Friday, November 16, 2007

Will You Have to Pay Back the Debt Anyway?

The most widely held misconception about bankruptcy is that it’s the debtor’s version of the “get out of jail free” card in Monopoly. While most people know that bankruptcy affects your credit for 7 to 10 years, very few people know that it’s possible that you’ll have to pay back the debt anyway, even if you file a Chapter 7 “straight” bankruptcy. The formal definition of bankruptcy is “a proceeding in federal court in which an insolvent debtor’s assets are liquidated and the debtor is relieved of further liability.” On the other hand, the commonplace definition of bankruptcy is probably “the process of completely wiping out your debts for free.” In the majority of cases, the latter definition may be appropriate, but in some scenarios, it’s likely that even with bankruptcy, you’ll still have to pay back at least a portion of the debt.
So when is it likely that you’ll have to pay back your debts? Here are the most common scenarios when you’ll get all the negatives of filing bankruptcy (severe credit impact for 7 to 10 years), but none of the benefits (you’ll still have to pay back at least part of the debt):
1) You make more than the average person in your state. If this is the case, then it’s likely that you’ll be forced into a Chapter 13 bankruptcy plan. In a Chapter 13 bankruptcy, the court orders that you pay all your disposable income to a court appointed trustee, who in turn disburses payments to your creditors. Keep in mind that the court determines your disposable income by national and county statistics on average necessary expenses, not what you’re paying. So just because you’re paying a lot for a car doesn’t mean the court will approve it. There are numerous cases when a judge ordered families to stop sending their children to private schools so they can have more money to pay back their creditors. In Illinois, here are the latest statistics on the Illinois median income by size of household:
Illinois Estimate
1-person families 41,650
2-person families 52,891
3-person families 62,176
4-person families 72,368
2) You have assets. If you own a home or car, then it’s possible that the bankruptcy court will force you to sell them to generate sufficient cash to pay back your creditors. Chances are if have a good chunk of change invested (unless it’s in a tax-exempt account like an IRA) then you’ll also be forced to liquidate it. If you have a second home or another vehicle (assuming you own both completely), then you’re really out of luck. Fortunately, there are some safeguards to protect consumers from bankruptcy hell. In Illinois, every resident is entitled to at least $7,500 of the value of their home, $1200 of the value of their vehicle, and $2,000 for anything that they want (known as the wildcard exemption). Also, these values double if you’re married (assuming the property is in both of your names).
What does this actually mean? Consider the following example.

Let’s say you have a house that’s worth $250,000, and it’s in both yours and your wife’s name. You still owe about $200,000 on your mortgage, and you decided to file Chapter 7 bankruptcy. In this example, you would be forced to sell your home, and with the proceeds you would pay back the mortgage company what you owe on the outstanding balance of the loan ($200,000), you’d pay yourself the Illinois real estate exemption ($15,000), and then you’d pay back your other creditors whatever was left ($250K-200K-15K=$35,000).
Let say your house was only worth $215,000, but everything else in the above example remained the same. In this case, you wouldn’t be forced to sell your home because the proceeds from the sale wouldn’t amount to anything after you paid back the mortgage company and then paid back yourself the Illinois real estate exemption.
3) The creditors can prove that you were fraudulent and never had any intention of paying them back.
For the majority of us it means that unless a) you don’t have a lot of equity in any of your property, b) you don’t have any investments like stocks, real estate, ect., c) you don’t care about having to sell anything mentioned in points a and b, or d) you don’t care about having to give up your disposable for 5 years in a Chapter 13, then bankruptcy may not be your best option.

New Bankruptcy Law

New Bankruptcy Law Did Not Slow Down Filings
Make sure that you understand the news bankruptcy law before you file for bankruptcy as the new bankruptcy law is more favorable for the people you owe money to. Make sure that your bankruptcy lawyer explains to you the difference in the new bankruptcy law.
After listening to financial institutions and lender complain about the amount of money their companies and shareholders were losing to bankruptcy, the government tightened the requirements for bankruptcy in 2005. Under the new bankruptcy law, filing a Chapter 7 bankruptcy is not as easy as in the past and many hoping to see their debts wiped clean in a hurry found themselves restricted to Chapter 13 bankruptcy, which is a court-ordered repayment plan to pay off debt.

