Corporations in a bankruptcy proceeding or insolvency generally follow the same rules for debt cancellation and reduction of tax attributes as an individual or individual bankruptcy estate would follow.
Stock for Debt Exchange
If a corporation transfers its stock in satisfaction of indebtedness and the fair market value of its stock is less than the indebtedness it owes, the corporation has income (to the extent of the difference) from the cancellation of indebtedness. After 1994, a corporation can exclude all or a portion of the income created by the stock for debt transfer if it is in a bankruptcy proceeding or, if not in a bankruptcy proceeding, it can exclude the income to the extent it is insolvent. However, the corporation must reduce its tax attributes (to the extent it has any) by the amount of excluded income.
Stock for debt exception. The stock for debt exception was repealed for transfers made after 1994 unless the corporation filed for bankruptcy (or similar court proceeding) before 1994. Generally, before 1995, a corporation did not realize income because of such stock for debt exchanges if it was in bankruptcy or to the extent it was insolvent. Consequently, there was no gross income to exclude and no reduction of its tax attributes was necessary. The principal difference between the stock for debt exception and the stock for debt exchange is that the corporation does not reduce its tax attributes under the stock for debt exception.
Earnings and profits
The earnings and profits of a corporation do not include income from the discharge of indebtedness to the extent of the amount applied to reduce the basis of the corporation’s property as explained earlier. Otherwise, discharge of indebtedness income, including amounts excluded from gross income, increases the earnings and profits of the corporation (or reduces a deficit in earnings and profits).
If there is a deficit in the corporation’s earnings and profits and the interest of any shareholder of the corporation is terminated or extinguished in a title 11 or similar case (defined earlier), the deficit must be reduced by an amount equal to the paid-in capital allocable to the shareholder’s terminated or extinguished interest.
S Corporations
For S corporations, the rules for excluding income from debt cancellation because of bankruptcy or insolvency apply at the corporate level.
Net operating losses. A loss or deduction that is disallowed for the tax year of the debt cancellation because it exceeds the shareholders’ basis in the corporation’s stock and debt is treated as a net operating loss for that tax year in making the required reduction of tax attributes for the amount of the canceled debt.\
http://www.justia.com/bankruptcy/docs/bankruptcy-tax-guide/debt-cancellation-corporations.html
Saturday, September 1, 2007
Bankruptcy Tax Guide :: Introduction
This publication covers the federal income tax aspects of bankruptcy. Bankruptcy proceedings begin with the filing of a petition with the bankruptcy court. The filing of the petition creates a bankruptcy estate, which generally consists of all the assets of the person filing the bankruptcy petition. A separate taxable entity is created if the bankruptcy petition is filed by an individual under chapter 7 or chapter 11 of the Bankruptcy Code. These chapters are explained later. The tax obligations of taxable estates are discussed later under The Bankruptcy Estate.
The tax obligations of the person filing a bankruptcy petition (the debtor) vary depending on the bankruptcy chapter under which the petition was filed. For individuals, these are also explained in the first part of this publication. For other entities, see Partnerships and Corporations, later.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. However, the canceled debt reduces the amount of other tax benefits the debtor would otherwise be entitled to. See Debt Cancellation, later.
This publication is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. In these cases, you should seek competent professional advice.
http://www.justia.com/bankruptcy/docs/bankruptcy-tax-guide/index.html
The tax obligations of the person filing a bankruptcy petition (the debtor) vary depending on the bankruptcy chapter under which the petition was filed. For individuals, these are also explained in the first part of this publication. For other entities, see Partnerships and Corporations, later.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. However, the canceled debt reduces the amount of other tax benefits the debtor would otherwise be entitled to. See Debt Cancellation, later.
This publication is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. In these cases, you should seek competent professional advice.
http://www.justia.com/bankruptcy/docs/bankruptcy-tax-guide/index.html
Chapter 7 Bankruptcy
Bankruptcy laws in the United States allow individuals and corporations to get out of debt, either by selling off a debtor's assets and repaying creditors (i.e., liquidation) or by undergoing a court-supervised reorganization of the debtor's finances. Filing for bankruptcy allows individuals to extinguish many unsecured debts, although a record of an individual's bankruptcy filing stays on his or her credit report for 10 years.
The Bankruptcy Code sets forth several paths for individuals and businesses to emerge from debt. Each route is contained within a chapter of the law. Chapter 7 provides a process for liquidating d debtor's assets, the proceeds of which are used to pay back creditors. Chapter 7 bankruptcy allows an individual or business to retain some property that is exempt under the law, but most assets are sold, or liquidated, to pay off creditors.
Although many of an individual's unsecured debts will be cancelled after a Chapter 7 filing, some will remain. Chapter 7 doesn't wipe out many types of debt, such as most student loan debts, child support obligations, some taxes, and fines owed for crimes committed by the debtor. Most liens, including a real estate mortgage, also remain despite a bankruptcy filing. Under Chapter 7, there is no discharge, or cancellation, of debts for corporations or partnerships.
The process of filing for Chapter 7 bankruptcy in the U.S. changed extensively when the federal Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect on October 17, 2005. Congress enacted BAPCPA to prevent abuses of the bankruptcy laws, creating the most sweeping changes to bankruptcy laws since 1978. Individuals filing for Chapter 7 bankruptcy now must wait longer between bankruptcy filings, and are subject to means testing to determine whether a debtor is abusing the process. BAPCPA added credit counseling and financial education requirements, and provides debtors with fewer protection from collection activities. Fewer debts can now be discharged with a Chapter 7 filing.
Who may file for Chapter 7 Bankruptcy?
Businesses
A business that is unable to service its debt or pay its creditors can voluntarily file—or sometimes be forced by its creditors to file—for bankruptcy in a federal court under Chapter 7. When a business files for Chapter 7 bankruptcy, it stops operating and a court-appointed Chapter 7 Trustee sells all of its assets, distributing the funds to creditors. Creditors with a security interest are paid before unsecured creditors.
Individuals
Individuals can also file for Chapter 7 bankruptcy, and in fact Chapter 7 bankruptcy is most commonly used by individuals who can no longer pay creditors. An individual cannot file for Chapter 7 bankruptcy if he or she already did so in the previous 180 days and the bankruptcy petition was dismissed, or that individual failed to appear or comply with the court's orders, or the debtor dismissed the case voluntarily but after his or her creditors with liens sought the help of the court to recover property. If an individual has had debts discharged in a Chapter 7 bankruptcy, that person must wait more than eight years—up from the previous six year limitation before BAPCPA—to have debts discharged by a Chapter 7 filing.
An individual also must complete credit counseling with an approved agency in the 180 days prior to filing for Chapter 7 bankruptcy, unless the court grants a waiver. The law also now requires that all individuals in either Chapter 7 bankruptcy complete an "instructional course concerning personal financial management." If the debtor doesn't complete the course, the court can refuse to discharge his or her debts.
An individual also may not be able to file for Chapter 7 bankruptcy if the U.S. Trustee challenges the filing as abusive. If an individual has enough disposable income that he or she can pay all or some outstanding debts over five years, the U.S. Trustee may not allow those debts to be discharged under Chapter 7 bankruptcy. Instead, the individual may have to file for Chapter 13 bankruptcy, which is a reorganization bankruptcy whereby an individual pays creditors back over three to five years under a court-approved repayment plan.
Means Testing
A court may find a Chapter 7 bankruptcy filing to be abusive if the court determines from all circumstances that the debtor is acting in bad faith or if the court finds that the debtor has sufficient funds to repay his or her debts under the means test imposed by BAPCPA.
The means test, found at 11 U.S.C. §707(b)(2), compares the debtor's current monthly income—actually an average of six months of income—to the median income in the debtor's state. If the debtor's income is greater than the median, then a "means test" designed to figure out just how much a debtor could repay creditors applies. The means test requires that the debtor subtract living expenses specified in the statute from his or her current monthly income. The revised current monthly income figure will then be considered to determine whether the debtor does in fact have enough money to repay creditors. If that figure reaches certain levels specified in BAPCPA, a presumption of abuse applies that a debtor will either have to overcome or have his or her case dismissed.
