Personal Bankruptcy Laws For Dummies

James P. Caher, John M. Caher

• Publisher: For Dummies
• Year: 2011
• ISBN:
  9781118052808
• Edition: 2
• Topic: Personal Development
• Subtopic: Personal Finance

With tips on understanding -- and surviving -- the new bankruptcy laws If you're considering bankruptcy, you need straightforward answers and reliable advice. This handy guide covers it all -- so you can get your finances in line and your life back on track. This updated new edition covers everything you need to know about the new bankruptcy law and includes even better resources. Don't get desperate -- get out of debt instead! Discover how to
* Weigh the consequences of bankruptcy
* Manage your spending
* Find professional help you can trust
* Decide on the right type of bankruptcy
* Pass the means test
* Keep more of your stuff

Part I

Bankruptcy: The Big Picture

In this part . . .

I s bankruptcy the best option for you, or even an option for you? What happens if you file? What happens if you don’t? And what’s this new bankruptcy law mean? Do you need a lawyer? How can you stop the hemorrhaging? Where do you even start? If you don’t already know the answers to these questions — and maybe even if you think you do — start your journey here. Many people begin with the assumption that even considering bankruptcy is an admission of failure. Actually, it can be a first step toward taking responsible control of your financial future. Read this part to see how bankruptcy is a legitimate tool and to understand the implications of exercising — and not exercising — your right to a fresh start.

Chapter 1

Considering Bankruptcy

In This Chapter

Understanding the history and tradition of bankruptcy

Dispelling myths about bankruptcy

Discovering what you can gain in bankruptcy

Recognizing what you may lose in bankruptcy

Knowing the consequences of not filing bankruptcy when you qualify

Maybe you were socked with an unexpected and uninsured medical expense, and you didn’t have the savings to cover the bills. Perhaps you lost your job, and you can no longer juggle your car and mortgage payments. Maybe you dipped into personal assets in a desperate (and futile) bid to salvage your business. Perchance your husband split and left you holding a big bag of joint debts. You likely bought into the easy-credit, instant-gratification, shop-till-you-drop mentality encouraged by lenders and retailers and found yourself mired in financial quicksand. In any case, things got out of hand and now you’re up to your ears in debt.

Finance companies are warning that if you don’t pay up, and soon, they’re going to take your home and car. Credit-card firms are threatening to haul your butt into court. Debt collectors are pursuing you relentlessly. Your finances are a disaster. Your personal and professional relationships are strained. You’re losing sleep, and you’re becoming a perfect candidate for ulcers. Welcome to the club. Millions of Americans are in the same leaky boat.

Thankfully, you have a way — a perfectly legitimate way — to stop foreclosures and repossessions, put an end to lawsuits, protect your paycheck from garnishments, get those menacing debt collectors off your back, and regain control of your life: bankruptcy.

But bankruptcy is shrouded in myth and prejudice. You may have even felt a twinge of embarrassment buying this book.

If you’re like many folks, the first step on the road to financial recovery is overcoming your feelings of inadequacy, shame, guilt, and fear of the unknown.

In this chapter, we encourage you to put myth and prejudice aside and look calmly at the advantages and disadvantages of bankruptcy. Then, and only then, can you make a rational decision about whether bankruptcy is the best choice for you and your loved ones. You have things to gain, and things to lose, in bankruptcy. This chapter gives you a glimpse of what’s at stake with bankruptcy in kind of a broad way and serves as a gateway to the rest of the book.

Viewing Bankruptcy in a Historical Context

In the United States, the concept of bankruptcy is unique. Here, bankruptcy is viewed — legally and perceptually — as a means to an end, and not as “the end” of a debtor’s financial life. America’s Founding Fathers provided for bankruptcy right in the Constitution. A series of laws passed (and sometimes repealed) by Congress during the 1800s shaped the American view of bankruptcy as not only a remedy for creditors, but also as a way to give honest yet unfortunate debtors financial rebirth. The Bankruptcy Act of 1898 established that debtors had a basic right to financial relief without creditor consent or court permission. American bankruptcy laws have come to be recognized as far more compassionate and much less punitive to debtors than the laws of other countries.

Like much of American law, the country’s bankruptcy statutes reflect the constant tension between the competing interests of debtors and creditors. Think of it as a perpetual tug of war, with each side striving mightily but never pulling their opponent all the way over the line. To this day, the balance of influence between creditors and debtors is in an ever-present state of flux. Sometimes debtors have the upper hand. Other times, creditors get the edge. At the moment, thanks to a new law that took effect in October 2005, creditors are holding the trump card.

