How To File Bankruptcy Help

Seven fraudulent mortgage modification services are facing cease and desist orders from the state of New Jersey, according to reports from NJ.com. The legal action comes from the state’s Department of Consumer Affairs and includes steep civil penalties against the firms.

Unfortunately, mortgage scams are nothing new and in fact have been fairly common since the housing market collapsed and adjustable-rate mortgages began to reset en masse. Here’s a look at how these particular companies allegedly scammed New Jersey residents:

• Promise for negotiation: Scammers apparently piqued victims’ interest by offering to negotiate with their mortgage lenders on their behalf. This offer is understandably attractive to those homeowners struggling to make mortgage payments, who might be in danger of foreclosure or considering a bankruptcy filing to help ease their debt burden.
• Collection of fees: Naturally, the scammers insisted on collecting payment for their work up front, before actually delivering on their promises. In many cases, consumer protection laws prohibit companies from collecting fees before performing any services.
• Failure to follow through: Unsurprisingly, the scammers did not actually help victims adjust their debt. In fact, the seven companies weren’t even registered as debt-adjustment services, as the state requires, according to reports.

Debt Negotiation as a Bankruptcy Alternative

While New Jersey’s attorney general has now taken action to repair some of the damage these fraudsters caused, it’s likely that at least some victims endured serious financial hardship because of the scam.

On the (mildly) positive side, the scam provides an excellent opportunity to review some of the differences between debt adjustment services and personal bankruptcy.

Bankruptcy alternatives:

• Are not regulated as strictly as bankruptcy: At both the federal and state level, there are laws designed to protect consumers from scammers like the ones that struck in New Jersey. But, as this mortgage scam shows us, it’s fairly common for fraudsters to break those laws. Bankruptcy, on the other hand, follows the same set of laws no matter where in the country a filer lives. Those laws are published online where filers can easily access them.
• May affect credit differently than bankruptcy: One reason many people seek non-bankruptcy alternatives to eliminating or reducing debt is because of the negative perceived impact that bankruptcy can have on a credit score. But assuming your credit won’t be hurt by debt settlement or debt negotiation is a gamble: if you work with a less-than-trustworthy company, you may end up losing money and hurting your credit.
• Do not offer the legal protections that bankruptcy does: One major benefit of bankruptcy is that filers know that they can expect certain protections (e.g. from creditor contact and collections) after they file their case. No such legal protections exist for bankruptcy alternatives.

Bankruptcy is not right for everyone, but it’s an important and powerful debt-relief option to consider for those in financial distress.

If you need to file for protection under the bankruptcy laws of chapter 7 or chapter 13 in order to attain debt relief, there are a number of aspects you should know about bankruptcy laws. These laws are designed to permit debtors who can’t pay their debts, to discharge or restructure these debts while still allowing creditors to regain as much of the monies owed as possible. Because the situation of the individual or legal entity, such as a company, seeking protection under the bankruptcy laws can vary widely, there are different kinds that cover specific situations. These laws are written in the different chapters of the United States Bankruptcy Code. In general, the chapter 7 apply rules to personal or corporate liquidations, while those of chapter 13 apply to personal reorganization bankruptcies. For large corporations that need to restructure huge amounts of debts and assets, the bankruptcy laws of chapter 11 generally apply.

Before you file for protection under the bankruptcy laws, you will have to know which chapter you must file. The choice is not yours; instead, you must take a means test that determines which bankruptcy laws apply to your situation. The means test measures your income against that of the state median and if it is below it, you must file chapter 7, or liquidation bankruptcy. However, if your income is above the state median, you must file for protection under the bankruptcy laws of chapter 13. It is important to realize that the state you file bankruptcy in can have a huge impact on which bankruptcy laws apply to your situation. There is another aspect of bankruptcy law that is defined by your location: exemptions.

Exemptions are assets you may exclude from the bankruptcy proceedings, which means that you are allowed to keep them.  Exactly which assets are excluded from your proceedings is defined by the bankruptcy laws of your state. When you file your petition, it is imperative it complies with all necessary bankruptcy laws.  If it contains any incorrect information, or it isn’t complete, the court will not accept it.  A very important aspect to bankruptcy laws pertains to your creditors.  If you are filing for protection under the bankruptcy laws of chapter 7 or chapter 13, it’s more than likely that creditors and collection agencies have been harassing you.  Once your petition has been accepted by the court,  the bankruptcy laws state that the Trustee must notify all your creditors of your filing and the automatic stay goes into effect.  The automatic stay means that your creditors must stop all collection actions against you, even foreclosure, until a decision has been made in your bankruptcy case.

A number of U.S. states currently struggling with large budget deficits refused the offer of federal help by means of legislation that would allow them to declare bankruptcy, Reuters reported this week.

The bill would eliminate current laws requiring states (except Vermont), which are considered sovereign entities, to finish every fiscal year with balanced sheets. They would therefore be able to file for bankruptcy and get help and protection from the government.

The legislation may be introduced in Congress in about a month, according to former House speaker Newt Gingrich, an active supporter and representative of the Republican party.

Among the states are California, Illinois, and New York, who issued a large portion of the municipal bonds currently valued at $2.8 trillion. According to California State Treasurer Bill Lockyer, bankruptcy would hinder the states from recovering from the recession through infrastructure investments.

Lockyer called the plan a “wrecking ball” on the economy and the public, saying the state had the means to fix their own problems. California is currently reducing employee benefits and hiking up contributions, along with other similar measures.

