January 27

Other Bankruptcy Considerations

Should I file bankruptcy?

This is a question that many facing the pressure of overwhelming debt must answer.  While you ultimately have to answer this question yourself, it is easier to do so if you know what your options are.  Consulting with an attorney can help identify issues unique to you and can help determine what options are available in your case.

Whether you decide to meet with an attorney or not, here are some things you may want to consider when trying to answer the question “Should I file for bankruptcy?”

What can bankruptcy do for me?

Bankruptcy offers some powerful legal tools for dealing with debt that has become unmanageable or is overly burdensome.  Here is a sampling of the major benefits bankruptcy can provide.

Stop collection efforts:  Almost immediately after filing, bankruptcy stops the collection efforts of creditors.  As soon as creditors learn of the bankruptcy, they will cease all collection efforts for fear of violating the automatic stay put in place by the bankruptcy court.  Collection actions that will be stopped by the bankruptcy in Mississippi include foreclosures, repossessions, garnishments, utility disconnects, lawsuits, harassing phone calls and other collection methods.

Wipe out debts:  Bankruptcy can legally wipe out your obligation to pay back many, if not all of your debts.  This is known as “discharge.”  Bankruptcy is typically good at wiping out credit card debt, medical and other unsecured debts.

There are some types of debt that cannot be discharged or wiped out by bankruptcy.  Debts such as alimony and child support cannot be discharged.  There are other debts, like student loans, that are discharged only under limited circumstances.  Loans taken out after filing for bankruptcy typically are not discharged.

Also, certain types of debts are treated differently in different types of bankruptcy.  Many types of debt that cannot be discharged in a Chapter 7 bankruptcy can be discharged in a Chapter 13.

Before making a decision about bankruptcy, it is important to know which of your debts can be discharged and which ones cannot.

What bankruptcy does not do

Bankruptcy typically will NOT make your credit worse:  Contrary to what lenders would lead you to believe, filing for bankruptcy protection usually will not hurt your credit rating.  In most instances, a bankruptcy will actually begin to help your credit rating.  You can learn more about this here.

Modify the rights of some secured creditors:  A secured debt is one that is backed or guaranteed by a particular asset.  If you do not pay, the lender, under the terms of the loan, can come and take the asset.  Common secured debts are home mortgages and car loans.  If you default on the debt, the lender usually has the right to repossess and sell the collateral without taking you to court.

Compare this to an unsecured debt such as a medical bill.  If you default on a medical bill, there is no asset that is tied to the loan such as a house or car that can be repossessed.  A creditor on an unsecured debt can go after assets such as your house, car or wages, but they typically have to file and win a lawsuit against you before they do.

Bankruptcy generally will not modify the rights of secured lenders to come and seize collateral.  Bankruptcy can stop foreclosures and repossessions, though.  A Chapter 13 bankruptcy lets you catch up these debts as part of the bankruptcy so that these assets are not seized and sold.  For certain secured debts, a Chapter 13, allows for a reduction in the amount owed and or the interest rate payable.  These types of modifications to secured debts allow you to keep the property and pay less over time to do so.

Cosigners:  A bankruptcy will not change the liability of someone who cosigned on a loan with you.  A chapter 13 bankruptcy, however, can offer protection for cosigners for a period of years.

Credit counseling

Before you can file for bankruptcy protection, bankruptcy law requires that you take a credit counseling course from an approved agency within the 180 days before filing bankruptcy.  As discussed below, these agencies must be approved by the United States Trustee to meet the requirements for filing for bankruptcy protection.   A bankruptcy lawyer can help you find a credit counseling agency approved in your area, and will typically do so free of charge.

The goal of credit counseling is to decide whether you really need to file for bankruptcy or not.  The approved credit counseling should include an analysis for your current financial condition, the factors that lead to the current financial condition and a plan to respond to financial problems that does not increase the amount of debt you will owe.  Through credit counseling you may discover that a well thought out repayment plan can take care of your financial troubles.

Credit counseling will usually last about an hour to an hour and a half.  It can be done over the telephone or internet.  Many agencies charge between $25.00 and $50.00 for approved credit counseling.  We can typically direct you to credit counseling agencies that cost under $25.00.  Feel free to contact my office for a list of some currently approved credit counselors and their prices.

Who is authorized to provide credit counseling needed to file for bankruptcy protection?

If, after counseling, you decide that bankruptcy provides the best solution to your financial problems, your lawyer will need to file the certificate received from the credit counseling agency with the court within the 15 days of filing a bankruptcy petition.  As mentioned above, credit counseling agencies must be from an approved agency.  The agency must be approved by the United States Trustee program for your district in Mississippi.  To be approved, the agency must be a non-profit organization that has adequate experience and background in credit counseling.  Bankruptcy law mandates that these agencies must use experienced counselors who receive no commissions or bonuses based on the outcome of the counseling services provided by the agency.

Other considerations

Will I lose all my property in bankruptcy? This is a common concern.  Mississippi and federal laws allow you to protect certain types of assets in certain amounts.  The assets that are protected under these statutes are called exempt assets.  Exempt property is usually the type of property needed to live and provide for self and family.  For example, a certain amount of equity in your home is exempt.  Equity is the difference in the fair market value of your home minus the amount of debt you have on the home.  If you sold the house and paid off the debt with the proceeds, the money left over is your equity.  There are many types of exemptions in Mississippi.  We can help you identify exemptions that apply to and protect your property from collection.

Don’t wait to talk to a professional

The longer you wait to address financial problems, the fewer options you will likely have.  To schedule an initial free and confidential consultation to discuss your particular situation call 601-853-9966.

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