Yearly Archives - 2012

What You Need To Know Before Filing For Bankruptcy

If you’ve acquired large, unpayable debts, you’ve likely considered filing for bankruptcy. But there are things you need to know and consider before you jump into filing for bankruptcy.

First, you need to ask yourself what type of bankruptcy you should file for. If you’re an individual with personal or household debts, you have the option of filing for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 involves complete liquidation of unprotected assets in order to pay your creditors. Any asset with your name attached is likely fair game, however, some assets can and are protected. For example, most retirement savings accounts and pension plans are protected, such as IRAs and your 401(k). You may even be able to keep your home and vehicle. Consult a Los Angeles bankruptcy law attorney before filing so you can make sure to legally protect whatever you can under the law. The rest of your assets will be sold off and paid out to your creditors. Chapter 13 bankruptcy (the business equivalent is Chapter 11) involves restructuring your debt and finances so you can pay your creditors while still holding onto your assets. Generally you are given a few years to pay off your debts under Chapter 13 protection.

Realize that bankruptcy will not clear all your debts. Most debts will be wiped away, or discharged, if you file for Chapter 7, but some debts and financial obligations will remain. For example, income taxes and most student loans are not forgiven after bankruptcy and you will have to repay them no matter what. You will still have financial obligations such as child support and alimony.

Your credit will be negatively affected. In your credit report, bankruptcy is kept on file for at least 10 years. This will severely affect your ability to apply for loans in the future. However, you can rebuild credit over time.

The last thing you should know before filing for bankruptcy is that yes, you can file for bankruptcy yourself, but it’s highly recommended you consult a bankruptcy lawyer so you can fully understand your rights, responsibilities, and perhaps protect assets you may not have known you could keep if you had filed on your own. The modest cost of a lawyer could save you thousands or more in the long term.

Recovering After Bankruptcy

If you’ve gone through filing for bankruptcy, you know how traumatic and demoralizing it can be. If you’re considering bankruptcy, prepare to be demoralized. Prepare for a lot of headaches. Prepare for that post-bankruptcy depression to set in. But whether you’ve gone bankrupt or you see filing bankruptcy as the only way out of your financial troubles, it doesn’t have to be the end of the world. In fact, going through a bankruptcy can be seen as a new beginning.

Recovering after bankruptcy involves correcting the mistakes that led you to bankruptcy. For some, they were hit with unforeseen medical or other expenses, but for others, bankruptcy was a product of taking on too much debt due to poor financial planning. If you’re in the latter case, you will need to restructure your finances from top to bottom. After you’ve gone through bankruptcy, you’ll need to make sure you have a balanced budget so you can pay your expenses and have some money to put away in savings. Identify what your necessary expenses are. These would be things like your rent/mortgage, food, travel, utilities, insurance, and loan payments. Try to minimize these payments as much as possible. While bankruptcy involves liquidating many of your assets to pay your creditors, some debts cannot be washed away, such as student loans. You’ll need to pay off the remainder of these debts and consider them in your financial plan.

Once you’ve balanced your home budget and can save money, start saving. Emergencies happen, and if you’re living paycheck to paycheck, even requiring to spend $500 for an emergency can seriously set you back on your bills. Try to save as much as you can, not just for emergencies but for retirement down the road; most Americans do not save enough for retirement.

Borrow to rebuild credit. Speak to a bankruptcy attorney Los Angeles to discuss your best options. However, you can easily rebuild credit – it just takes time. Start by borrowing money, either by taking small loans or using a credit card, and paying them back in full and on time. Missed payments will crush what little credit you have, but borrowing and paying off your loans and credit cards will gradually rebuild your credit.

Should You File For Bankruptcy?

If you’ve acquired a lot of debt and are unsure if you can pay them off, you might have already considered filing for bankruptcy. But is filing for bankruptcy an ideal solution? Are any of your assets spared when you file for bankruptcy?

There are a few situations when bankruptcy is really the only solution to massive debt. The first and most basic is when there is no real possibility of you paying off your debt considering your financial circumstances. That is to say that if you owed $450,000 and your monthly payments were $3000, but you only had an income of $1500 per month and $80,000 in assets, it would be almost impossible to repay that debt if you do the math.

However, in this case you may be able to negotiate with your creditors to work out a plan to repay your debt based on your income and value of your assets. There are plenty of debt consolidation and credit counseling companies that can help you reduce your monthly payments. Even if bankruptcy is imminent, you can file for Chapter 13 bankruptcy, is a simpler form of bankruptcy similar to Chapter 11, which lets you work out a way to pay your debts within three to five years. However, in some cases your creditors might not be able or willing to negotiate on your debts. In this case you will need to seriously consider filing for Chapter 7 bankruptcy.

However, some of your assets may be able to be protected under California bankruptcy law. For example, the retirement savings in your IRA as well as your 401(k) plan are protected. Some of your property can also be protected from liquidation. You may be able to mark properties as exempt from bankruptcy liquidation, however it’s highly recommended to consult a bankruptcy law attorney to ensure you can maximize the number of assets you can protect before you file for bankruptcy.

Filing For Chapter 11 Bankruptcy vs Chapter 7 Bankruptcy for Your Business

In difficult times a business owner will undoubtedly consider filing for bankruptcy. For the unfortunate few, the decision is already made – but then the next question is what type of bankruptcy should they file for? The two most common types of bankruptcy, and there are plenty, are Chapter 7 and Chapter 11 bankruptcy. The two are very different, and knowing where you realistically see the future of your business matters what you choose.

We hear a lot about Chapter 11 bankruptcy in the news, but many people don’t fully understand what it actually entails. Filing for Chapter 11 bankruptcy essentially tells your creditors that you will reorganize and restructure your company as well as consolidate its debts so it can be profitable again. That means you can continue running your business under Chapter 11 bankruptcy. Under Chapter 11 protection, a trustee will oversee your assets during this restructuring period. Once you get your business back on track, you can pay back your debts through future revenues.

For some businesses, they have gone beyond what Chapter 11 can do for them, either because the company is too far in debt, or because under Chapter 11 protection it failed to return to solvency. At this point a business owner should consider filing for Chapter 7 bankruptcy. This is also known as liquidation bankruptcy, and companies under Chapter 7 must sell off all nonexempt assets to pay their creditors. A trustee makes sure that all assets are sold and creditors are paid off in order of priority.

So the question of whether you should file for Chapter 11 or Chapter 7 bankruptcy is really a question of whether or not you can possibly reorganize your company and restructure your debt, or if it’s too late and you need to liquidate your company’s assets.