In Texas, a representative for Governor Rick Perry said that Washington must respect that the state’s leaders and legislators are practicing fiscal responsibility. Instead of offering a bailout in the form of bankruptcy, he said, governments have to “live within their means,” as American consumers do.

Thomas DiNapoli, State Comptroller for New York, said that a bankruptcy option could damage a state’s credit record and turn away bondholders. He added that the economy does not need another blow to its confidence, but rather an organization of its revenue and spending.

The use of case management software by law firms comes across as no surprise these days. A basic case management system should be equipped enough to provide the following features. These include:

• A calendar system to make a note of the important dates
• A reporting tool and this can be in the form of a template
• A case notes storage or attendance tool
• A tool for the storage of contact information of the clients and other parties that are involved
• A case information storage system that facilitates the establishment of a link between the different contacts and helps in recording detailed information
• A document library that comprises templates and formats for documents and letters that are automatically generated by the system
• A time recording feature that can also calculate the time spent on document filing and processing, correspondence and court proceedings.
• A workflow management tool that records every bit of information pertaining to the effective management of a case and prompts the user on important dates and other relevant information
• A flexible system that allows modifications as per case requirements
• A system that allows storage of user and account information on the basis of the responsibilities assigned to each of the employees of the law firm depending upon the case management functions and third party systems.
• Online client functionality is necessary when it comes to assessment, basic case summary, registration, case progress report and pricing.
• It should also include schedules, contract management tools, contract information and specifications as part of the complete legal software solutions package.
• It should be integrated with a system that can determine the pricing and the hourly charges for each of the activities.

All these aspects should be looked into before purchasing software for the administration of legal cases.

Bankruptcy filing isn’t the most comfortable of situations, but often, it’s really the best recourse. That being said, it’s still important to know the pros and cons of bankruptcy filing, and make sure you’re ready to deal with the consequences afterwards. To help you decide whether filing for bankruptcy is right for you, here’s a rundown of its good and bad sides—and how you can control them.

Advantages

1) Protection from creditors. The automatic stay goes into effect immediately after the bankruptcy filing. This means that creditors cannot contact you except through your lawyer, or harass you for payments while the process is under way.

2) Relief from debt. Much of your unsecured debt will be discharged in a bankruptcy filing. Student loans and child support payments will not be written off, but at least you’ll no longer have commercial creditors on your back all the time.

3) Asset protection. In most states, you can list certain properties as exempt. So even when filing bankruptcy under Chapter 7, where your assets are liquidated, you don’t have to lose your home or even your car.

4) A fresh start. Once you’re free of debt, you can start rebuilding your credit history and getting your finances back on track. It may take time, but it would have taken much longer without a bankruptcy filing. You can even start saving up to buy a new home.

Disadvantages

1) Limited credit options. Often, after filing for bankruptcy, your borrowing options will be rather limited. Very few banks will lend money to someone fresh off a bankruptcy filing, and those that do usually charge high interest to make up for the risk.

2) Public records. Just like in a foreclosure, your name will appear in court records and sometimes local newspapers when you file for bankruptcy. It will also be visible on your credit report for about seven years.

3) Credit implications. Your credit score can drop by 180 to 400 points in a bankruptcy filing. The number of points you lose depends on how much debt you had, what chapter you filed under, and how much of your debt was discharged in the process.

4) Bankruptcy costs. They say bankruptcy isn’t for the dirt poor, and in some ways, it’s true. It costs between $200 and $300 to file for bankruptcy, and that doesn’t include the attorney’s fees, which can run into the hundreds or thousands.

In a Chapter 7 bankruptcy, you have some of your assets sold off and use the proceeds to pay creditors in order of priority. Unsecured debts that cannot be covered by the proceeds are written off. These are usually credit card debts, which make up most of the debt in a typical consumer bankruptcy. Most debtors only end up paying a small portion of their debt under Chapter 7, making it technically cheaper than other types of bankruptcy.

Court Protection

Perhaps the best reason to file for bankruptcy, under Chapter 7 or Chapter 13, is to get protection from your creditors through the court’s automatic stay. As soon as your case is filed, creditors can no longer collect payments, garnish wages, or proceed with any form of solicitation—including foreclosure. Filing for Chapter 7 bankruptcy will keep creditors at bay while you work out an arrangement and try to get back on track.

Recovery Options

Finally, Chapter 7 bankruptcy clears off your debt so that you can get a fresh start on your finances. Your credit score may suffer, perhaps more than if you filed for Chapter 13, but you have more time to start reestablishing your credit and building an emergency fund. Your bankruptcy attorney can give you tips on making use of this opportunity and avoiding more bankruptcy filings in the future.

Bankruptcy is seldom as simple and straightforward as it seems. Cases that seem smooth enough at the outset can later reveal details that complicate the filing, and even get them dismissed. This is especially true in Chapter 13 bankruptcy, where a repayment plan has to be worked out with creditors and approved by a bankruptcy trustee. From forgotten debts to creditors unwilling to settle, there’s a lot that a debtor has to prepare for. Here are some of the most common Chapter 13 bankruptcy complications and how they can be dealt with.

Delinquent Mortgages

A large share of Chapter 13 debtors today are behind on their mortgages and seeking a way out of foreclosure. But few of them are aware that mortgage debt cannot be added to a Chapter 13 plan. Only past-due payments and associated penalties can be repaid under Chapter 13 bankruptcy; current and future debts have to be paid alongside the repayment plan. This means that monthly mortgage payments have to be taken into account during the means test—one has to have enough disposable income (after mortgage and other expenses) to make Chapter 13 payments over three to five years.