Automatic stay
Once a debtor files a Chapter 7 petition, the court will impose an automatic stay. This means that collection activities must stop (with some exceptions) and creditors must seek relief from the bankruptcy court instead of the debtor. BAPCPA limited the protections the stay provides in some re-filed cases and made it harder for persons facing eviction to use a Chapter 7 filing to avoid being evicted. The law also added strict new rules for debtors to alert creditors that the stay is in effect, and protects creditors from having to pay monetary penalties for violating the stay if the debtor did not give "effective" notice as required by the statute.
http://www.justia.com/bankruptcy/docs/chapter-7-bankruptcy.html
The Bankruptcy Code sets forth several paths for individuals and businesses to emerge from debt. Each route is contained within a chapter of the law. Chapter 7 provides a process for liquidating d debtor's assets, the proceeds of which are used to pay back creditors. Chapter 7 bankruptcy allows an individual or business to retain some property that is exempt under the law, but most assets are sold, or liquidated, to pay off creditors.
Although many of an individual's unsecured debts will be cancelled after a Chapter 7 filing, some will remain. Chapter 7 doesn't wipe out many types of debt, such as most student loan debts, child support obligations, some taxes, and fines owed for crimes committed by the debtor. Most liens, including a real estate mortgage, also remain despite a bankruptcy filing. Under Chapter 7, there is no discharge, or cancellation, of debts for corporations or partnerships.
The process of filing for Chapter 7 bankruptcy in the U.S. changed extensively when the federal Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect on October 17, 2005. Congress enacted BAPCPA to prevent abuses of the bankruptcy laws, creating the most sweeping changes to bankruptcy laws since 1978. Individuals filing for Chapter 7 bankruptcy now must wait longer between bankruptcy filings, and are subject to means testing to determine whether a debtor is abusing the process. BAPCPA added credit counseling and financial education requirements, and provides debtors with fewer protection from collection activities. Fewer debts can now be discharged with a Chapter 7 filing.
Who may file for Chapter 7 Bankruptcy?
Businesses
A business that is unable to service its debt or pay its creditors can voluntarily file—or sometimes be forced by its creditors to file—for bankruptcy in a federal court under Chapter 7. When a business files for Chapter 7 bankruptcy, it stops operating and a court-appointed Chapter 7 Trustee sells all of its assets, distributing the funds to creditors. Creditors with a security interest are paid before unsecured creditors.
Individuals
Individuals can also file for Chapter 7 bankruptcy, and in fact Chapter 7 bankruptcy is most commonly used by individuals who can no longer pay creditors. An individual cannot file for Chapter 7 bankruptcy if he or she already did so in the previous 180 days and the bankruptcy petition was dismissed, or that individual failed to appear or comply with the court's orders, or the debtor dismissed the case voluntarily but after his or her creditors with liens sought the help of the court to recover property. If an individual has had debts discharged in a Chapter 7 bankruptcy, that person must wait more than eight years—up from the previous six year limitation before BAPCPA—to have debts discharged by a Chapter 7 filing.
An individual also must complete credit counseling with an approved agency in the 180 days prior to filing for Chapter 7 bankruptcy, unless the court grants a waiver. The law also now requires that all individuals in either Chapter 7 bankruptcy complete an "instructional course concerning personal financial management." If the debtor doesn't complete the course, the court can refuse to discharge his or her debts.
An individual also may not be able to file for Chapter 7 bankruptcy if the U.S. Trustee challenges the filing as abusive. If an individual has enough disposable income that he or she can pay all or some outstanding debts over five years, the U.S. Trustee may not allow those debts to be discharged under Chapter 7 bankruptcy. Instead, the individual may have to file for Chapter 13 bankruptcy, which is a reorganization bankruptcy whereby an individual pays creditors back over three to five years under a court-approved repayment plan.
Means Testing
A court may find a Chapter 7 bankruptcy filing to be abusive if the court determines from all circumstances that the debtor is acting in bad faith or if the court finds that the debtor has sufficient funds to repay his or her debts under the means test imposed by BAPCPA.
The means test, found at 11 U.S.C. §707(b)(2), compares the debtor's current monthly income—actually an average of six months of income—to the median income in the debtor's state. If the debtor's income is greater than the median, then a "means test" designed to figure out just how much a debtor could repay creditors applies. The means test requires that the debtor subtract living expenses specified in the statute from his or her current monthly income. The revised current monthly income figure will then be considered to determine whether the debtor does in fact have enough money to repay creditors. If that figure reaches certain levels specified in BAPCPA, a presumption of abuse applies that a debtor will either have to overcome or have his or her case dismissed.
Automatic stay
Once a debtor files a Chapter 7 petition, the court will impose an automatic stay. This means that collection activities must stop (with some exceptions) and creditors must seek relief from the bankruptcy court instead of the debtor. BAPCPA limited the protections the stay provides in some re-filed cases and made it harder for persons facing eviction to use a Chapter 7 filing to avoid being evicted. The law also added strict new rules for debtors to alert creditors that the stay is in effect, and protects creditors from having to pay monetary penalties for violating the stay if the debtor did not give "effective" notice as required by the statute.
http://www.justia.com/bankruptcy/docs/chapter-7-bankruptcy.html
Chapter 11 Bankruptcy
Bankruptcy laws in the United States allow individuals and corporations to get out of debt, either by selling off a debtor's assets and repaying creditors (i.e., liquidation) or by undergoing a court-supervised reorganization of the debtor's finances. Filing for bankruptcy allows many unsecured debts to be discharged, or cancelled.
The Bankruptcy Code sets forth several paths for individuals and businesses to emerge from debt. Each route is contained within a chapter of the law. Chapter 11 allows debtors to reorganize their financial affairs. The reorganization process may last months or even years depending on its size and complexity, but in the end results in a clean slate for debtors.
Who may file for Chapter 11 bankruptcy?
While individuals may file for Chapter 11 bankruptcy, most elect to file under Chapter 7 or Chapter 13 instead because of the cost and complexity of Chapter 11. An individual may not file for Chapter 11 bankruptcy if he or she already did so in the previous 180 days and either the bankruptcy petition was dismissed or that individual failed to appear or comply with the court's orders. An individual also must complete credit counseling with an approved agency in the 180 days prior to filing for Chapter 11 bankruptcy, unless the court grants a waiver.
If a business with a lot of debt cannot service its debt or pay its creditors, it can file for federal bankruptcy protection under Chapter 11. Sole proprietorships, partnerships, or corporations may file under Chapter 11. Creditors can also force a business to file for bankruptcy under either Chapter 7 or Chapter 11. Chapter 11 is most commonly used by large corporations that can no longer pay their creditors, because Chapter 11 bankruptcy allows a business to continue operating while a court supervises a reorganization of the company's debts and finances. Many airlines, for example, have filed for Chapter 11 bankruptcy and taken advantage of its protections to devise new business plans while paying off creditors.
How It Works
Under certain conditions, creditors can force debtors into Chapter 11 bankruptcy by filing an involuntary petition. A business may also voluntarily file for Chapter 11 bankruptcy by submitting a petition with all required documentation of the company's finances and liabilities. An individual seeking bankruptcy protection under Chapter 11 must have completed credit counseling and file a petition with the bankruptcy court that includes his or her identifying information, required documentation of income, property, and debts, and intent to file a plan of reorganization. Individuals and businesses filing for Chapter 11 bankruptcy must pay applicable fees unless the court waives them.
Once an individual or business has filed for Chapter 11 bankruptcy, the law provides for an automatic stay of outstanding debts, which means that creditors cannot carry out collection attempts, repossession of property, and foreclosures. Creditors must be heard by the court in order to be repaid. There are some exceptions to the automatic stay, such as for some professional fees and secured creditors. In a Chapter 11 bankruptcy, the U.S. Trustee holds a meeting with all creditors and the debtor, wherein the debtor may be questioned under oath about financial status and obligations, and is given instructions on what must be done while the reorganization process moves forward.
While the court is working with creditors and the debtor to identify the financial status of the debtor and create a viable plan of reorganization, the business is still operating, though it is monitored by the court. The business becomes the "debtor in possession." A trustee may be appointed to supervise the debtor's business in cases where the company's leaders have been guilty of gross mismanagement or some wrongdoing. If the business has publicly-traded stock on the NASDAQ, New York Stock Exchange, or American Stock Exchange, the stock exchanges generally will delist the company's stock after a Chapter 11 petition is filed.
Plan of Reorganization
The plan of reorganization must include all debts, the status of each debt, and how each will be resolved. A business's reorganization plan may include less than full payment for some creditors, and those creditors get to vote on the plan's approval. Some creditors have higher priority than others, depending on the nature of the debt and whether a creditor has a security interest in the debtor's assets. The court has the ability to extinguish many of an individual or corporation's unsecured debts, and can free businesses from contractual obligations, such as union contracts or long-term leases, enabling it to make changes and emerge from debt. For a plan of reorganization to become effective, the court must approved it.
