Bankruptcy

Hi, I’m David Fritch, and want to help quickly help educate you about bankruptcy.  This video is not intended as legal, accounting, or tax advice but merely to help you understand the general process and some of the rules of bankruptcy.  You should always consult an attorney before taking any action with regard to your finances if contemplating filing bankruptcy.

  1. One of the first questions is have you filed for bankruptcy before?
  2. Under chapter 7 you have to wait 8 years to file again and under Chapter 13 generally 6 years under the current law.

Two of the most important things to consider when filing bankruptcy is 

  1. You don’t want to be going in the hole on the day you file bankruptcy which is the day you start a new financial life.
    1. you want to make sure your income is more than your living expenses so you are not immediately going into debt.
      1. It is important that you do not get into financial trouble right after you file bankruptcy.
      2. It is not unusual to get advertising from cars companies and credit card companies because they know you cannot file again right away, and they can garnish your wages to get paid.  So be careful going back into debt after you file.The second important issue is that you must know who your creditors are: their names and addresses so your attorney can  give them notice you are filing bankruptcy
        1. If a creditor does not get notice may later be able to sue you to collect his debt.
        2. You cannot rely on a credit report to determine your creditors.
        3. Many times credit reports are incomplete or have incorrect information
        4. There are generally four types of bankruptcy:

          Chapter 7 and Chapter 13 are used mostly by consumers, chapter 13 has certain debt limitations

          Chapter 11 used mostly by businesses

          Chapter 12 used mostly by farmers and fishermen

          Chapter 7 is used by probably over 90% of the cases and this is a straight liquidation of your assets with the exception of certain property you are allowed to keep which is called exempt property.  We will cover some of the more important exemptions but not all of them, there are quite a few.

          Chapter 13 is used by debtors who have to make monthly payments to the bankruptcy court or creditors over usually up to five years.

          The rules chapter 7 and chapter 13 are similar to many non-dischargeable debts.

          Some of the common non-dischargeable debts are:

          1. Debts for taxes – you must have filed all of your required tax returns in the past to be eligible to file bankruptcy. 
            1. You can file Chapter 13 to save interest on back taxes owed but you will still have to negotiate with the IRS and the Chapter 13 trustee with regard to payment of your back taxes.
          2. Debts that are for child support or maintenance are non-dischargeable.
          3. Debts to spouse for alimony or divorce obligations are generally not dischargeable under chapter 7 but might be reduced under a Chapter 13
          4. Debt for student loans, unless you are in bed 100% of the time without any hope of rising it is tough
          5. Debt incurred by theft or conversion or fraud (including sometimes bad checks)
          6. Debts for criminal fines and penalties or restitution
          7. Debts or which the creditor was not listed by the debtor and given notice
          8. Debt for which the debtor has signed a reaffirmation agreement (These are debts to property the debtor wants to keep and he or she has enough exemption to cover the equity in such property.

          There are exceptions to these non-dischargeable debt items but the law is complicated and as indicated before you should get advice from a bankruptcy attorney before making any decisions with regard to your financial transactions.

          The debtor should understand the attorney’s responsibility and the debtor’s rights and responsibility before filing bankruptcy.  I have attached some of the rights and responsibilities as a download below because I cannot cover all of them in this presentation.

          Responsibilities of the debtor include:

          1. Providing your attorney with a complete, accurate, and current financial information