Previously Unknown Debts and Assets

All assets and liabilities have to be declared in a bankruptcy, whether under Chapter 7 or Chapter 13. Some debtors only become aware of certain debts, such as back taxes or old credit card debt, when they dig through their files to complete the forms. If such creditors come up during your filing, you may be questioned or asked why they were not included in your petition. It can also jeopardize your case and cause the automatic stay to be lifted, allowing your creditors to resume solicitation actions (including foreclosure proceedings). The same goes for previously unknown assets that go undeclared, such as inheritances.

Change In Circumstances

Perhaps the biggest risk in Chapter 13 bankruptcy is a change in one’s financial situation that prevents him or her from continuing the repayment plan. If you lose your job or an important source of income while under Chapter 13 protection, you can apply to the court for a change in the terms, or have payments temporarily suspended. You can also choose to have your bankruptcy converted to Chapter 7, provided you meet the requirements as well. Or if you have no other choice, you can voluntarily have the case dismissed and allow your creditors to continue collecting payments.

The choice to file for bankruptcy is usually a matter of cost—it’s the cheapest way out of excessive debt. But there’s more than one way to file for bankruptcy, and each one carries different costs. Most people opt for Chapter 7 bankruptcy because it’s faster and lets them off a greater amount of debt, making it appear cheaper. But there’s more than just the discharge of debt to think about. Here’s a look at the costs of Chapter 7 and Chapter 13 bankruptcy, and how to tell which one works best for you.

Bankruptcy Fees

Bankruptcy fees are actually cheaper for Chapter 13 bankruptcy than for Chapter 7. To file Chapter 13 bankruptcy, one has to pay a statutory fee of $235 and an administrative fee of $39, for a total of $274. Chapter 7 bankruptcy carries a $245 statutory fee and a $39 administrative fee, plus a trustee surcharge of $15. This brings the total to $299, slightly higher than Chapter 13. The fees can be waived or paid in up to four installments for debtors with limited financial capacity.

Discharge of Debts

The reason most people consider Chapter 7 cheaper is that more debts are discharged in the process. Most unsecured debts, such as those owed to credit card companies, are written off in a Chapter 7 bankruptcy. In Chapter 13, on the other hand, one has to make payments over three to five years on whatever debt can be covered by one’s income. As Chapter 7 offers immediate relief from debt—usually within three to five months—it seems cheaper in terms of both time and money.

Property Lost

Of course, immediate discharge comes at a price; in this case, it’s usually the loss of property. Chapter 7 bankruptcy involves putting eligible assets up for liquidation and having the proceeds distributed among creditors in order of priority. For most consumer bankruptcies, exemption rules mean that almost no property is lost in the process. But while your home or car may be protected, you may still stand to lose personal possessions such as clothes, jewelry, or cash reserves.

Credit Effects

Finally, there’s the matter of what a bankruptcy does to your credit. Both Chapter 7 and Chapter 13 will affect your credit negatively, but Chapter 13 has a much smaller impact. Generally, the more debt you get away with, the more points you lose on your credit report. So Chapter 7 may cost you less in the process, but it can limit your options when it comes to taking out credit in the future.

Bankruptcy must be your last resort when you want your debts to be paid off completely. There are other ways you can get rid of your debts without having to file for bankruptcy. There are other options such as debt consolidation, debts settlement and debt management that can help you pay off your debts as well as make a decent saving. You can also try to consolidate debt on your own to get rid of those debts.

Ways you can pay off your debt without filing for bankruptcy

There are quite a number of programs available that can help you pay off your debts as well as save more. You can also pay off your debts yourself without taking help of any professional program. Take a look at the ways you can avoid bankruptcy:

1.Debt consolidation
You can get help of a debt consolidation program or you can also consolidate debt on your own. The debt consolidator negotiates with your creditors for reducing the rates of interest and also some of your extra charges. You need to pay single monthly amount which is distributed amongst your creditors. You may also go for debt consolidation on your own by paying off your higher interest rates first while making smaller amounts of payments on your other debts. This will help you get out of debts fast.

2.Debt settlement
This enables you to create an account with the debt settlement company. Once it’s done, the representative of the company negotiates with your creditors to reduce the outstanding amount. The creditors may also reduce the interest rates and may eliminate your extra charges. This help you pay off your debts fast as you pay quite a low amount of money as your debts. When the amount you deposit in the account reaches certain limit, the negotiator distributes it amongst the creditors. You may also negotiate with your creditors on your own. You just need to show them the hardship you’re facing and that you won’t be able to pay off your complete debts. Try to negotiate an amount that you can pay off and the reason behind it.

3.Debt management
Debt management is another way you can pay off your debts. You can get help of a debt management plan or you may go for debt management on your own. Debt management along with other debt payment plans requires you to have a definite payment plan so that you can pay off your debts fast and avoid filing for bankruptcy. You need to know the basics of frugal living. You need to manage your finances in such a way that you can get out of debts and are also able to save quite an amount of money.

These three options given above make it possible for you to pay off your debts and also avoid bankruptcy. Bankruptcy allows you to start your finances from the very beginning but it ruins your credit report. Try to get rid of your debts and consolidate debt by these options without going for bankruptcy.