If a debtor fails to file a plan of reorganization, the creditors may do so. Sometimes, the court does not approve a plan of reorganization. This may convert the case to a Chapter 7 liquidation bankruptcy, meaning the business' assets are sold and creditors paid with the proceeds. The court could also dismiss the case, and the debtor will be in the same position as before the petition was filed—all outstanding debts will remain.
Depending on the value of assets held by a business and the plan approved by the court, the reorganization may leave the business and its stockholders (if any) with nothing, and the reorganized business owned by creditors. This occurs when creditors are more likely to recover money owed them from income generated by the business than if the business were to be liquidated and the proceeds given to creditors. The reorganization plan, however, may allow a business to operate more profitably once released from certain debts, leases, and obligations, enabling it to repay creditors and emerge from Chapter 11 bankruptcy.
http://www.justia.com/bankruptcy/docs/chapter-11-bankruptcy.html
The Bankruptcy Code sets forth several paths for individuals and businesses to emerge from debt. Each route is contained within a chapter of the law. Chapter 11 allows debtors to reorganize their financial affairs. The reorganization process may last months or even years depending on its size and complexity, but in the end results in a clean slate for debtors.
Who may file for Chapter 11 bankruptcy?
While individuals may file for Chapter 11 bankruptcy, most elect to file under Chapter 7 or Chapter 13 instead because of the cost and complexity of Chapter 11. An individual may not file for Chapter 11 bankruptcy if he or she already did so in the previous 180 days and either the bankruptcy petition was dismissed or that individual failed to appear or comply with the court's orders. An individual also must complete credit counseling with an approved agency in the 180 days prior to filing for Chapter 11 bankruptcy, unless the court grants a waiver.
If a business with a lot of debt cannot service its debt or pay its creditors, it can file for federal bankruptcy protection under Chapter 11. Sole proprietorships, partnerships, or corporations may file under Chapter 11. Creditors can also force a business to file for bankruptcy under either Chapter 7 or Chapter 11. Chapter 11 is most commonly used by large corporations that can no longer pay their creditors, because Chapter 11 bankruptcy allows a business to continue operating while a court supervises a reorganization of the company's debts and finances. Many airlines, for example, have filed for Chapter 11 bankruptcy and taken advantage of its protections to devise new business plans while paying off creditors.
How It Works
Under certain conditions, creditors can force debtors into Chapter 11 bankruptcy by filing an involuntary petition. A business may also voluntarily file for Chapter 11 bankruptcy by submitting a petition with all required documentation of the company's finances and liabilities. An individual seeking bankruptcy protection under Chapter 11 must have completed credit counseling and file a petition with the bankruptcy court that includes his or her identifying information, required documentation of income, property, and debts, and intent to file a plan of reorganization. Individuals and businesses filing for Chapter 11 bankruptcy must pay applicable fees unless the court waives them.
Once an individual or business has filed for Chapter 11 bankruptcy, the law provides for an automatic stay of outstanding debts, which means that creditors cannot carry out collection attempts, repossession of property, and foreclosures. Creditors must be heard by the court in order to be repaid. There are some exceptions to the automatic stay, such as for some professional fees and secured creditors. In a Chapter 11 bankruptcy, the U.S. Trustee holds a meeting with all creditors and the debtor, wherein the debtor may be questioned under oath about financial status and obligations, and is given instructions on what must be done while the reorganization process moves forward.
While the court is working with creditors and the debtor to identify the financial status of the debtor and create a viable plan of reorganization, the business is still operating, though it is monitored by the court. The business becomes the "debtor in possession." A trustee may be appointed to supervise the debtor's business in cases where the company's leaders have been guilty of gross mismanagement or some wrongdoing. If the business has publicly-traded stock on the NASDAQ, New York Stock Exchange, or American Stock Exchange, the stock exchanges generally will delist the company's stock after a Chapter 11 petition is filed.
Plan of Reorganization
The plan of reorganization must include all debts, the status of each debt, and how each will be resolved. A business's reorganization plan may include less than full payment for some creditors, and those creditors get to vote on the plan's approval. Some creditors have higher priority than others, depending on the nature of the debt and whether a creditor has a security interest in the debtor's assets. The court has the ability to extinguish many of an individual or corporation's unsecured debts, and can free businesses from contractual obligations, such as union contracts or long-term leases, enabling it to make changes and emerge from debt. For a plan of reorganization to become effective, the court must approved it.
If a debtor fails to file a plan of reorganization, the creditors may do so. Sometimes, the court does not approve a plan of reorganization. This may convert the case to a Chapter 7 liquidation bankruptcy, meaning the business' assets are sold and creditors paid with the proceeds. The court could also dismiss the case, and the debtor will be in the same position as before the petition was filed—all outstanding debts will remain.
Depending on the value of assets held by a business and the plan approved by the court, the reorganization may leave the business and its stockholders (if any) with nothing, and the reorganized business owned by creditors. This occurs when creditors are more likely to recover money owed them from income generated by the business than if the business were to be liquidated and the proceeds given to creditors. The reorganization plan, however, may allow a business to operate more profitably once released from certain debts, leases, and obligations, enabling it to repay creditors and emerge from Chapter 11 bankruptcy.
http://www.justia.com/bankruptcy/docs/chapter-11-bankruptcy.html
Chapter 13 Bankruptcy
Bankruptcy laws in the United States allow individuals and corporations to get out of debt, either by selling off a debtor's assets and repaying creditors (i.e., liquidation) or by undergoing a court-supervised reorganization of the debtor's finances. Filing for bankruptcy allows many unsecured debts to be extinguished.
The Bankruptcy Code sets forth several paths for individuals and businesses to emerge from debt. Each route is contained within a chapter of the law. Chapter 13 provides a process of court-supervised reorganization of an individual's finances so that the individual may pay back his or her creditors.
Who may file for Chapter 13 bankruptcy?
An individual with a large amount of debt that he or she can no longer make payments on can file for federal bankruptcy protection under Chapter 13. That individual may be self-employed, or operating an unincorporated business, but he or she must have enough disposable income to be able to repay creditors over a three to five year period. If the individual won't be able to make regular payments, Chapter 7 bankruptcy will allow an immediate solution to the individual's debt, but the debtor's assets will be sold to pay creditors in a Chapter 7 liquidation bankruptcy.
An individual cannot file for a Chapter 13 reorganization bankruptcy if he or she already did so in the previous 180 days and either the bankruptcy petition was dismissed or that individual failed to appear or comply with the court's orders. An individual also must complete credit counseling with an approved agency in the 180 days prior to filing for Chapter 13 bankruptcy, unless the court grants a waiver, as well as an "instructional course concerning personal financial management." A record of the individual's bankruptcy filing stays on his or her credit report for 10 years. A husband and wife may file together for Chapter 13 bankruptcy.
How it works
An individual seeking bankruptcy protection under Chapter 13 must a petition with the bankruptcy court that includes his or her income and expenditures, assets and liabilities, contracts and leases in effect, and other documents evidencing his or her financial affairs, including tax returns. Individuals filing for Chapter 13 bankruptcy must pay applicable fees unless the court waives them.
Once an individual or business has filed for Chapter 13 bankruptcy, the law provides for an automatic stay of outstanding debts, which means that creditors generally cannot carry out collection attempts, lawsuits, or wage garnishments. Some actions are excluded from the automatic stay, but a debtor will be able to protect his or her home from foreclosure by filing a Chapter 13 petition before the mortgage company completes a foreclosure sale. The debtor must make mortgage payments again after filing to prevent foreclosure.
A special automatic stay provision within Chapter 13 also protects co-debtors: A creditor can't try to collect a consumer debt, which is a debt incurred by an individual primarily for a family, household, or personal reason, from any individual who is liable along with the debtor who has filed for bankruptcy, such as a co-signer on a loan.
Upon filing, the court appoints a trustee to oversee a Chapter 13 petition. The trustee will hold a meeting with the debtor and creditors between 20 and 50 days after the petition is filed and evaluate the case. At the meeting, the debtor will have to answer questions under oath about his or her debt and finances. The trustee will manage the reorganization, collecting money from the debtor and distributing it to creditors after the court has approved a plan for repayment.
Plan of repayment
Debtors must file a plan for repayment with the court within 15 days (unless the court extends this deadline) of their Chapter 13 filing. The repayment plan encompasses payments of fixed amounts on a regular schedule over a three to five year period. Some debts can be discharged completely by the court, while other creditors will receive partial or full payment, depending on the nature of the debt. There are three kinds of debts: secured, unsecured, and priority, and the plan must meet specific rules for each kind of debt. Priority debts, for example, must be paid in full.
