LIFE AFTER BANKRUPTCY

So you filed bankruptcy and got rid of all of your credit cards.  Phewww.Now what?  Will I ever be able to have credit again?  The answer is YES!

Because you now have a clean slate, you will be inundated with offers from credit card companies and overwhelmed by correspondence from local car dealerships.  It seems everyone wants to offer you a loan.  Although you must reestablish new credit, it is much better for you to wait than to immediately accept any offers.  By waiting 1-2 years after you receive a discharge, the better rates you will receive on mortgages, auto loans, etc.

-Budget wisely.

-Apply for a secured credit card.

-Contact your local bank or credit union and request a loan for reestablishing your credit.

-Pay your bills on time every month.

WHAT PROPERTY WILL I BE ABLE TO KEEP IF I FILE BANKRUPTCY?

One of the biggest misconceptions about filing bankruptcy is that you will not be able to keep your personal property and possessions.  Individuals are often surprised that they can all of their property, including their house, cars and other household goods.

In Pennsylvania, you can elect to use either the state or federal exemptions.  In most cases, the federal exemptions will allow you to keep a greater portion, if not all of your property.  The state you will use to determine your exemptions is the state you lived in for the 2 years preceding the filing, or the state that you lived in for the majority of the 180 days preceding the 2 year period. 

FEDERAL EXEMPTIONS

If the Debtors real property was acquired within the 1215 days preceding the bankruptcy filing, the homestead exemption cannot exceed $125,000.

In Pennsylvania, the number of people filing bankruptcy has grown drastically over the past few years.  In 2005, a total of 77,587 bankruptcies were filed in Pennsylvania.  This is quite an increase from the 58,164 who filed in 2004. 

Here are some other interesting statistics:
- The average filer is 38 years old.
- 44% of filers are couples.
- 30% of filers are single women
- 26% of filers are single men
-Most filers were slightly more educated than the average American

Source:  The Fragile Middle Class:  American in Debt; Elizabeth Warren, Harvard Law School; Smith Business Solutions.

In a Ch. 13, you are set up on a monthly payment plan which allows you to spread your arrears incurred on your mortgage or other secured loan over 36-60 months.  Your payment plan is comprised of your regular monthly mortgage and/or car payments with a little extra to pay any arrears and a small percentage (as low as 1on your credit cards/loans, etc.  Similar to a Ch. 7, at the end of the plan term your remaining unsecured debts (i.e. credit cards) will be eliminated. Unlike a Ch. 7, the Debtor must complete the payments into the Ch. 13 Plan in order to receive a discharge.  Perhaps the greatest benefit to filing a Ch. 13 is the potential to take advantage of the cramdown provision with regard to junior liens on real property or auto valuation.  (Link to cramdown)

An individual is eligible for a Ch. 13 as long as their secured debts are less than $871,550 and their unsecured debts are less than $290,525.  This type of bankruptcy is a great alternative to Chapter 7 when your income greatly exceeds your monthly expenses AND it has less of a negative effect on your overall credit rating.

Cramdown
The cramdown provision of the bankruptcy code is nicknamed for Debtors ability to cram down pre-existing liens to the true value of the property. 

For example, say for instance that a Debtor owns a piece of property valued at $100,000.00.  He has a first mortgage with a principal balance of $101,000.00, a home equity line of credit for $10,000.00, and a federal tax lien for $5,0000.00.  Because the fair market value of his property is less than the amount owed on the first mortgage, he can actually cram the home equity loan and tax lien down, making them unsecured.  The cramdown process is not automatic, you must discuss this potential option with a qualified attorney who will advise you of your eligibility.