Bankruptcy planning isn’t always the first thing a debtor thinks of—getting rid of debt and starting off anew is often more urgent. But few people realize the importance not just of planning, but planning smartly. Good planning can mean a successful Bankruptcy filing and a more secure financial future. Bad planning, on the other hand, can lead to anything from simple processing delays to fraud accusations that can land you in jail. If you’re not sure how to start planning your bankruptcy, read on for a simple guide.

Explore Your Options.
First, is bankruptcy really your only way out? Surprisingly, for many people, it’s not. Go over your debts and income, preferably with an accountant or bankruptcy lawyer, and see if there are other solutions available. Bankruptcy can have far-reaching consequences and should only be taken as a last resort. Some of the most common bankruptcy alternatives are debt settlement, debt consolidation, and simple self-reorganization of your finances.

Know What’s At Risk.
How much do you stand to lose in a bankruptcy? If you’re filing under Chapter 7, you may lose some of your assets if they’re not listed as exempt under bankruptcy rules. Chapter 13 bankruptcy won’t have the same effects, but may have other drawbacks. Take a look at your current assets and properties, and decide whether you can afford to give them up to clear
up your debt. You can also consider selling them off yourself and paying your creditors outside of bankruptcy.

Consult A Lawyer.
You will need a bankruptcy lawyer to help you along, but nothing’s stopping you from consulting one even before deciding to file. A lawyer can better explain where you stand, what your options are, and what the consequences will be. They can also help you decide whether or not to file
bankruptcy in the first place. Most bankruptcy lawyers offer a free initial consultation, so just look around for recommendations and set a few appointments.

Plan Your Recovery
Bankruptcy planning doesn’t end at your discharge. As previously mentioned, bankruptcy affects you longer than you may think and it’s important to know the implications. For example, how do you plan on rebuilding and maintaining your credit afterwards? If you’re planning to
get a home mortgage afterwards, how long will you have to wait? These are all things you can discuss with your bankruptcy lawyer and plan for before taking that first step.

Most people would prefer to avoid bankruptcy, the most drastic debt relief option, at all cost. Sometimes, bankruptcy is unavoidable, due to serious unexpected financial hits that you don’t have the resources to deal with yourself. But often, smart financial management can help you address financial problems before they become so great that bankruptcy is the only way out of the situation. This article will give you some tips on how to avoid bankruptcy.

Tips to Avoid Bankruptcy

• Cut back on unnecessary luxury expenses. If a lifestyle you cannot realistically afford is causing you to get deeper and deeper into debt, cutting back on items or subscriptions you don’t really need can help you avoid bankruptcy.

• Make a monthly budget and stick to it. Balance your expenses against your income, and if at all possible, put some money aside every month for unforeseen expenses.

• Pay your bills on time. Many people who file bankruptcy, do so after a long debt cycle during which unpaid debts gather interest and late fees, thereby increasing the amount of debt. This means that even if you’re not actively spending money, you’re passively increasing your debt.

• To avoid bankruptcy, consider minimizing the use of your credit cards. It’s tempting to pay with your credit card if you really something, but the bill has to be paid eventually and the money has to be there. A good rule to live by to avoid bankruptcy is: if you don’t have the cash, the item stays in the store.

• Consider other debt relief options. There are a number of solutions available in order to avoid bankruptcy. Depending on the amount and type of your debt, you may qualify for debt settlement or debt consolidation.

• Restructure your existing loans. Most lenders will want to help you avoid bankruptcy, as it minimizes their chances of repayment. If you have a mortgage, schedule a meeting with your lender to renegotiate new terms on the loan. A longer time period, a reduced interest rate, or both, can lower your monthly expenses and enable you to manage your total expenses.

• If you have valuable assets, consider selling them. A trustee taking control of your assets and selling them in order to pay off your creditors is a consequence of bankruptcy you want to avoid. Bankruptcy doesn’t allow you to have control over the price paid for your assets. Selling anything of real monetary value you own to settle as much of your debt as possible will help you avoid bankruptcy. If, after this, you still can’t avoid bankruptcy, at least the balance of your debt will be lower.

The housing crisis has led to plenty of attention for homeowners who are underwater on their mortgages – that is, who owe more on their homes than the properties’ current value. Less press time has been devoted to other types of underwater loans, particularly those for cars.

The good news? Filing for bankruptcy may help you out of an underwater car loan (also sometimes called an “upside down” loan). Here’s a look at how things might work.

Underwater Car Loans in Chapter 7 Bankruptcy

Those who file Chapter 7 bankruptcy may handle an underwater car loan in one of three ways:

• Surrender the car. This option means giving up the vehicle and eliminating the debt connected to it. While this isn’t a practical option for those who need a vehicle, it may be useful for folks who have other transportation options.
• Redeem the car. This option lets filers repay creditors the remainder of the car’s fair market value in a lump sum. In other words, you pay your lender the car’s current value minus whatever amount you’ve already paid. This tends to benefit those with underwater loans and enough cash on hand.
• Renew the loan. This choice may work for those who do not have the cash to redeem their cars and who need them for transportation. Loan renewal equals an agreement to continue making payments as outlined in the original loan papers. Chapter 7 bankruptcy may make these more manageable by discharging other debts and thus freeing up enough money to allow for car payments.

Underwater Car Loans in Chapter 13 Bankruptcy

Chapter 13 bankruptcy requires filers to make monthly payments to their creditors over a three- to five-year period. In Chapter 13, car loans:

• Older than 910 days may be eligible for “cramming down.” This requires filers to continue making car payments, but only for the vehicle’s fair market value (not for the entire loan amount).
• Less than 910 days old generally require full repayment. However, some Chapter 13 filers are able to repay their car loans at lower interest rates than those outlined in their original loan agreements.