A plan of repayment must satisfy many requirements for a court to confirm it. Several are fundamental: The plan must commit all of the debtor's income after taxes to paying off the debts for at least three years—unless all unsecured debt can be paid off in fewer than three years—and up to five years. The plan also must establish that unsecured creditors will be repaid as much money under a Chapter 13 repayment plan as they would if the debtor instead had his or her assets liquidated through a Chapter 7 filing.
http://www.justia.com/bankruptcy/docs/chapter-13-bankruptcy.html
The Bankruptcy Code sets forth several paths for individuals and businesses to emerge from debt. Each route is contained within a chapter of the law. Chapter 13 provides a process of court-supervised reorganization of an individual's finances so that the individual may pay back his or her creditors.
Who may file for Chapter 13 bankruptcy?
An individual with a large amount of debt that he or she can no longer make payments on can file for federal bankruptcy protection under Chapter 13. That individual may be self-employed, or operating an unincorporated business, but he or she must have enough disposable income to be able to repay creditors over a three to five year period. If the individual won't be able to make regular payments, Chapter 7 bankruptcy will allow an immediate solution to the individual's debt, but the debtor's assets will be sold to pay creditors in a Chapter 7 liquidation bankruptcy.
An individual cannot file for a Chapter 13 reorganization bankruptcy if he or she already did so in the previous 180 days and either the bankruptcy petition was dismissed or that individual failed to appear or comply with the court's orders. An individual also must complete credit counseling with an approved agency in the 180 days prior to filing for Chapter 13 bankruptcy, unless the court grants a waiver, as well as an "instructional course concerning personal financial management." A record of the individual's bankruptcy filing stays on his or her credit report for 10 years. A husband and wife may file together for Chapter 13 bankruptcy.
How it works
An individual seeking bankruptcy protection under Chapter 13 must a petition with the bankruptcy court that includes his or her income and expenditures, assets and liabilities, contracts and leases in effect, and other documents evidencing his or her financial affairs, including tax returns. Individuals filing for Chapter 13 bankruptcy must pay applicable fees unless the court waives them.
Once an individual or business has filed for Chapter 13 bankruptcy, the law provides for an automatic stay of outstanding debts, which means that creditors generally cannot carry out collection attempts, lawsuits, or wage garnishments. Some actions are excluded from the automatic stay, but a debtor will be able to protect his or her home from foreclosure by filing a Chapter 13 petition before the mortgage company completes a foreclosure sale. The debtor must make mortgage payments again after filing to prevent foreclosure.
A special automatic stay provision within Chapter 13 also protects co-debtors: A creditor can't try to collect a consumer debt, which is a debt incurred by an individual primarily for a family, household, or personal reason, from any individual who is liable along with the debtor who has filed for bankruptcy, such as a co-signer on a loan.
Upon filing, the court appoints a trustee to oversee a Chapter 13 petition. The trustee will hold a meeting with the debtor and creditors between 20 and 50 days after the petition is filed and evaluate the case. At the meeting, the debtor will have to answer questions under oath about his or her debt and finances. The trustee will manage the reorganization, collecting money from the debtor and distributing it to creditors after the court has approved a plan for repayment.
Plan of repayment
Debtors must file a plan for repayment with the court within 15 days (unless the court extends this deadline) of their Chapter 13 filing. The repayment plan encompasses payments of fixed amounts on a regular schedule over a three to five year period. Some debts can be discharged completely by the court, while other creditors will receive partial or full payment, depending on the nature of the debt. There are three kinds of debts: secured, unsecured, and priority, and the plan must meet specific rules for each kind of debt. Priority debts, for example, must be paid in full.
A plan of repayment must satisfy many requirements for a court to confirm it. Several are fundamental: The plan must commit all of the debtor's income after taxes to paying off the debts for at least three years—unless all unsecured debt can be paid off in fewer than three years—and up to five years. The plan also must establish that unsecured creditors will be repaid as much money under a Chapter 13 repayment plan as they would if the debtor instead had his or her assets liquidated through a Chapter 7 filing.
http://www.justia.com/bankruptcy/docs/chapter-13-bankruptcy.html
The Bankruptcy Trustee - A Creditor's Friend
How many times have you been involved in state court litigation and your adversary advises you that his/her client has just filed bankruptcy? Don’t fret—it may just be your lucky day! In order to understand how a bankruptcy can be used to your client’s advantage, and often at nominal expense compared to the cost of continued litigation, it is necessary to understand the basic principles of “property of the estate” and “abandonment” as defined by the Bankruptcy Code.1
Upon the filing of any bankruptcy case, an estate is created. Property of the estate includes, but is not limited to, all of the debtor’s legal or equitable property interests and most community property, as well as interests in property either recovered by a trustee, preserved for the benefit of the estate, or ordered transferred to the estate, such as avoidable preferences and fraudulent transfers. See 11 U.S.C. §
541 (aX1-7). In a Chapter 7 case, a trustee is appointed.2 It is the trustee’s job to review the assets of the debtor and to determine whether there are any non-exempt3 assets that can be converted to cash for the benefit of unsecured creditors. If the trustee determines there are assets that can be sold or otherwise converted to cash, those assets will be administered and the funds distributed to unsecured creditors. However, if the trustee believes there are no non-exempt assets, or that the nonexempt assets that do exist are “burdensome…or of inconsequential value and benefit to the estate,” the case will be closed as a “no asset” case. When the case is closed, all of the debtor’s scheduled property not otherwise administered by the trustee will be “abandoned” back to the debtor. See 11 U.S.C.§ 554.
Let’s take a simple example to see how this works. Assume that prior to any bankruptcy, your client sold the debtor a mobile home, received some cash and took back an unsecured promissory note for the balance.4 The debtor failed to pay, and your client sues. The debtor answers and files a cross-complaint seeking damages for repair costs he incurred based on your client’s failure to make certain disclosures. The debtor then files a Chapter 7 bankruptcy case and the automatic stay imposed by 11 U.S.C. §362 prevents your client from proceeding with the lawsuit. Unless you believe you have grounds to allege that the debt should not be discharged, e.g. because the debt was incurred by the debtor’s fraud,5 the debtor will receive a discharge of your client’s claim although your client will have a claim (albeit possibly worthless) against the bankruptcy estate. But what happens to the cross-complaint may depend on whether or not you contact the trustees.
The cross-complaint is property of the estate and should have been listed on the debtor’s personal property schedule. Therefore, since the trustee stands in the shoes of the debtor, the trustee has the right to pursue the cross-complaint. Whether or not the trustees does decide to pursue the cross-complaint will depend on whether the trustee believes that the likely recovery to the estate will outweigh the cost of pursuing it.6
Prior to the Meeting of Creditors, the trustee will have reviewed the bankruptcy documents filed by the debtor, including all property scheduled and the property claimed exempt.7 The trustee will generally ask the debtor about the cross-complaint, or any pending litigation, and will make a determination as to whether the cross-complaint (if claimed exempt) is properly claimed exempt, or if not exempt, whether it is burdensome or of inconsequential value to the estate. It is often the practice in state court litigation to file a cross-complaint for defensive reasons, and without any other information than what is gleaned from the debtor, the trustee will determine that the asset has no value to the estate. If there are no other non-exempt assets to be administered, the trustee will close the case, the cross-complaint will be abandoned back to the debtor who will then be able to proceed with the claim against your client in state court.”8
But what if you had contacted the trustee and let him/her know that your client might be willing to settle the cross complaint, as well as the claim against the estate, for a reasonable sum? 9 The trustee
is always interested your proposal will generate money for unsecured creditors in addition to an amount sufficient to pay the trustee’s administrative fees. If a deal can be negotiated, the state court litigation will be dismissed. When the bankruptcy case is closed, the cross-complaint will not be abandoned back to the debtor since it will have been administered by the trustee. You will have achieved an excellent result for your client since the price paid to the trustee to settle the case will generally be far less than the cost of defending the cross-complaint in state court if the debtor elected to again pursue the claim against your client when it was abandoned.
The foregoing hypothetical assumes a simple set of facts; however, the process of resolving state court litigation by negotiating and settling with a trustee can be used when your client is involved in complex litigation with multiple parties. For example, your client may be able to obtain possession of equipment or other real and/or personal property that secures a debt by negotiating a sale of the assets and/or a settlement of the dispute with the trustee, thereby eliminating the costs incurred in foreclosing against the property in state court. Similarly, if your client has a fraudulent transfer claim against a debtor, you may be able to negotiate with the trustee to either purchase the right to pursue the claim and/or the right to receive the recovered asset(s) or a portion thereof.10 In a case where there is a dispute as to ownership of property between your client and the debtor, your client may be able to purchase the debtor’s interest in the property from the trustee. Even in cases where there are multiple parties, it may be possible to fashion a settlement that resolves all disputes. For example, in one case, my client entered into a settlement pursuant to which he paid the trustee a small fee, paid a third party involved in the litigation a small settlement, and was then assigned the third party’s claim in the bankruptcy case, pursuant to which my client ultimately received some distribution.
