Bankruptcy is not something that anyone longs to go through or even plans to take part in. In most cases it is unexpected and thought of as a last resort. Nevertheless, filing bankruptcy can sometimes be exactly what is needed to get a fresh financial start. Since the recession began several years ago in the United States the number of bankruptcies filed increased by the thousands, and many bankruptcy lawyers began hearing similar reasons of why people were filing. Below is a list (in no particular order) of the top 5 causes of bankruptcy today:
- Unexpected expenses: We have all experienced a situation where suddenly a large amount of money is needed because of some mishap that couldn’t have been avoided. Whether it be a new roof, new tires for your vehicle or natural disasters like floods, fires, and hurricanes; without the proper insurance those disasters can rapidly change your financial situation.
- Divorce: Similar to bankruptcy, divorce is something that no one plans, but it happens nonetheless. Depending on the outcome written in the divorce decree some spouses are left with more debt than others, which makes the decision to file bankruptcy necessary. The bankruptcy code is clear that what is written in a divorce decree will essentially “trump” typical bankruptcy rules so it is very important to discuss the decree with your bankruptcy lawyer.
- Abuse of Credit: Using a credit card is so simple, yet in some cases so destructive. Just a few swipes of the card and you can find yourself with several maxed out credit cards and minimum payments that you barely afford. Chapter 7 bankruptcy rules allow for unsecured credit card debt to be wiped away or “discharged.” Credit Card debt is the main type of debt involved in Chapter 7 bankruptcy because it is so commonly abused and quickly overwhelming.
- Job Loss: The economy has been treacherous for the past several years and layoffs are far too prevalent. Men and women that have held the same job for decades are suddenly unemployed and wondering where to go next. Although sometimes layoffs provide time to prepare yourself mentally and emotionally, they do not always provide adequate time to prepare yourself financially. Without a steady income typical monthly bills become late and debt continues to grow, making bankruptcy a viable option.
- Medical Expenses: Our health is not something to be neglected, and when broken bones, trips in the ambulance, or doctors visits happen they cost quite a bit of money. Unfortunately sudden medical expenses can costs thousands of dollars and can take even the most frugal person into financial peril. Chapter 13 bankruptcy rules allow medical debt to be consolidated and paid off over the course of 3-5 years and Chapter 7 bankruptcy rules allow unsecured medical debt to be completely eliminated.
The causes of bankruptcy range well beyond this list, but the key is to remember that filing bankruptcy can be a wonderful option to take advantage of if some sudden debt has come up.
The relationship between the bankruptcy lawyer and the debtor is just as, if not more, unique as any other attorney-client relationship that the law creates. This is because the legal process of personal bankruptcy is unlike any other field. Instead of litigation, juries, and plea bargains, bankruptcies consist of Chapter 7 and Chapter 13 bankruptcy forms, equations, and detailed financial history of each client. Due to the complexities that bankruptcy brings with it, it is vital to understand how to effectively communicate with your bankruptcy attorney to ensure a successful case. Here are a few items to make sure to tell your bankruptcy lawyer:
- All About Your Finances: During your initial consultation with your bankruptcy lawyer you will most likely be answering quite a few questions about your financial situation, and you should be completely forthright with your responses. There is no need to feel shame from your situation. Remember that keeping financial information from your bankruptcy attorney can be, in some cases, detrimental to the outcome of your case.
- About Any and All Property: Sometimes debtors get intimidated when they hear that all property and/or debt will need to be listed in the official bankruptcy paperwork so they choose not to tell their attorney about certain property. The truth is, there isn’t much to be scared of. In fact, if you are upfront with your attorney about the property that you own, he/she will be able to tell you immediately what bankruptcies can and cannot protect. If you choose to omit certain information about property that you own, the bankruptcy court will find out about it and fraud charges could arise.
- About Any Prior Businesses: Although you might assume that your bankruptcy attorney will ask you all necessary questions, it shouldn’t stop you from voicing anything in your financial history that might be easy to miss like prior business ownership. In many cases prior ownership in a business means nothing on Chapter 13 or Chapter 7 bankruptcy forms but in some cases it does. Just to be safe, be sure and make your bankruptcy attorney aware.
- About Expected Post-Bankruptcy Income: Many clients think that once their bankruptcy is over the courts will stop caring what happens to them financially. That is unfortunately not true. For this reason you should tell your attorney about any expected settlement, inheritance, or other large sum of money you expect to receive during or soon after your bankruptcy.
Ultimately the communication you have with your bankruptcy attorney is crucial to the success of your case. Accurately filling out the Chapter 7 bankruptcy forms and the Chapter 13 bankruptcy forms is the job of your attorney, but the job of being completely open about your situation is your responsibility entirely. Purposely neglecting to tell your bankruptcy attorney something about your finances is not viewed well in the court, and in some cases can lead to the overall dismissal of your case if the court feels that you committed fraud. Just remember that your bankruptcy attorney is on your side, and wants to allow bankruptcy to serve its purpose to help you achieve a fresh financial start.