Determining a Car’s Real Value

If you plan on including an underwater car loan in your bankruptcy filing, it’s important to make sure you understand how car values are assessed for the court’s purposes. You have to provide a value for your car as part of your bankruptcy petition and you must swear to the accuracy of that value as part of your case.

Misleading or blatantly false information could lead to charges of bankruptcy fraud, so you may want to do some research and/or consult with your lawyer before settling on a value.

The Federal Trade Commission has scored another win for consumers. Last week, it convinced a federal court to rule that payday lending company Swish Marketing must pay $4.8 million as a penalty for tricking consumers into buying expensive debit cards they didn’t want.

The case highlights abuses that consumer advocates continue to fight against, including deceptive online advertising and negative-option marketing. Here’s a look at the case and what the FTC’s action might mean.

• Online payday lending: The company’s web site reportedly claimed that it matched online consumers with payday lenders to meet their needs.
• Hidden products attached: When consumers completed the online loan application, they were apparently directed to a screen that included four additional offers. Of these, three offers had a “no” box checked and one had the “yes” box checked. In some cases the additional offers were presented as a “bonus.”
• Automatic charges: Customers who didn’t notice the “yes” box or who didn’t read the fine print ended up with a debit card that automatically connected to their bank account and charged them $54.95.

Expensive Products, Debt-Ridden Buyers

In addition to being illegal, deceptive marketing practices like the ones Swish Marketing engaged in tend to prey on those who can least afford them. In many Chapter 7 cases, for example, some of the unsecured debt that filers discharge comes from payday loans.

Payday loans are short-term, high-interest loans that often lead to serious debt for those unable to make ends meet. They provide an immediate source of cash but come with a high price tag in the long run.

Penalties for the Payday Lender

Thanks to the FTC’s action, Swish Marketing and its owners are now prohibited from:

• Misrepresenting relevant facts about a product or service. Its improper sale of debit cards failed to explain how customers would be charged and how much the product would cost.
• Improperly identifying a product as a “bonus.” The previous offer didn’t provide sufficient information about the “bonus” debit card, which left consumers unable to make an informed decision about whether or not they wanted such a “bonus.”
• Charging consumers without disclosing privacy plans. Related charges against the company addressed the fact that it reportedly sold or shared customer information without warning that it would do so.
• Failing to make sure affiliates follow the rules. From now on, Swish will be held responsible for the actions of any company it works in tandem with.

The FTC did not report how the $4.8 million will be distributed. In many similar cases, funds are used to refund money consumers lost as part of the scam.

Bankruptcy has been in the news a lot lately, and not just because individuals are seeking bankruptcy protection. Thanks largely to the economic strain in much of the country, municipalities are now considering bankruptcy in large numbers.

But what happens when a city, town or county files a bankruptcy petition? Here’s a look.

Chapter 9 Bankruptcy: For Municipalities Only

Individuals can file for bankruptcy under Chapter 7, Chapter 11, Chapter 12, Chapter 13 of the U.S. Bankruptcy Code. When cities file, though, they must do so under Chapter 9, a type of bankruptcy designed during the Great Depression to help municipalities in distress.

Here’s a look at how Chapter 9 bankruptcy works.

• Two main reasons cities file: According to insiders, municipalities that choose Chapter 9 protection tend to do so for one of two reasons. Either they’re faced with a one-time catastrophe that prevents them from repaying their creditors, or their financial structure is fundamentally unsound and unsustainable. Cities with the former problem may move into and out of bankruptcy more quickly than those with the latter problem, which may spend more time negotiating with creditors and considering bankruptcy alternatives.
• Eligibility for bankruptcy: Not all municipalities are legally permitted to file for bankruptcy. Eligibility is regulated by state laws, and in some states no district can seek Chapter 9 protection. Elsewhere (as in California), any municipality has the bankruptcy option and in still other places, judges decide on a case-by-case basis whether or not a town can file.
• Chapter 9 capabilities: Once a town enters bankruptcy protection, Chapter 9 gives it the ability to negotiate labor contracts that might otherwise have been off-limits because of union laws. In some cases, negotiating pension terms or other benefits allows the city to seriously cut costs in a way that it couldn’t have done without the protection of the bankruptcy court.
• Pre-filing negotiations: In some cases, the mere threat of a Chapter 9 bankruptcy is enough to convince creditors and other groups to negotiate with a municipality. Because bankruptcy can mean that creditors lose a significant amount of the money they invested in a town, many are willing to accept a deal to prevent the town from filing a petition.
• Chapter 9 frequency: Despite the threats of municipal bankruptcies that pepper newspapers, actual Chapter 9 filings are fairly rare. This is partly because once towns recognize bankruptcy as an option, they and their creditors have lots of non-bankruptcy alternatives available, including raising taxes, raising fees, cutting costs, negotiating payment terms and more. Plus, politicians are often reluctant to have a municipal bankruptcy on their record, which can look bad in future elections.

Bankruptcy fraud is a serious crime, as the story of Brent Farris illustrates.  According to the Kansas City Star, St. Louis resident Farris pleaded guilty to bankruptcy fraud in 2004 but fled the country and avoided getting caught until earlier this year.

Here’s a look at his somewhat sensational case.