It is important to understand that any settlement with the trustee or sale of estate assets must be approved by the Bankruptcy Court after notice of the settlement or sale has been given to all creditors and other parties in interest. Generally, 11 U.S.C. § 363 provides the trustee with the authority to sell property of the estate. A settlement will ordinarily be approved by the Bankruptcy Court as long as it is fair and equitable.11
Conclusion
Litigation is expensive-settlement is generally in the best interest of all parties. The debtor’s bankruptcy filing may provide you with an opportunity to achieve an excellent result for your client by resolving the pending litigation with a substantial saving of time and money.
1 Unless otherwise stated, all statute references will be to sections of Title 11 of the United States Cod, commonly referred to as the Bankruptcy Code
2 . This article has been written with Chapter 7 (liquidation) cases in mind, although some of the information may be useful in Chapter 11 (reorganization) cases where an unrelated third party has been appointed trustee.
3 Exempt Property (property a debtor is entitled to retain) is determined by state law in California. A debtor is entitled to use the exemptions set forth in either C.C.P. § 703.140 or C.C.P. § 704.010 et. acq.
4 Although you would think the seller would have secured the note (which would have made the hypothetical a bit more complex.
5 Certain debts, including but not limited to debts incurred by fraud or based on a breach of a fiduciary duty, may be excepted from discharge, Sec. 11 U.S.C. § 523(a).
6 If the trustee does pursue the cross-complaint, your client shuld seek relief from the automatic stay to proceed with the complaint against the estate only for purposes of determining your client’s claim against the estate.
7 The debtor may have some basis to exempt the cross-complaint (or certain types of lawsuits such as claims for personal bodily injury), or the proceeds derived therefrom, either in full or in part, See footnote 3.
8 Even if other assets in the case were administered by the trustee, if the cross-complaint was not sold, settled or otherwise administered by the trustee, the right to pursue it will revest in the debtor upon the close of the bankruptcy case (even if it has been more than a year since the filing).
9 An attorney I know who almost exclusively deals in state court recently had a matter arise which required obtaining information from the bankruptcy trustee. I advised him to give the trustee a call; however, he indicated that he had never had much success when he called bankruptcy trustees. This may very well be a familiar scenario with most state court attorneys. As we all know, it helps when you know the players and speak the language, in order to achieve the best results for your client, you may very well require the assistance of competent bankruptcy counsel.
10 Because there is a split of authority on whether or not a trustee can sell and/or assign his/her avoidance powers, it may be necessary to use caution in structuring any settlement. See In re P.R.T.C., Inc. (9th Cir. 1999) 177 F.3d 774 and In Briggs v. Kent (In re Professional Inv. Properties of Am.) (9th Cir. 1992) 955 F.2d 623.
11 In determining the fairness, reasonableness and adequacy of a proposed settlement agreement the court must consider: (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the [property]. In re A & C Properties (9th Cir. 1986) 784 F.2d 1377, 1,381.
http://www.marleneweinstein.com/Articles.shtml
Upon the filing of any bankruptcy case, an estate is created. Property of the estate includes, but is not limited to, all of the debtor’s legal or equitable property interests and most community property, as well as interests in property either recovered by a trustee, preserved for the benefit of the estate, or ordered transferred to the estate, such as avoidable preferences and fraudulent transfers. See 11 U.S.C. §
541 (aX1-7). In a Chapter 7 case, a trustee is appointed.2 It is the trustee’s job to review the assets of the debtor and to determine whether there are any non-exempt3 assets that can be converted to cash for the benefit of unsecured creditors. If the trustee determines there are assets that can be sold or otherwise converted to cash, those assets will be administered and the funds distributed to unsecured creditors. However, if the trustee believes there are no non-exempt assets, or that the nonexempt assets that do exist are “burdensome…or of inconsequential value and benefit to the estate,” the case will be closed as a “no asset” case. When the case is closed, all of the debtor’s scheduled property not otherwise administered by the trustee will be “abandoned” back to the debtor. See 11 U.S.C.§ 554.
Let’s take a simple example to see how this works. Assume that prior to any bankruptcy, your client sold the debtor a mobile home, received some cash and took back an unsecured promissory note for the balance.4 The debtor failed to pay, and your client sues. The debtor answers and files a cross-complaint seeking damages for repair costs he incurred based on your client’s failure to make certain disclosures. The debtor then files a Chapter 7 bankruptcy case and the automatic stay imposed by 11 U.S.C. §362 prevents your client from proceeding with the lawsuit. Unless you believe you have grounds to allege that the debt should not be discharged, e.g. because the debt was incurred by the debtor’s fraud,5 the debtor will receive a discharge of your client’s claim although your client will have a claim (albeit possibly worthless) against the bankruptcy estate. But what happens to the cross-complaint may depend on whether or not you contact the trustees.
The cross-complaint is property of the estate and should have been listed on the debtor’s personal property schedule. Therefore, since the trustee stands in the shoes of the debtor, the trustee has the right to pursue the cross-complaint. Whether or not the trustees does decide to pursue the cross-complaint will depend on whether the trustee believes that the likely recovery to the estate will outweigh the cost of pursuing it.6
Prior to the Meeting of Creditors, the trustee will have reviewed the bankruptcy documents filed by the debtor, including all property scheduled and the property claimed exempt.7 The trustee will generally ask the debtor about the cross-complaint, or any pending litigation, and will make a determination as to whether the cross-complaint (if claimed exempt) is properly claimed exempt, or if not exempt, whether it is burdensome or of inconsequential value to the estate. It is often the practice in state court litigation to file a cross-complaint for defensive reasons, and without any other information than what is gleaned from the debtor, the trustee will determine that the asset has no value to the estate. If there are no other non-exempt assets to be administered, the trustee will close the case, the cross-complaint will be abandoned back to the debtor who will then be able to proceed with the claim against your client in state court.”8
But what if you had contacted the trustee and let him/her know that your client might be willing to settle the cross complaint, as well as the claim against the estate, for a reasonable sum? 9 The trustee
is always interested your proposal will generate money for unsecured creditors in addition to an amount sufficient to pay the trustee’s administrative fees. If a deal can be negotiated, the state court litigation will be dismissed. When the bankruptcy case is closed, the cross-complaint will not be abandoned back to the debtor since it will have been administered by the trustee. You will have achieved an excellent result for your client since the price paid to the trustee to settle the case will generally be far less than the cost of defending the cross-complaint in state court if the debtor elected to again pursue the claim against your client when it was abandoned.
The foregoing hypothetical assumes a simple set of facts; however, the process of resolving state court litigation by negotiating and settling with a trustee can be used when your client is involved in complex litigation with multiple parties. For example, your client may be able to obtain possession of equipment or other real and/or personal property that secures a debt by negotiating a sale of the assets and/or a settlement of the dispute with the trustee, thereby eliminating the costs incurred in foreclosing against the property in state court. Similarly, if your client has a fraudulent transfer claim against a debtor, you may be able to negotiate with the trustee to either purchase the right to pursue the claim and/or the right to receive the recovered asset(s) or a portion thereof.10 In a case where there is a dispute as to ownership of property between your client and the debtor, your client may be able to purchase the debtor’s interest in the property from the trustee. Even in cases where there are multiple parties, it may be possible to fashion a settlement that resolves all disputes. For example, in one case, my client entered into a settlement pursuant to which he paid the trustee a small fee, paid a third party involved in the litigation a small settlement, and was then assigned the third party’s claim in the bankruptcy case, pursuant to which my client ultimately received some distribution.
It is important to understand that any settlement with the trustee or sale of estate assets must be approved by the Bankruptcy Court after notice of the settlement or sale has been given to all creditors and other parties in interest. Generally, 11 U.S.C. § 363 provides the trustee with the authority to sell property of the estate. A settlement will ordinarily be approved by the Bankruptcy Court as long as it is fair and equitable.11
Conclusion
Litigation is expensive-settlement is generally in the best interest of all parties. The debtor’s bankruptcy filing may provide you with an opportunity to achieve an excellent result for your client by resolving the pending litigation with a substantial saving of time and money.
