liquidate all of a debtor’s assets and distribute the proceeds to the debtor’s creditors. This can lead to potential confusion when a person is named on the title to a bank account or property that they don’t actually have any equitable ownership in practice.
For example, a person may name a member of their family on the title of an asset for convenience purposes. This way, it can be more easily passed on in the event of their death or managed for the benefit of an older family member.
But when you own an asset only in name and you file for bankruptcy, will that asset be liquidated? In this article, we’ll explore the issue of how something called “bare legal title” can save a property from liquidation.
Bare legal title is when a person’s ownership interest in an asset is purely legal, but not equitable. This means that they hold the title in their name but haven’t done anything to contribute to the value of the asset. Under these circumstances, a person can be found to hold no equity in an asset that they technically own.
It is important for debtors to understand the bare legal title doctrine because it might prevent them from taking potentially damaging action in preparation for bankruptcy. The desire to avoid having an asset liquidated might motivate a debtor to transfer a property out of their name before filing.
However, this transfer will be scrutinized and can potentially lead to legal action as it may be labeled a fraudulent transfer. The debtor can fight this, but the ensuing adversary proceeding will cost unnecessary time, money, and stress when the asset could have been protected under bare legal title all along.
What often happens when a debtor owns a bare legal title asset is that the asset is not liquidated as part of the bankruptcy estate.
For example, let’s say that a person named Linda only holds bare legal title to her parent's bank account and has never made a deposit into it. In this situation, Linda’s parent’s bank account will not be seized as part of her bankruptcy.
Let’s look at another example. Suppose a man named David buys a house for his parents. He deposits a down payment and makes all of the mortgage payments on the house. However, for convenience purposes, he keeps the house under his parents’ names. In this case, David’s parents hold the bare legal title of the house, but David was the one who paid for it. If David’s parents file for bankruptcy, their trustee should not be able to sell the house to pay their creditors.
One important exception to the bare legal title doctrine is gifts and inheritance. Assets obtained by gift or inheritance do not count as a bare legal title as the owner was intended by the donor to have all rights and privileges associated with that asset now or in the future.
There are also situations in which the bare legal title argument for why a debtor should not have an asset liquidated will fail. Essentially, if the holder of a legal title did actually help its “real owner” obtain or improve the asset, the asset will be liquidated in the event of their bankruptcy.
For example, let’s say a teenager named Rachel bought a car with her parents serving as co-signers for her car loan. Rachel paid the down payment and all of the loan payments on the car herself.
If Rachel’s parents were to file for bankruptcy, they may try to use the bare legal title defense to claim that they do not have equitable ownership of the car and, therefore, it should not be seized and sold as part of their bankruptcy state. However, because they co-signed on the loan, they helped Rachel obtain the car, meaning they contributed their credit in order to allow her to buy it. In this case, the bare legal title claim is likely to fail.
If you are planning to file for bankruptcy and have any properties that you believe might qualify as bare legal title, it is important to speak to a bankruptcy lawyer in order to understand how to proceed. They will be able to carefully analyze the doctrine and determine whether or not it is applicable to your property.
Bankruptcy can offer a significant measure of relief to people struggling to get out from under mountains of debt. However, it is not without its consequences. One of the main downsides to filing for bankruptcy is its effect on your credit score. By significantly damaging your credit score, bankruptcy can make it difficult for you to be able to get new loans or lines of credit in the future. But it doesn’t remain that way forever. In this article, we’ll explore the effect that bankruptcy has on the credit score and how long it takes to bounce back afterward.
Organizations called credit bureaus have a practice of rating consumers based on credit worthiness on a numeric scale. This score, called a FICO score, ranges from 300 to 850. The higher your credit score, the easier it will be for you to get loans and credit.
Your credit score changes based on your financial behavior, which is reported by lenders and credit card companies to credit bureaus. There are a number of things that can lower your credit score, with bankruptcy being the worst.
Bankruptcy significantly lowers your credit score, and the higher it is, the more it will drop. For example:
Both of these scores would drop low enough for the consumer to be tagged a “risky borrower,” which would make it very difficult to get loans or unsecured credit.
However, if your score is in the 400s or 500s when you file, bankruptcy could actually boost your credit score by as much as 50 points.
The exact impact of bankruptcy on your credit score will ultimately vary depending on how much debt you had discharged and the ratio of positive to negative accounts on your report. This is because late payments and credit card utilization will reset, which are both major credit score factors.