• In 2002, Farris, who at the time owned an art gallery in St. Louis, reportedly filed for bankruptcy.
• During the case, he concealed from his bankruptcy trustee a painting worth about $300,000 with the intention of selling it later and keeping the profits.
• The trustee suspected fraud and when Farris faced charges in 2004, he pleaded guilty and was sentenced to 20 months in prison and a fine of $300,000.
• Farris reportedly fled the country before his sentence began and spent the next five years (from 2004 to 2009) on the lam, hopping between 14 countries.
• In 2009, sources note that Italian authorities apprehended Farris, but he managed to break his house arrest and flee again.
• Last year, Farris was discovered in Mexico. In March, he apparently pleaded guilty to the charges of failing to appear in court and was sentenced to 14 months in prison.

Who Does Bankruptcy Fraud Hurt?

In order to understand why the penalties for bankruptcy fraud are so severe (the maximum sentence is a five-year prison sentence and damages or fines up to $500,000), it helps to understand who’s hurt by bankruptcy fraud.

Consider this:

• Bankruptcy protection is designed to help consumers. By giving consumers an alternative to repaying their financial obligations as originally agreed, bankruptcy provides a sort of emergency exit for those who get in over their heads financially.
• Bankruptcy can hurt creditors. Of course, when a person does not repay a debt, someone loses out. Both Chapter 7 and Chapter 13 bankruptcy are designed so that creditors are often able to recover some of the money they lent to filers, though usually not the full amount the filer owes.
• Bankruptcy fraud cuts into the creditors’ repayment. Concealing or transferring property before bankruptcy (or otherwise engaging in fraudulent behavior) reduces the amount of money creditors get from a bankruptcy case. And while it’s easy to paint the creditors as the bad guys, it’s important to remember that they’re often powerful organizations. Translation: if too many big companies are unhappy with the way bankruptcy laws work, they’ll likely lobby Congress until those laws are changed. After all, such changes were already introduced in the form of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

If you’re considering a bankruptcy filing, it’s important to make sure you avoid committing fraud, either intentionally or accidentally. A bankruptcy lawyer in your state can explain the laws more explicitly and help you keep your paperwork aboveboard.

The Borders bankruptcy case currently making headlines provides a helpful illustration of the difference between the two main forms of bankruptcy, reorganization and liquidation. Here’s a look at what we can learn about personal bankruptcy from the Borders situation.

Reorganization: Chapter 11 and Chapter 13 Bankruptcy

Reorganization bankruptcy is exactly what its name suggests: it allows filers to reorganize their debts and assets to catch up on overdue payments. When a business files for reorganization (usually under Chapter 11 of the U.S. Bankruptcy Code):

• It continues operating. Some store branches may close and the company may “streamline” its operations to make itself leaner and more likely to turn profits when the bankruptcy concludes.
• It repays creditors. Chapter 11 cases, like Chapter 13 cases, include a plan that allows the filing company to compensate its creditors at least in part for its debts.
• It tries to emerge stronger. The goal of a business reorganization is to trim the fat and let the company get back on its feet with a more workable model.

The Borders situation, though, seems unable to benefit from a Chapter 11 bankruptcy. Sources suggest that this is because of a number of factors, including the weak economy, the changing face of books and the fierce competition it faces from online booksellers.

When an individual enters a reorganization plan (usually under Chapter 13 of the U.S. Bankruptcy Code), she also makes payments to her creditors. At the end of the repayment period (usually three to five years), her goal is to emerge debt-free and with financial habits that will keep her that way.

Liquidation: Chapter 7 Bankruptcy

When a company liquidates (under Chapter 7 of the U.S. Bankruptcy Code), it sells off its assets and ceases operations. In other words, if Borders does indeed file for Chapter 7 bankruptcy, it will no longer be around. Business liquidations usually:

• Involve a sale: This might come in the form of an “everything must go” sale of merchandise in stores, an auction to other businesses, or some combination of the two.
• Lead to partial repayment: The proceeds from the sales are generally used to repay in full or part any creditors to which the company owes money at the time of filing.
• Mean job losses: In Borders’ case, the company would have to close its 399 remaining stores and likely lay off the more than 10,000 people it currently employs.

Individuals who file for Chapter 7 usually don’t have enough income to make repayments to creditors. The liquidation part of an individual bankruptcy filing involves the bankruptcy trustee selling a filer’s non-exempt assets to raise money to repay creditors in part.

Chapter 13 bankruptcy is sometimes considered “famous” for helping people avoid or delay foreclosure. But it’s important to understand that filing for Chapter 13 (or even Chapter 7 bankruptcy) does not guarantee that you will avoid foreclosure.

Here’s a look at foreclosure laws and how foreclosure after bankruptcy works.

Preventing Foreclosure During Bankruptcy

Filing for bankruptcy temporarily stops foreclosure in most cases. Here’s why:

• A legal protection called the automatic stay takes effect as soon as the bankruptcy case is filed. The automatic stay halts all collection actions, including creditor calls, repossession and foreclosure.
• This protection typically stays in effect for the duration of the bankruptcy case. That could be as little as four to six months for a Chapter 7 case and as long as three to five years for a Chapter 13 case.

But the protection of the automatic stay only lasts as long as a filer sticks to the terms outlined by the bankruptcy agreement. In Chapter 13, that means making regular monthly payments according to the repayment plan.

If the filer can’t catch up on mortgage payments even with the help of bankruptcy, foreclosure might still be an option after the bankruptcy case ends.