1 Unless otherwise stated, all statute references will be to sections of Title 11 of the United States Cod, commonly referred to as the Bankruptcy Code
2 . This article has been written with Chapter 7 (liquidation) cases in mind, although some of the information may be useful in Chapter 11 (reorganization) cases where an unrelated third party has been appointed trustee.
3 Exempt Property (property a debtor is entitled to retain) is determined by state law in California. A debtor is entitled to use the exemptions set forth in either C.C.P. § 703.140 or C.C.P. § 704.010 et. acq.
4 Although you would think the seller would have secured the note (which would have made the hypothetical a bit more complex.
5 Certain debts, including but not limited to debts incurred by fraud or based on a breach of a fiduciary duty, may be excepted from discharge, Sec. 11 U.S.C. § 523(a).
6 If the trustee does pursue the cross-complaint, your client shuld seek relief from the automatic stay to proceed with the complaint against the estate only for purposes of determining your client’s claim against the estate.
7 The debtor may have some basis to exempt the cross-complaint (or certain types of lawsuits such as claims for personal bodily injury), or the proceeds derived therefrom, either in full or in part, See footnote 3.
8 Even if other assets in the case were administered by the trustee, if the cross-complaint was not sold, settled or otherwise administered by the trustee, the right to pursue it will revest in the debtor upon the close of the bankruptcy case (even if it has been more than a year since the filing).
9 An attorney I know who almost exclusively deals in state court recently had a matter arise which required obtaining information from the bankruptcy trustee. I advised him to give the trustee a call; however, he indicated that he had never had much success when he called bankruptcy trustees. This may very well be a familiar scenario with most state court attorneys. As we all know, it helps when you know the players and speak the language, in order to achieve the best results for your client, you may very well require the assistance of competent bankruptcy counsel.
10 Because there is a split of authority on whether or not a trustee can sell and/or assign his/her avoidance powers, it may be necessary to use caution in structuring any settlement. See In re P.R.T.C., Inc. (9th Cir. 1999) 177 F.3d 774 and In Briggs v. Kent (In re Professional Inv. Properties of Am.) (9th Cir. 1992) 955 F.2d 623.
11 In determining the fairness, reasonableness and adequacy of a proposed settlement agreement the court must consider: (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the [property]. In re A & C Properties (9th Cir. 1986) 784 F.2d 1377, 1,381.
http://www.marleneweinstein.com/Articles.shtml
Bankruptcy Exemptions
Bankruptcy exemptions are extremely important when filing for financial insolvency and you must understand what the term means. A very simple definition is that the, individual or business entities, may list certain assets (as determined by law) to be protected from seizure by the creditors. A more precise definition is provided below.
Legal Definition of the term bankruptcy:
The administration of an insolvent debtor's property by the court for the benefit of the debtor's creditors. Source: Merriam-Webster's Dictionary of Law,
Legal Definition of the term exemption/exemptions:
1 : the act of exempting or state of being exempt
2 : one that exempts or is exempted
Insolvency exception is extremely complex and usually involves a great many terms of 'legalize'. The 'legalize' makes it extremely difficult, for the lay person, to grasp precisely what is protected from seizer by the creditors. Thus it is imperative to consult qualified legal advise prior to making the decision to file for financial insolvency.
To further complicate the matter, when seeking relief from the creditors, all cases must be filed in the federal court system that is responsible for processing all insolvency cases. This is further complicated because even though filed in the federal courts, rules protecting certain assets from the creditors, are acquired from the individual states. Due to the variance of the individual state laws, it is inadvisable to generalize asset protection issues that reach across state borders.
It should be further noted that the retention of certain assets will vary, depending on which chapter of the financial insolvency code is chosen. Furthermore, individual and businesses assets exceptions will vary depending under which chapter the insolvency liquidation will take place in. Again, proper legal advise should be consulted prior to making the decision as to which filing would be appropriate. For convenience we have listed the codes directly below.
1. Chapter 7: Liquidation
2. Chapter 9: Reorganization for municipalities
3. Chapters 11 and 13: Reorganization
4. Chapter 12: Reorganization for Family farmers/fishers
The importance of asset protection by 'bankruptcy exemptions' may well be the 'oxygen line' that leads to survival for those seeking liquidation of debt.
http://www.dealwithbankruptcy.com/Articles/A_Guide_To_Bankruptcy_Exemptions.php
Legal Definition of the term bankruptcy:
The administration of an insolvent debtor's property by the court for the benefit of the debtor's creditors. Source: Merriam-Webster's Dictionary of Law,
Legal Definition of the term exemption/exemptions:
1 : the act of exempting or state of being exempt
2 : one that exempts or is exempted
Insolvency exception is extremely complex and usually involves a great many terms of 'legalize'. The 'legalize' makes it extremely difficult, for the lay person, to grasp precisely what is protected from seizer by the creditors. Thus it is imperative to consult qualified legal advise prior to making the decision to file for financial insolvency.
To further complicate the matter, when seeking relief from the creditors, all cases must be filed in the federal court system that is responsible for processing all insolvency cases. This is further complicated because even though filed in the federal courts, rules protecting certain assets from the creditors, are acquired from the individual states. Due to the variance of the individual state laws, it is inadvisable to generalize asset protection issues that reach across state borders.
It should be further noted that the retention of certain assets will vary, depending on which chapter of the financial insolvency code is chosen. Furthermore, individual and businesses assets exceptions will vary depending under which chapter the insolvency liquidation will take place in. Again, proper legal advise should be consulted prior to making the decision as to which filing would be appropriate. For convenience we have listed the codes directly below.
1. Chapter 7: Liquidation
2. Chapter 9: Reorganization for municipalities
3. Chapters 11 and 13: Reorganization
4. Chapter 12: Reorganization for Family farmers/fishers
The importance of asset protection by 'bankruptcy exemptions' may well be the 'oxygen line' that leads to survival for those seeking liquidation of debt.
http://www.dealwithbankruptcy.com/Articles/A_Guide_To_Bankruptcy_Exemptions.php
Credit Matters
A credit card is a great financial tool and it is more convenient to use and carry than cash and it offers valuable consumer protections under federal law. But you have to be careful. You may charge more than you can repay. It could damage your credit rating and create problems that can be hard to fix. Here is some important information that can help you determine if you are ready for a credit card, what to look for when you select a company and how to use your credit card responsibly.
Qualifying for a Credit Card
To qualify for a credit card you have to be at least 18 years of age and have a regular source of income. You also have to show that you are a good credit risk before you will receive credit. Before you apply for a credit card you should get a copy of your credit report.
Establish a Good Credit History
To start establishing credit, you should first consider applying for a credit card from a local store and use it responsibly. Second, consider a secured credit card. A secured credit card requires you to open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line is usually a percentage of your deposit, typically from 50 to 100 percent. It is not uncommon to incur application and processing fees. Further, secured credit cards usually have higher interest rates than non-secured cards. Third, consider asking someone who has established credit to co-sign the account. The co-signer is someone who promises to pay your debts if you are unable to pay. Make sure that you pay your debts on time so you can build a positive credit history. This will help you establish credit in the future on your own. A good credit history is important when applying for credit cards, jobs, insurance and when you want to finance a car or a home.
If your application has been turned down, find out why. If you have been denied because of information supplied by a credit bureau, the creditor must give you the name, address and telephone number of the bureau that supplied the information. If you contact the credit bureau within 60 days of receiving the denial, you are entitled to a free credit report. If you find an error in your report, you are entitled to have it investigated by the credit bureau and corrected free of charge.
The fees, charges and benefits vary among credit card issuers. You should shop around and compare these important features:
* Annual percentage rate (APR). The APR is a measure of the cost of credit, expressed as a yearly interest rate. Also check out the “periodic rate”. That is the rate issuers apply to your outstanding balance to figure the finance charges. For example, if you have a balance of $2,000, with an 18.5% APR and a low monthly payment, it would take you over 11 years to pay off that debt and would cost you an additional $1,934 in interest.
* Grace period. The grace period is the time between the date of your purchase(s) and the date interest starts being charged on that purchase(s). Some issuers allow a grace period for a new purchase even if you don’t pay your balance in full every month.
* Annual fees. Many credit card issuers charge an annual fee for granting you credit, usually $15 to $55 while some issuers have no annual fee.
* Transaction fees and other charges. They may charge a fee for using your card for cash advances, late payments, exceeding your credit limit and some charge a flat fee every month whether you use your card or not.
* Customer service. Many issuers have 24-hour, toll-free telephone numbers.
* Other benefits. They may offer additional benefits. Some provide different forms of insurance, credit card protection, discounts, rebates and special merchandise offers.