There are all sorts of rumors floating around that concern those who are considering the possibility of filing personal bankruptcy. One of those many concerns is whether or not it is possible for a debtor to go bankrupt more than once. The answer is yes! The bankruptcy code allows for an individual to file bankruptcy more than once as long as a certain number of years have passed in between filings.
In 2005, Congress enacted the “Bankruptcy Abuse Prevention and Consumer Protection Act” which extended the time between filing Chapter 7 bankruptcy to what it is today: 8 years. Prior to that the time was 6 years. Chapter 7 bankruptcy is the most common type of personal bankruptcy filed today and it is typically beneficial for debtors with large amounts of unsecured debt and very little assets. Unsecured debts can be items such as credit cards, medical bills, or payday loans. If an individual qualifies for Chapter 7 bankruptcy then the process can be as simple as filing the necessary paperwork with the court, paying the filing fee, and attending the required “meeting of creditors” to be seen by the trustee. After the hearing the debtor will receive discharge papers in the mail notifying them that their bankruptcy was completed and successful.
The time between filing Chapter 13 bankruptcy is only 2 years, but to understand why it is so much shorter you should understand what all comes with filing Chapter 13. A Chapter 13 bankruptcy involves a 3-5 years repayment plan where a debtor is allowed to pay back a percentage of their overall debts with no interest. The amount that the debtor pays back is based upon their disposable income, which is ultimately how much money is left at the end of the month after all the necessary bills are paid. The Chapter 13 payment plan can last up to 60 months (5 years), but no longer. The hope for a debtor who files Chapter 13 is that by the end of their payment plan they will be debt free and caught up on all secured payments like vehicles and mortgage.
Ultimately the bankruptcy law does not hinder anyone from filing multiple times in a lifetime, but the 2005 changes were an effort to prevent abuse to the system. Filing bankruptcy is a constitutional right each of us are given in order to handle unexpected financial difficulty, but each time an individual goes bankrupt it should with the hope that a fresh financial future lies ahead. Bankruptcy should not be thought of as a quick fix you can use every 8 years to wipe away all of the credit cards you’ve recently maxed out. On the other hand the bankruptcy court understands that financial struggle can strike at any time, and it is never anything that is asked for. This is a great reason to find an affordable bankruptcy attorney and make sure to ask all of your bankruptcy questions and answers before filing so you can truly be prepared to take this risk.
When faced with any life altering decision it is best to know as much information as possible about all of your options. The decision to file bankruptcy is no different. The encouraging part is that with the wealth of bankruptcy advice found on the internet and the help of a cheap bankruptcy lawyer, you can be well equipped with little trouble at all. When you begin your search into bankruptcy information don’t be afraid to ask the big questions first like “what is the bankruptcy code?”
Put simply, the “bankruptcy code” is the set of bankruptcy rules that outline everything there is to know about how bankruptcy works. But they haven’t been around forever. The “Bankruptcy Act of 1898″ was the first permanent federal bankruptcy legislation and it has changed quite a bit over the years. In fact, there have been several major amendments and reforms. The largest of all these changes was the “Bankruptcy Reform Act of 1978″ which replaced the law that had been in effect since the end of the nineteenth century. This reform act is what became known as the “bankruptcy code” and a version of it still exists today.
Since 1978 there have been 4 major changes to the “bankruptcy code.” The first was the “Bankruptcy Amendments and Federal Judgeship Act of 1984,” also known as BAFJA. This set of amendments dealt primarily with bankruptcy judges and whether or not their jurisdiction should be comprehensive. Two years later Congress passed another major bankruptcy bill called the “Bankruptcy Act of 1986.” It created Chapter 12 bankruptcy that was specifically designed for family farmers. That chapter of bankruptcy was temporary and no longer exists. In 1994 Congress passed the “Bankruptcy Reform Act of 1994″ which was the first time that a large number of amendments were made to the code all at once since its conception in 1978. Finally, in 2005 the latest overhaul to the bankruptcy code was passed, known as the “Bankruptcy Abuse and Consumer Protection Act” or BACPA. This amendment changed several key items in the bankruptcy code including the number of years between filing, and what can and cannot be included in a bankruptcy. The BACPA was created to prevent abuse to the bankruptcy process by making it a bit more difficult to qualify for bankruptcy.
Overall the bankruptcy code lays out the most important rules for all chapters of bankruptcy. Obviously the Chapter 7 bankruptcy rules will differ from Chapter 13 bankruptcy rules, but they are both necessary in order for things to run smoothly once the cases are filed. The bankruptcy code can even be used when you are faced with the Chapter 7 vs. Chapter 13 question that so many encounter. When looking for bankruptcy advice, utilize every resource you can. Many cheap bankruptcy lawyers offer free initial consultations so you can discuss your financial situation without feeling pressured to hire anyone. Filing bankruptcy is a huge decision, and feeling prepared with information will give you confidence throughout the process.