Liens, Second Mortgages & Foreclosure after Bankruptcy

Things can get tricky, too, when filers have second mortgages or home equity lines of credit (HELOCs) when they file for bankruptcy. And thanks to the housing market that collapsed in 2007, many Americans currently do have multiple mortgages or loans attached to their homes.

Here’s how they’re treated by the bankruptcy court:

• A HELOC in Chapter 13 bankruptcy: In Chapter 13, filers are required to make payments to their primary mortgage lender and to the bankruptcy trustee. The trustee distributes these payments among priority debtors. After the case concludes, the HELOC may be eliminated (discharged). The lender will have gotten a percentage of trustee payments during the case.
• A HELOC in Chapter 7 bankruptcy: Chapter 7 may cancel the debt on a home equity credit line, but it cannot cancel the lien that creditor has on the house. In fact, a HELOC lender may still be able to foreclose on a filer’s house after bankruptcy is over (though if there’s no equity in the house, this would be unlikely). One way to avoid post-Chapter 7 foreclosure is to reaffirm payments to a HELOC lender in during bankruptcy.
• Second mortgages in Chapter 13: Second mortgages that are no longer secured by a home’s value can be discharged in Chapter 13 bankruptcy. Underwater homes may have second or third mortgages that are not secured any longer by the house’s value (that is, the amount of the loans totals more than what the house is currently worth). However, discharging a second mortgage will not affect what a bankruptcy filer owes on a first mortgage.

Could You Face Foreclosure after Bankruptcy?

If you’re considering filing for bankruptcy as a way to escape foreclosure, it’s essential to speak with a bankruptcy lawyer to make sure you understand how your mortgage will likely be affected by a bankruptcy filing – and whether you might find yourself facing foreclosure after you get your discharge.

These days, the rising cost of health care is a serious worry for many Americans. Bankruptcy filers often cite high medical bills as one factor that led them to seek protection, leading analysts to coin the phrase “medical bankruptcy.”

But one less-discussed phenomenon involving medical debt and bankruptcy revolves around this issue of elder care. The truth is, though, that taking care of aging parents or family members may lead to bankruptcy. Here’s a look at the problem and some methods to prevent it.

The Cost of Aging

Various studies have shown that long-term care for older people can be shockingly expensive. Sources report that:

• After Alzheimer’s diagnosis, the average patient spends $400,000 for medical care.
• On average, nursing homes come with a price tag of $7,000 per month.
• Assisted living facilities cost a monthly $3,300 on average.
• An average couple that retires at 65 in 2011 can expect to fork over $230,000 in medical costs during the course of their retirement.
• As many as 65 percent of people over 65 will need long-term care at some time in the future and there’s a 75 percent chance that one member of a retirement-age couple will.

Because many people don’t save enough money to cover these expenses, the burden of providing long-term care may fall to other family members (particularly those who are still working).

Protecting Yourself & Your Loved Ones from Medical Debt

Filing for bankruptcy can provide relief from medical debt. But if you take some precautionary measures, you may be able to keep yourself out of bankruptcy court while still keeping your aging family members in good health.

Insiders recommend taking the following steps:

• Buy long-term care insurance. This is a kind of health insurance exclusively for those who end up needing long-term care. The earlier in life you begin paying into the system, the lower rates you’re likely to get. Sources recommend doing some research on long-term care insurers, though: the costs and services vary widely and you can save yourself money by getting insurance tailored to your likely needs.
• Understand the Medicaid option. While retirees have access to Medicare, that program doesn’t cover long-term custodial care. It is possible to qualify for Medicaid as a retiree, though, a program that does offer long-term care. Talk with a healthcare professional about your potential to qualify.
• Don’t drain your retirement account early. During tight financial times, the temptation to drain a retirement account or 401(k) may be hard to resist. But it’s important to remember that using money from those accounts before they’ve “ripened” will result in serious tax penalties. Plus, the money can’t be replaced. Further, retirement accounts are protected in bankruptcy court, meaning that even if you file for bankruptcy, you’ll get to hang on to your future funds.

Medical costs can be frustratingly high, especially for those who need intensive or persistent care. Taking action while you’re healthy can save you serious money when you get sick.

Recently released data show that consumer bankruptcy filings in the first half of 2011 fell by eight percent compared with the first half of 2010. The numbers, reported by the American Bankruptcy Institute, paint a potentially hopeful picture for the overall rate of economic recovery:

• From January 1, 2011 to June 30, 2011, a total of 709,303 personal bankruptcy cases were filed in the U.S.
• In the first six months of 2010, 770,117 personal bankruptcy cases were filed.
• This year has seen eight percent fewer personal bankruptcy filings than last year.
• Personal bankruptcy filings in June 2011 also fell compared to those in June 2010: 119,768 cases were filed this year; 126,270 cases were filed in June 2010.
• Compared to May of 2011, June filings rose by four percent.

What Do Personal Bankruptcy Filings Mean for the Economy?

It’s impossible to measure the health of the economy by looking at only a single indicator. But still, these bankruptcy numbers seem to follow other trends in economic factors:

• Overall, unemployment has been steadily decreasing for several months. The pace of the decrease has been slow – this seems to mirror the slight decrease in personal bankruptcy filings and suggest a gradual economic recovery.
• The last two months have shown slight upticks in the unemployment rate, which might also be reflected in the May-to-June increase in bankruptcy filings.
• Bankruptcy filings are still on pace to hit or surpass a million this year, meaning that the economy is still a long way from fully healthy.

What Can Personal Bankruptcy Do for Unemployed Americans?