There are three types of accounts that credit grantors generally issue. The basic terms of these account agreements are:
* Revolving agreement. When you pay your bill in full every month or you choose to make a partial payment. Usually department stores, gas and oil companies and banks issue these types of credit cards.
* Charge agreement. When you promise to pay your balance in full every month, you don’t have to pay interest charges. Charge cards, not credit cards, and charge accounts with local businesses often require repayment on this basis.
* Installment agreement. When you sign a contract to repay a fixed amount of credit in equal payments over a specific period of time. When you finance an automobile, furniture or major appliance, they are often installment agreements. Also, personal loans are often paid back in installments.
To protect your credit you should:
Sign the card immediately so no one else can use it. File away all of the papers you receive in a safe place, in case your card ever gets lost or stolen.
Call the card issuer to activate your card. Most issuers require this step to minimize fraud and to give you additional information.
Keep your account information to yourself. Never give out your credit card number or expiration date over the phone unless you know who you are dealing with. Someone can use that information to steal money from you or steal your credit identity.
Keep copies of sales slips and compare them with your bill. Immediately report, in writing, any questionable charges to the card issuer.
Do not lend your card to anyone, even a friend. Your credit privileges and credit history are too important to risk.
It may be easy to buy something now and pay for it later, but you can lose track of how much you’ve spent. If you continue to charge while having an outstanding balance, your debt can snowball and before you know it, your minimum payment just covers the interest. If you start falling behind on your payments, it can ruin your credit rating. A bad credit rating can make it hard to finance a car or home, get insurance and even get a job.
Federal law offers the following protections when you use credit cards.
* Errors on your bill. You must contact the card issuer in writing within 60 days after the first bill containing the error was mailed to you. You should include your name, account number, the type, date and amount of the error and the reason why you believe the bill has an error. The card issuer must then investigate the problem and either correct the error or explain why the bill is correct. This must occur within two billing cycles and not later than 90 days after the issuer receives your letter. You do not have to pay the amount in question during the investigation.
* Loss or theft. If your credit or charge cards have been lost or stolen you should call the issuer(s) immediately. By law, once you report the loss or theft, you have no further responsibility for unauthorized charges. Your maximum liability under federal law is $50 per card.
http://www.bankruptcy-lawyers-chicago.com/credit_matters.php
Qualifying for a Credit Card
To qualify for a credit card you have to be at least 18 years of age and have a regular source of income. You also have to show that you are a good credit risk before you will receive credit. Before you apply for a credit card you should get a copy of your credit report.
Establish a Good Credit History
To start establishing credit, you should first consider applying for a credit card from a local store and use it responsibly. Second, consider a secured credit card. A secured credit card requires you to open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line is usually a percentage of your deposit, typically from 50 to 100 percent. It is not uncommon to incur application and processing fees. Further, secured credit cards usually have higher interest rates than non-secured cards. Third, consider asking someone who has established credit to co-sign the account. The co-signer is someone who promises to pay your debts if you are unable to pay. Make sure that you pay your debts on time so you can build a positive credit history. This will help you establish credit in the future on your own. A good credit history is important when applying for credit cards, jobs, insurance and when you want to finance a car or a home.
If your application has been turned down, find out why. If you have been denied because of information supplied by a credit bureau, the creditor must give you the name, address and telephone number of the bureau that supplied the information. If you contact the credit bureau within 60 days of receiving the denial, you are entitled to a free credit report. If you find an error in your report, you are entitled to have it investigated by the credit bureau and corrected free of charge.
The fees, charges and benefits vary among credit card issuers. You should shop around and compare these important features:
* Annual percentage rate (APR). The APR is a measure of the cost of credit, expressed as a yearly interest rate. Also check out the “periodic rate”. That is the rate issuers apply to your outstanding balance to figure the finance charges. For example, if you have a balance of $2,000, with an 18.5% APR and a low monthly payment, it would take you over 11 years to pay off that debt and would cost you an additional $1,934 in interest.
* Grace period. The grace period is the time between the date of your purchase(s) and the date interest starts being charged on that purchase(s). Some issuers allow a grace period for a new purchase even if you don’t pay your balance in full every month.
* Annual fees. Many credit card issuers charge an annual fee for granting you credit, usually $15 to $55 while some issuers have no annual fee.
* Transaction fees and other charges. They may charge a fee for using your card for cash advances, late payments, exceeding your credit limit and some charge a flat fee every month whether you use your card or not.
* Customer service. Many issuers have 24-hour, toll-free telephone numbers.
* Other benefits. They may offer additional benefits. Some provide different forms of insurance, credit card protection, discounts, rebates and special merchandise offers.
There are three types of accounts that credit grantors generally issue. The basic terms of these account agreements are:
* Revolving agreement. When you pay your bill in full every month or you choose to make a partial payment. Usually department stores, gas and oil companies and banks issue these types of credit cards.
* Charge agreement. When you promise to pay your balance in full every month, you don’t have to pay interest charges. Charge cards, not credit cards, and charge accounts with local businesses often require repayment on this basis.
* Installment agreement. When you sign a contract to repay a fixed amount of credit in equal payments over a specific period of time. When you finance an automobile, furniture or major appliance, they are often installment agreements. Also, personal loans are often paid back in installments.
To protect your credit you should:
Sign the card immediately so no one else can use it. File away all of the papers you receive in a safe place, in case your card ever gets lost or stolen.
Call the card issuer to activate your card. Most issuers require this step to minimize fraud and to give you additional information.
Keep your account information to yourself. Never give out your credit card number or expiration date over the phone unless you know who you are dealing with. Someone can use that information to steal money from you or steal your credit identity.
Keep copies of sales slips and compare them with your bill. Immediately report, in writing, any questionable charges to the card issuer.
Do not lend your card to anyone, even a friend. Your credit privileges and credit history are too important to risk.
It may be easy to buy something now and pay for it later, but you can lose track of how much you’ve spent. If you continue to charge while having an outstanding balance, your debt can snowball and before you know it, your minimum payment just covers the interest. If you start falling behind on your payments, it can ruin your credit rating. A bad credit rating can make it hard to finance a car or home, get insurance and even get a job.
Federal law offers the following protections when you use credit cards.
* Errors on your bill. You must contact the card issuer in writing within 60 days after the first bill containing the error was mailed to you. You should include your name, account number, the type, date and amount of the error and the reason why you believe the bill has an error. The card issuer must then investigate the problem and either correct the error or explain why the bill is correct. This must occur within two billing cycles and not later than 90 days after the issuer receives your letter. You do not have to pay the amount in question during the investigation.
* Loss or theft. If your credit or charge cards have been lost or stolen you should call the issuer(s) immediately. By law, once you report the loss or theft, you have no further responsibility for unauthorized charges. Your maximum liability under federal law is $50 per card.
http://www.bankruptcy-lawyers-chicago.com/credit_matters.php
Building a Better Credit Report
Building a Better Credit Report
Your credit report is a file about you. It is full of information on where you live, how you pay your bills and whether you have been sued, arrested or filed for bankruptcy. Creditors use this information to evaluate your applications for credit, insurance, employment or a lease. If you have a quality, credit report, it’s easier to obtai
n loans at lower interest rates which results in lower monthly payments. The only way to improve the status of your credit report is with a deliberate effort and a plan to repay your bills.
The Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of information in the files of the nation’s consumer reporting companies. There were recent amendments that were made to the FCRA. Those amendments expanded consumer rights and placed additional requirements on consumer reporting companies and businesses that provide information about consumers to consumer reporting companies.
You do have a right to know what is on your credit report, but you have to ask for it. The consumer reporting company must tell you everything that is on your credit report and give you a list of everyone who has requested your report within the past year or two.
There are four basic types of information that consumer reporting companies can collect and sell:
1. Identification and employment information: This includes your name, birth date, Social Security number, employer and your spouse’s name. It also
includes your employment history, home ownership, income and a previous address.
2. Payment history: This shows you how much credit has been extended and if you have paid on time. Also, it shows if a creditor has referred your account to a collection agency.
3. Inquiries: The consumer reporting companies must keep a record of all the creditors who have asked for your credit history within the last year. They must also keep a record of individuals or businesses that have asked to see your credit history for employment purposes within the last two years.
4. Public record information: This shows events that are a matter of public record, such as bankruptcies, foreclosures or tax liens.
There is no charge for you to see your credit report once a year from each of the consumer reporting companies, under the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act (FACT Act).
There are three consumer reporting companies that use one website, one toll-free number and one mailing address for you to order your free credit report. To order, go to www.annualcreditreport.com, call 1-877-322-8228 or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the request form from ftc.gov/credit. You can request only one free credit report from each consumer reporting company each year, but you should not contact the three consumer reporting companies individually.