The constant, however, is that Americans have always been (and remain) entitled to a fresh start. The obstacles that you must clear to obtain this fresh start are not constant; they’re always changing.

Modern-day bankruptcy is rooted in the Bankruptcy Code of 1978, a federal law that was produced after more than ten years of careful study by judges and scholars. More recently, creditors and their lobbyists essentially rewrote what was a pretty well reasoned and fair law in their own image. The result was the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” — often known as the Bankruptcy Abuse Reform Fiasco, or BARF. It’s not good for consumers. It’s not good for the economy. It flies in the face of the risk-reward principles at the core of capitalism. And, in the long run, it’s probably not all that good for the credit industry, which wrote it.

So how did a one-sided, ill-considered bucket of BARF happen to pass both houses of Congress as well as presidential scrutiny?

Some cynics think the eight-year lobbying campaign by the credit-card industry and the $100 million spent on campaign contributions may have had something to do with it. Some speculate that lawmakers, blinded by campaign contributions and sound-bite moralizing about personal responsibility (we are, by the way, all for personal responsibility — both for borrowers and lenders), simply didn’t pay a whole lot of attention to the fine print in an incredibly complex amendment that’s about the size of a metropolitan telephone book.

How these provisions will be implemented, applied and interpreted remains a mystery, and it will take years and years of cases and judicial opinions to sort it out. The simple fact of the matter is that neither we, your lawyer, nor even your local bankruptcy judge know for sure how or when the higher courts will decipher all this stuff and figure out how to apply it to circumstances never imagined by the people who wrote and voted for this bill.

Bankruptcy’s roots

The word bankruptcy evolved from an Italian phrase banca ratta that means “broken bench or table.” In medieval times, when a merchant failed to pay his debts, creditors would ceremoniously break the bench or table from which he conducted his business. The forgiveness of debts, on the other hand, has biblical roots.

Consider the Old Testament: “At the end of every seven years, you are to cancel the debts of those who owe you money. This is how it is done. Everyone who has lent money to his neighbor is to cancel the debt: he must not try to collect the money: the Lord himself has declared the debt canceled.” (Deuteronomy 15: 1–2).

Debt forgiveness also is a prominent New Testament the...

Table of contents

• Title
• Contents
• Introduction
• Part I : Bankruptcy: The Big Picture
• Chapter 1: Considering Bankruptcy
• Chapter 2: Stopping the Bleeding
• Chapter 3: Meeting the Players
• Chapter 4: Deciding Which Type of Bankruptcy Is Best for You
• Chapter 5: Confronting the Means Test
• Chapter 6: Getting from Here to There: The Bankruptcy Process
• Part II : Avoiding Bankruptcy
• Chapter 7: Considering Alternatives to Bankruptcy
• Chapter 8: Handling Bill Collectors
• Chapter 9: Negotiating with the IRS
• Part III : Keeping Your Stuff
• Chapter 10: Understanding Which Assets Are Off Limits to Creditors
• Chapter 11: Dealing with Secured Debts
• Chapter 12: Saving Your Home
• Part IV : Getting Rid of (Most of) Your Debt
• Chapter 13: Lingering Obligations
• Chapter 14: A House of Cards: Wiping Out Credit-Card Debts
• Chapter 15: Give unto Caesar: Using Bankruptcy to Deal with Tax Debts
• Chapter 16: The Devil Made Me Do It: Fines, Fraud, and Other Foibles
• Chapter 17: Till Debt Due Us Part: Bankruptcy and Divorce
• Chapter 18: Student Loans and Other Mind Games
• Part V : Strategies for a Successful Bankruptcy
• Chapter 19: Avoiding Troubles with Your Trustee
• Chapter 20: Living on the Edge in Chapter 13 Bankruptcy
• Part VI : Enjoying Your Fresh Start
• Chapter 21: Repairing Your Credit
• Chapter 22: Staying Out of Financial Trouble
• Part VII : The Part of Tens
• Chapter 23: Ten Common Bankruptcy Mistakes
• Chapter 24: Ten Things You Can Do Right Now to Ease Your Financial Woes
• Chapter 25: Ten Common Questions about Bankruptcy
• Appendix: Homestead Exemption Laws