Surveys given to those who file for bankruptcy in the U.S. almost always indicate that unemployment plays a contributing role in prompting people to file for bankruptcy protection. And it’s no wonder: bankruptcy can offer powerful protections to those who have lost their job or had their hours reduced.

Specifically, bankruptcy offers:

• Protection of assets: Once filers submit their bankruptcy petition, the court protects certain assets from repossession and/or garnishment. In Chapter 7 bankruptcy, these protections are called “exemptions.”
• Protection from creditors: For the duration of any bankruptcy case, a legal protection called the automatic stay prevents creditors from making contact with or collecting from filers. The automatic stay can halt foreclosure, vehicle repossession, wage garnishment, debt lawsuits and more.
• Discharge of debts: At the end of a successful bankruptcy case, the court discharges (that is, eliminates) all eligible debts. Filers are not responsible for repaying discharged debts.
• Time to catch up on payments: In Chapter 13 bankruptcy, filers get a chance to catch up on late payments with help from the court.

Celebrity bankruptcy is nothing new. Cyndi Lauper, Mike Tyson, Willie Nelson and Donald Trump – among others – have filed for bankruptcy protection at some point in the past. And right now, singer Toni Braxton is reportedly working out the terms of her second bankruptcy filing (the first was in 1998).

Braxton’s Chapter 7 case, filed last year in California, highlights some interesting Chapter 7 bankruptcy rules. Here’s a look at what she’s facing in court and what ordinary folks can learn about bankruptcy from her situation.

• Non-dischargeable debts: Some of the debts listed in Braxton’s Chapter 7 petition include those considered non-dischargeable in court. Tax debt, for example, often falls into this category (sources report that Braxton’s case included a debt of nearly $400,000 to the Internal Revenue Service). Chapter 7 filers may have certain debts excused, but they’re on the hook for repaying the non-dischargeable debts even after the end of the bankruptcy case.
• Exemptions: Chapter 7 bankruptcy filers are able to keep certain possessions out of the liquidation sale used to raise money for creditors. The specific exemptions filers get depend on their state of residence, but usually include a home, a car, clothing, work tools and other household necessities. In Braxton’s case, her lawyer has reportedly worked out a deal that will permit her Grammy awards and some other luxury items (like a Porsche and a piano) not usually protected in bankruptcy.
• Bankruptcy trustees: The trustee’s job in a bankruptcy case is to get as much money as possible from a filer’s estate and to use that money to repay creditors. In Braxton’s case, the trustee required the singer to work out a deal with the IRS for her tax debts. Sources note that, as of now, Braxton has agreed to make monthly payments to the government, which will have a lien on some of her more valuable possessions. This means that, if she falls behind on payments, the government can seize the property connected to the lien in lieu of payment.
• The goal of bankruptcy: Bankruptcy is intended to help filers eliminate debt while helping creditors recover as much of the money they’re owed as possible. In order to strike that balance, the court prioritizes some types of debt (like tax debt) over others (like credit card debt). A filer’s money (including any funds raised from selling non-exempt assets) is then distributed to the most important creditors first.
• Life after bankruptcy: While any number of external factors can lead a person to seek bankruptcy protection more than once, celebrities who file repeated bankruptcy petitions (especially those like Braxton, whose albums have sold millions of copies) remind us of the importance of making the most of the fresh financial start bankruptcy offers. After bankruptcy, filers must take steps to change their financial habits – otherwise, they’re likely to end up in bankruptcy court again.

Dealing with debt collectors can be stressful enough when you know you actually owe them money. But with cases of identity theft and mistaken identity, some people have the unpleasant experience of debt collector harassment when they don’t owe anything at all.

Here’s a look at how debt collectors might get the wrong person and what you can do if you’re on the wrong end of the phone.

Identity Theft or Mistaken Identity?

Generally speaking, there are a few reasons a person would get collection calls intended for someone else. These include:

• Identity theft: When someone uses another person’s identifying information (Social Security Number, credit card numbers, bank account numbers, etc.), that’s identity theft. Some thieves apply for jobs with stolen SSNs, some open new credit accounts and some simply use existing accounts. To check whether someone besides you has been using your information, log on to AnnualCreditReport.com for a free check of your credit report. If debt collectors are calling because of identity theft, you might have a lot of work ahead of you straightening things out. The sooner you check your reports, the better.
• Mistaken identity: In this situation, a debt collector simply mistakes you for someone with a similar (or identical) name. Those with common names are naturally more susceptible to this than those with unusual names, but it could happen to anyone. In some cases, third-party identity checkers will contact you before you receive debt collection calls to verify your name and phone number. If you get a call like this, insist on learning as much as you can.
• A combination: It’s possible that a credit reporting company accidentally combined two credit reports (i.e. merged information from the reports of two people with similar or identical names). If this has happened to you, you need to take action to get your credit situation sorted out. It will require a little effort, but it’s essential to avoid future confusion and to maintain your individual credit.

Dealing with Debts that Aren’t Yours

So what can you do if debt collectors won’t leave you alone about someone else’s debt? Thanks to the Fair Debt Collection Practices Act, you can take action:

• Review your credit report. Make sure your identity isn’t being used by anyone other than yourself.
• Send the collectors a letter explaining why you are not responsible for these debts and asking them to stop contacting you.
• Request written proof that you are the one who owes these debts. Because the debt collector is unlikely to be able to do this, you may never hear from them again.

If you are unable to convince collectors of your identity, you may want to consider enlisting legal help.