If your credit score is low after your bankruptcy filing, you’re probably wondering if you can get it up again. Thankfully, managing your money and credit properly can help your credit score recover. The bankruptcy will not remain on your credit report forever, and you can take actions to get it to increase even while it is still there.
There are a number of steps that you can take to improve your credit score after filing for bankruptcy. Some of these include:
One thing that you shouldn’t do is work with a credit repair company offering to restore your credit rating for a fee. These are scams and will not work.
Chapter 7 bankruptcy will remain on your credit report for ten years, while Chapter 13 will remain for seven years because it involves partial repayment. However, you can get your credit score to go up sooner than that by following the steps listed above. It is generally understood that it takes between one year to one and a half years to begin to improve your credit score, assuming you take all of the right actions.
If fear that your credit score will be decimated is keeping you from filing for bankruptcy even though you need the relief, you’ll be happy to hear that it is possible to improve your credit score after filing for bankruptcy. Bankruptcy will disappear from your credit reports after a certain number of years but, even before then, you can improve it in the relatively short time span of 12 to 18 months simply by practicing good financial habits.
If a person or business cannot pay back their debts, they have the option of going through a legal process called bankruptcy to receive relief from their creditors. In this article, we provide an overview of everything that you need to know to understand the basics of bankruptcy, including what it is, its advantages and disadvantages, and the most common types.
Bankruptcy is a legal proceeding freeing a person from paying their debts while providing an opportunity for their creditors to be repaid. Individuals and businesses can both file for bankruptcy. In the United States, the bankruptcy process is overseen by the bankruptcy court and governed by the Bankruptcy Code.
The reason why people file for bankruptcy is usually to get a fresh start with their financial affairs when they are unable to pay back the debts they owe. Indeed, the bankruptcy process is intended to free people from unmanageable debts. As such, it offers the following benefits.
Of course, bankruptcy isn’t as simple as having one’s slate magically wiped clean with no consequences. The process has its disadvantages, too, including the following.
There are several types of bankruptcy that differ significantly in terms of who they are for and how they work. The most common types of bankruptcy are as follows.
While it can vary depending on the individual case at hand, the bankruptcy process generally looks something like this:
While not all debts are eligible for discharge under bankruptcy, many are. The debts that can be discharged in Chapter 7 bankruptcy include:
In Chapter 13 bankruptcy, some more debts are eligible for discharge including:
In contrast, debts that are not eligible for discharge in any type of bankruptcy include:
In May, Governor Doug Ducey signed House Bill (HB) 2617 into law, which will go into effect on Dec 31st and raises the amount of money protected from debt collectors to $250,000 from $150,000. While this new law may sound like good news for Arizona homeowners, HB 2617 favors debt collectors because the law makes it easier for them to place a lien on the debtor’s home if they owe money.
Essentially, the new law means that any outstanding debt owed can now be attached to home equity. Normally, even if a homeowner owes a creditor or creditors outstanding debts, the amount of equity a homeowner has accrued under the so-called homestead exemption. This exemption is supposed to protect Arizona homeowners from forcibly selling their homes.
Before passage of the bill, “[a]ny person entitled to a homestead exemption ‘[held] the homestead property free and clear of the judgment lien.” However, with the passage of HB 2617, any homeowner who has lost a civil judgment will potentially no longer have equity protection.
Moreover, HB 2617 not only applies to civil judgments announced on January 1, 2022 and onward, the new legislation is retroactive, covering past civil judgments, which a judge could thereby place towards a lien on the debtor’s home.
Essentially, the new law enables creditors to collect on the debts owed and may do so by forcing the sale of the debtor’s home.
If you feel burdened by your current financial situation, talking with an experienced bankruptcy attorney in Arizona will help set your mind more at ease.
A skilled bankruptcy attorney will guide you through various court proceedings to reduce or eliminate your debt, or to proceed forward with bankruptcy if necessary. The best place to find a bankruptcy attorney in Arizona is through Attorney at Law.
At AAL, we match you with the best bankruptcy attorneys in Arizona. Our partners have the resources, legal expertise, and experience to navigate you through the highly complex field of bankruptcy law. In addition to a proven track record, our partners also excel in client care.
Don’t wait. Contact AAL today for a free, no-obligation consultation and begin your journey to financial independence.