Under the new bankruptcy law, persons looking to file must complete a debt counseling program during which it is determined if the person has the ability to pay their loans under a court-ordered plan. Once the bankruptcy goes through the court, before the debts are discharged, they have to attend a second session on debt management and money management. The new bankruptcy law does not stipulate they follow anything they learn in the sessions, only that they have to attend before their slate can be wiped clean.

Additional changes allows for some assets that used to be exempt to be confiscated and sold by the bankruptcy trustee to satisfy a portion of the debt. State exemptions for certain properties also play a role in the new bankruptcy law. For example, a person living in Nevada, having met the residency requirement and passed the bankruptcy income test, can claim a $15,000 exemption on a motor vehicle. In California the exemption is $2,300 under the new bankruptcy law.

Passing Means Test Is First Important Step

To determine if a person can file under the new bankruptcy law, a means test is completed. If the current monthly income is below the average income in the state in which they reside, they can file for Chapter 7 bankruptcy. It should be noted that the current monthly income is calculated as an average for a six-month period prior to filing and not the income for the past month. If a person lost their job and wants to file for bankruptcy, any employment during the previous six months will be considered during application of the means test.

If their current monthly income exceeds the state average income they will need to file for Chapter 13 bankruptcy. Additionally, an income level as low as $166 a month over the

average will push them towards Chapter 13, under the new bankruptcy law, regardless of actual living expenses. All expenses are governed by the Internal Revenue Service’s expense guidelines, even if the area in which they live has a higher cost of living.

Pay Your Bills on Time Maintain Your Credit Ratings

It is often said that the most important possession a person is their reputation and good name. Your credit rating is attached to your name and follows you wherever you go in North America – be it New York, Chicago, Edmonton Alberta or Vancouver Canada. A credit rating is like a mirror- wonderful to look at when clear, but not very helpful of useful is damaged or sullied.

How can you maintain a good credit rating? It all comes down to consistency of paying your bills onetime and not running up debts that you cannot pay off or miss payments.

Many people will say- its only one small payment what does Visa, the car dealership where you financed your new auto or SUV care? After all they have more money than they ever need. Maybe you will get by with one excuse of a forgotten check. But do this a second time and the system will red flag your account, name, address etc. Then you might say – well Christmas is coming up – MasterCard, the bank or the finance company won’t really notice. Wrong again. The system will flag you again. This time as more severe. Amazingly the whole credit system seems to have tentacles that share information – especially about bad creditors and debtors who owe money and are remiss on payments.

You may not think this is all a big deal – especially if you normally pay you bills on time. However now the system has picked up the consistency of your late payment and credit schedule. It’s as if you have a thousand nosy neighbors watching your home and front door for that girlfriend sneaking out late in the evening. Your poor payment history will be spread across the system to who knows where and to how many countless credit and credit reporting agencies.

The humor is that you may never know what is on the other side of the ledger so to speak. If your application for a loan or finance for a second auto is denied seldom will you receive any other notification or information than the denied claim? Information is supposed to be readily available – at least according to industry information – some say propaganda. If the information is that readily available – and readable to any layman what would be the value that companies would pay for ready access to it. You may say that the credit companies say that everyone is entitled to see their file. True – but are you going to tell your boss you need some time off to view your credit history since you are having trouble with your personal finances and having loan requests refused. Talk about a lose lose situation of a loss of your image of personal honor, integrity and .trustfulness on the job site and with your employer. In life most everything comes down to actual logistics. Then again you can request your credit history on the internet through thousands of firms who will provide these services online – for a fee. First of all is the information on your credit history – valid, up to date and accurate. For fun try a couple of free test probes at some of these sites. You are what you are and you ain’t what you aint. Many of these services have a worse reputation than you do so to speak.
No matter what information and credit information you place fill out online the same answers or answer will emerge. In order to receive accurate and relevant personal credit information most reputable sites will request identification and payment by credit card.
As they say lots of luck. Banks, finance and credit card companies will loan to people who need it the least – those with lots of money and excellent credit. If you had no credit problems why would you be searching out the reasons for your credit and finance applications denials? On top of that your credit card, finances and overdraft at the bank or savings and loan is most likely tapped out and overextended already.