The information you will need to provide to get your free credit report is your name, address, Social Security number and date of birth. If you have moved in the past two years, you may have to provide your previous address. To maintain the security of your file, they may ask for information that only you would know.
Neither the website nor the companies will contact you to get your personal information. If you do receive a call, an e-mail or a pop-up ad that looks like it’s from the website or one of the consumer reporting companies, it’s probably a scam and you should forward the e-mail to spam@uce.gov, the FTC’s database of deceptive spam.
You may be eligible to receive other free credit reports. If a company takes adverse action against you, such as denying you application for credit, insurance or employment, you may ask for your report within 60 days of receiving notice of the action. You may also be able to receive a free credit report if you are unemployed and plan to look for a job within 60 days, if you are on welfare or if your report is inaccurate because of fraud, including identity theft. Otherwise, the consumer reporting companies can charge you up to $9.50 for each copy of your credit report within a year.
http://www.bankruptcy-lawyers-chicago.com/building_a_better_credit_report.php
Your credit report is a file about you. It is full of information on where you live, how you pay your bills and whether you have been sued, arrested or filed for bankruptcy. Creditors use this information to evaluate your applications for credit, insurance, employment or a lease. If you have a quality, credit report, it’s easier to obtai
n loans at lower interest rates which results in lower monthly payments. The only way to improve the status of your credit report is with a deliberate effort and a plan to repay your bills.
The Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of information in the files of the nation’s consumer reporting companies. There were recent amendments that were made to the FCRA. Those amendments expanded consumer rights and placed additional requirements on consumer reporting companies and businesses that provide information about consumers to consumer reporting companies.
You do have a right to know what is on your credit report, but you have to ask for it. The consumer reporting company must tell you everything that is on your credit report and give you a list of everyone who has requested your report within the past year or two.
There are four basic types of information that consumer reporting companies can collect and sell:
1. Identification and employment information: This includes your name, birth date, Social Security number, employer and your spouse’s name. It also
includes your employment history, home ownership, income and a previous address.
2. Payment history: This shows you how much credit has been extended and if you have paid on time. Also, it shows if a creditor has referred your account to a collection agency.
3. Inquiries: The consumer reporting companies must keep a record of all the creditors who have asked for your credit history within the last year. They must also keep a record of individuals or businesses that have asked to see your credit history for employment purposes within the last two years.
4. Public record information: This shows events that are a matter of public record, such as bankruptcies, foreclosures or tax liens.
There is no charge for you to see your credit report once a year from each of the consumer reporting companies, under the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act (FACT Act).
There are three consumer reporting companies that use one website, one toll-free number and one mailing address for you to order your free credit report. To order, go to www.annualcreditreport.com, call 1-877-322-8228 or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the request form from ftc.gov/credit. You can request only one free credit report from each consumer reporting company each year, but you should not contact the three consumer reporting companies individually.
The information you will need to provide to get your free credit report is your name, address, Social Security number and date of birth. If you have moved in the past two years, you may have to provide your previous address. To maintain the security of your file, they may ask for information that only you would know.
Neither the website nor the companies will contact you to get your personal information. If you do receive a call, an e-mail or a pop-up ad that looks like it’s from the website or one of the consumer reporting companies, it’s probably a scam and you should forward the e-mail to spam@uce.gov, the FTC’s database of deceptive spam.
You may be eligible to receive other free credit reports. If a company takes adverse action against you, such as denying you application for credit, insurance or employment, you may ask for your report within 60 days of receiving notice of the action. You may also be able to receive a free credit report if you are unemployed and plan to look for a job within 60 days, if you are on welfare or if your report is inaccurate because of fraud, including identity theft. Otherwise, the consumer reporting companies can charge you up to $9.50 for each copy of your credit report within a year.
http://www.bankruptcy-lawyers-chicago.com/building_a_better_credit_report.php
5 Common Misconceptions About Filing Bankruptcy
1. If I file for Bankruptcy I will lose all of my property.
This may be the biggest misconception surrounding filing for bankruptcy. Every person who files for bankruptcy can protect a certain amount of property while still eliminating all or a portion of their debt. Depending upon the state in which the person lives, there are state and/or federal exemption laws that permit a person to shield a certain value in property. In most Chapter 7 bankruptcy cases, people keep all of their property. They can even keep their homes and cars provided that they continue to make timely payments on those items.
2. If I file for Bankruptcy Everyone Will Know About It.
Unless you're a celebrity, the fact that you filed for bankruptcy will not become generally known. A person would have to know exactly where to look to see if your name was among the recent filings. You can even prevent your current employer from learning about your filing. An exception to that would be if bankruptcy papers needed to be sent to stop a garnishment.
3. If I file for Bankruptcy I Will Never Get Credit Again.
This is simply not true. In fact, many lenders aggressively target those that have recently filed. Although the interest rate may be higher than normal, the opportunity for credit still exists. If a person can wait two years before seeking credit after a bankruptcy, he will see an interest rate much closer to that of a non-filer. With regard to autos, it's relatively easy to obtain financing after a bankruptcy. In fact, some lenders will even provide financing before the current bankruptcy case has ended. In any case, the evidence of bankruptcy filing will be removed from a credit report after 10 years.
4. If I file for Bankruptcy All of My Debts Will Be Wiped Out.
This all depends upon the type of debt that a person has. In some cases, there are debts that are not eliminated. These may include student loans, recent taxes, child support, maintenance, parking tickets and debts incurred through fraud. Consult with an experienced bankruptcy attorney to discuss the particular debts that you have and the likelihood that they will be eliminated.
5. If I file for Bankruptcy I Can Choose Which Creditors to List.
All of your creditors must be listed on your bankruptcy petition. Although you can voluntarily pay back any creditor you desire, you cannot omit that creditor from your list of creditors. Clients often like to keep a credit card free and clear from their bankruptcy filing. They think that by not listing the particular creditor, they will be able to keep the credit card and continue to use the charging privileges. This is simply not the case. Many credit card issuers subscribe to a service that notifies them of newly filed bankruptcy cases. Don't plan on keeping a credit card after your bankruptcy filing.
http://www.bankruptcy-lawyers-chicago.com/5_common_misconceptions_about_filing_bankruptcy.php
This may be the biggest misconception surrounding filing for bankruptcy. Every person who files for bankruptcy can protect a certain amount of property while still eliminating all or a portion of their debt. Depending upon the state in which the person lives, there are state and/or federal exemption laws that permit a person to shield a certain value in property. In most Chapter 7 bankruptcy cases, people keep all of their property. They can even keep their homes and cars provided that they continue to make timely payments on those items.
2. If I file for Bankruptcy Everyone Will Know About It.
Unless you're a celebrity, the fact that you filed for bankruptcy will not become generally known. A person would have to know exactly where to look to see if your name was among the recent filings. You can even prevent your current employer from learning about your filing. An exception to that would be if bankruptcy papers needed to be sent to stop a garnishment.
3. If I file for Bankruptcy I Will Never Get Credit Again.
This is simply not true. In fact, many lenders aggressively target those that have recently filed. Although the interest rate may be higher than normal, the opportunity for credit still exists. If a person can wait two years before seeking credit after a bankruptcy, he will see an interest rate much closer to that of a non-filer. With regard to autos, it's relatively easy to obtain financing after a bankruptcy. In fact, some lenders will even provide financing before the current bankruptcy case has ended. In any case, the evidence of bankruptcy filing will be removed from a credit report after 10 years.
4. If I file for Bankruptcy All of My Debts Will Be Wiped Out.
This all depends upon the type of debt that a person has. In some cases, there are debts that are not eliminated. These may include student loans, recent taxes, child support, maintenance, parking tickets and debts incurred through fraud. Consult with an experienced bankruptcy attorney to discuss the particular debts that you have and the likelihood that they will be eliminated.
5. If I file for Bankruptcy I Can Choose Which Creditors to List.
All of your creditors must be listed on your bankruptcy petition. Although you can voluntarily pay back any creditor you desire, you cannot omit that creditor from your list of creditors. Clients often like to keep a credit card free and clear from their bankruptcy filing. They think that by not listing the particular creditor, they will be able to keep the credit card and continue to use the charging privileges. This is simply not the case. Many credit card issuers subscribe to a service that notifies them of newly filed bankruptcy cases. Don't plan on keeping a credit card after your bankruptcy filing.
http://www.bankruptcy-lawyers-chicago.com/5_common_misconceptions_about_filing_bankruptcy.php
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