In this day and age of computers and rapid communications a couple simple financial mistakes can lead to a real quagmire. It’s best to follow the simple advice of your grandmother - stay within your means. Don’t buy what you cannot afford. It is always best to pay cash.

Euro Impact on the East European Countries and Banks

The German central bank (the Bundesbank) estimates that more than one out of every three German marks circulates outside of Germany -- signifying billions of marks. The banks says the majority of them are in Eastern Europe and the territory of the former Soviet Union.
Because of the mark's stability, and Germany's role as a place of employment for Eastern European workers who send their money home, the mark has evolved into a de facto second currency in the lands to the south and east of Germany's borders.
Montenegro and Kosovo have even adopted the mark as legal tender. Other countries have pegged their currencies to the mark through currency boards. Bosnia uses a unit of exchange called the "convertible mark," which trades on a one-to-one basis with the German mark.
But the mark -- along with the other currencies of the European Union's 12-nation euro-zone -- is about to disappear.
On 1 January 2002, more than 250 million people in Western Europe will begin exchanging their national currencies for the euro. Older currencies and euros will circulate together until the end of February. After that, the national currencies will no longer be used.
That does not mean the currencies will be worthless. Central banks will continue to exchange them for euros for several years to come. But for all intents and purposes, Western Europe's national currencies -- including the mark -- will cease to exist.
Hans-Werner Sinn of Germany's Ifo economic research institute has looked into all aspects of the coming changeover. He says Eastern Europeans, like their counterparts in Western Europe, will eventually have to exchange their marks for euros.
"Clearly, these Deutschemarks [German marks] will no longer be useful in the long run. So people will have to bring the Deutschemarks in to their respective banks and exchange them into euros. That will have to happen in the spring of next year [by the end of the February deadline]."
Antti Heinonen, the director of banknotes at the European Central Bank, or ECB -- the institution that is coordinating the switchover to euros -- says that the change should not cause many problems for most Eastern Europeans.

But the currency's first challenge -- in Eastern Europe at least -- will be to replace the mark in people's minds and mattresses.

Thursday, November 15, 2007

Filing Corporate Bankruptcy

There are many questions raised when a company files for corporate bankruptcy. As an investor, people would like to what happens to the company, who would look into the interests of investors, and above all, if the old securities have any value left, or is the stock is turned into paste paper until the company is reorganized.

Companies that go out of business or try to recover from crippling debt are governed by federal bankruptcy laws. A bankrupt company, the "debtor," can use either Chapter 11 or chapter 7 of the Bankruptcy Code.

Under Chapter 11, the company is allowed to "reorganize" its business and attempt to develop into a profitable corporation. The company still functions on a day-to-day basis other than the fact that all important business decisions have to be agreed upon by a bankruptcy court.

Where as under Chapter 7, the company will stops all it operations and completely shut all its functions. The court assigns a trustee to "liquidate" (sell) the company's assets. The money so collect is then used to pay off the debt, which would take account both the debts to creditors and investors.

During a payment, the investors are paid first, due to their risk involvement. Bondholders have an advantage over stockholders since bonds stand for the debt of the company and the company has agreed to pay bondholders interest and to return their principal. Where as stockholders own the company, and therefore take on greater risk. On a good day, it is the stockholder who would make more money, but at the same time, as the company goes bankrupt, the stockholders bear to lose, as owners are last in line to be repaid if the company fails. Also remember that under Chapter 11, stockholders are still able to trade the stock, but under Chapter 7 the stock is worthless.

The other creditors are usually secured creditors that have low risk factors since the credit that they extend is usually backed by collateral. Collateral can be the mortgage or other assets of the company. They also stand to be paid first as the company files for corporate bankruptcy.

Filing Bankruptcy provides detailed information about filing bankruptcy, filing bankruptcy online, filing chapter 11 bankruptcy, and more. Filing Bankruptcy is affiliated with Free FICO Score.

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Florida Bankruptcy - Walk Away From Debt

Florida bankruptcy laws try to provide relief to borrowers with a new lease of life provided they try to learn from their past mistakes and in future manage their finances effectively and more efficiently. In fact, it is a legal way to get rid of debts.

It is always better to seek counseling from lawyers when you in case unfortunately fall into a financial trap and are unable to repay your loan liabilities. Under the there are many ways you can avail to get protection and relief. In certain case if you don't have regular income due to unemployment or serious sickness or in some other similar situation, Florida bankruptcy laws do have provision to deal with such genuine cases with protection and can allow a person to be absolved from paying part or full debt liability. In Florida, most of the people file bankruptcy under chapter 7 and of bankruptcy code. However, majority file under chapter 7.But on has to furnish documentary proof that he has no assets to repay.

Moreover, filing under chapter 7 cannot seek relief in future under chapter 7 again for next six years. In fact filing bankruptcy under any chapter is not a panacea from falling into debts in future unless you reform and learn from your past follies and manage your finances viz-a-viz your income more efficiently and carefully.

Otherwise, there is always a chance you may fall into a more serious debt trap with no point of return. So be careful and cautious while filing bankruptcy and after it is a comfortable situation, you loose credibility with debtors and your credit rating as well. So always, take wise decision after fully realizing what is good for you. If you have any other option to fulfill your debt commitment that should be pursued first and this option should be availed last of all when there is no other way out. Always keep in mind while filing bankruptcy that you have through very complex court procedures full of hassles seriously damaging your social standing and reputation as an honorable citizen.

California bankruptcy, Michigan bankruptcy laws are somewhat similar to Florida bankruptcy laws with minor variations in exemptions limit depending upon the average income of people, their spending habits, economic level, percentage of cases filed under different chapters of bankruptcy code by people residing in these cities, otherwise by and large the laws are same as governed by federal court.

Debtips is a resourceful channel to make you finance literate and manage your personal finances. Bankruptcy is an unfortunate situation and can happen even to seasoned businessman or to a new entrepreneur. In US Bankruptcy is dealt under uniform federal laws and fall under chapter 7, 9, 11, 12, 13 of bankruptcy code. Florida Bankruptcy cases are generally dealt by courts under chapter 7 and 13.

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Personal Bankruptcy Laws

Individuals can file for personal bankruptcy as a last ditch effort when their credit reaches the limit. This helps them clear out a few debts by selling their assets and starting a whole new life without creditors beating at their door. The gives them an opportunity to start afresh without credit worries since creditors have no more right to press collection charges.

Presently, individuals can file for bankruptcy under Chapter 7 or Chapter 13. Chapter 7 involves liquidating all the assets to pay off the creditors. Chapter 13 involves registering a plan to pay of the creditors from the monthly wages of the debtor within a specified amount of time. However, new laws passed by the President in 2005 might make the options for filing the case under Chapter 7 a bit more narrow and might force most individuals to file a bankruptcy case under Chapter 13 instead.

Chapter 13 requires the individuals to provide proof of income, as the whole law is based on the individual’s steady income. If the debtor fails to pay the monthly credit amount, the case might be dismissed from the court and will require the individual to file for bankruptcy all over again.

When an individual files for bankruptcy, it does provide him with a fresh start, but the credit bureaus keep records of the bankruptcy details and this might affect the debtor's credit rating for the next 10 years. However, some banks currently offer a new kind of credit card that requires some initial security payment that will help build up the credit rating so that things are almost normal by two to three years.

The new law also requires the individual to take up credit counseling at least six months before filing for bankruptcy, which means the individual has to go through a licensed lawyer to file the case.

Bankruptcy provides detailed information about bankruptcy, bankruptcy attorneys, bankruptcy faqs, and more. Bankruptcy is affiliated with New Bankruptcy Laws.

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