Use of the cramdown provision is also beneficial with regard to auto loans.  To find a true valuation of your vehicle, you would need to go to www.nada.com or www.kellybluebook.com.  For example, a Debtor owns a vehicle that is valued at $8,000.00 at the time of the bankruptcy filing.  However, due to his poor credit, he owes $15,000.00 on the auto loan at a 13nterest rate.  If eligible for a cramdown, the Debtor may only have to pay on $8,000.00, with the other $7,000.00 becoming unsecured.  A qualified attorney may also be able to reduce the interest rate from 13o as low as 8/FONT> 

1.  Income information:  The previous six (6) months of paystubs, social security statements,
unemployment compensation statements, child support/alimony, pension income statement

2. Copies of your federal and state tax returns for the past two years.

3. Credit reports and/or recent credit card statements.

4. Complaints, foreclosures or judgments received by the Sheriff

5. Recent bank statements.

5. Bankruptcy questionnaire.  (Click here to begin.)

Complaint and Judgments
Upon receipt of the Complaint, you have the opportunity to file a response within 20 days from the date you were served.  If you decide not to file a response, you will receive a 10 day notice in the mail of the pending judgment by default.  Once a judgment is rendered, the creditors can place a lien on your property, levy a bank account or conduct a sheriff sale of your property.  However, filing a bankruptcy will stop all of these actions from taking place, and any judgment can be wiped out.

Foreclosures and Sheriff Sales
Let me begin by explaining the foreclosure process to you.  It is likely that by now you have received an Act 91 notice, which affords you a 30-60 day opportunity to meet with the lender and restructure or obtain loan assistance.  Next, you will receive a Complaint in Mortgage Foreclosure.  Once a Judgment ordering the foreclosure is rendered, your home or property will be listed for sheriffs sale (usually within 30 days).  As long as a bankruptcy is filed prior to the Sheriff Sale you will be able to keep the property and remain in your home.  The same holds true for a bankruptcy filing prior to a tax sale.

I have previously filed a Chapter 7 bankruptcy, can I still file a Chapter 13 to save my home?

Although you may have filed for bankruptcy in the past, you CAN file again.  If you were previously discharged from a Chapter 7 bankruptcy, you must wait eight years before filing another Chapter 7, but depending on your situation, there may be NO WAITING PERIOD when filing for protection under a Chapter 13!

MEANS TEST

The means test is used under the New Bankruptcy Law to determine if an individual Debtor is eligible to file under Ch. 7 of the bankruptcy code.  Here, your attorney will take the average gross income in your household over the past 6 months to determine if you are below the median for your state.  If you are then youve passed the means test.  If your income is way above the median income, you will have to file a Ch. 13.  However, even if you are above the median household income, your attorney may still be able to file a Chapter 7 for you depending on your monthly expenses.

As of February 13, 2006 the median income for households in Pennsylvania were as follows:

1 Person - $40,251.00

2 Person - $45,865.00

3 Person - $60,986.00

4 Person - $68,826.00

Add $6,300.00 for each individual in excess of 4.

So you filed bankruptcy and got rid of all of your credit cards.  Phewww.Now what?  Will I ever be able to have credit again?  The answer is YES!

Because you now have a clean slate, you will be inundated with offers from credit card companies and overwhelmed by correspondence from local car dealerships.  It seems everyone wants to offer you a loan.  Although you must reestablish new credit, it is much better for you to wait than to immediately accept any offers.  By waiting 1-2 years after you receive a discharge, the better rates you will receive on mortgages, auto loans, etc.

..

FEDERAL EXEMPTIONS

If the Debtors real property was acquired within the 1215 days preceding the bankruptcy filing, the homestead exemption cannot exceed $125,000.

Chapter 7 Liquidiation

The first type of personal bankruptcy is Ch. 7, in which your unsecured debts are completely eliminated.  Unsecured debts are those items such as credit cards, personal loans, lines of credit, medical bills, utilities and even parking tickets.  In a Ch. 7 bankruptcy, you literally get a fresh start.  The process takes approximately 4-5 months, and as soon as your discharge is granted, all of your debts are wiped out, giving you a clean slate.  Also, if you currently own a house and/or car, and your payments are current, you are not at risk for losing either of them in a bankruptcy.

Most Ch. 7 cases are described as no-asset cases, meaning that all of their property is exempt from seizure under either the Federal or Pennsylvania exemptions. 

 THE BANKRUPTCY PROCESS (CHAPTER 7)
In a typical Ch. 7 bankruptcy, the process is as follows:

1.  Complete a credit counseling course from an approved agency.  The pre-filing course must be taken within the 6 months prior to filing your bankruptcy petition.  See here for a list of approved agencies in your area.

2. The first step actual step in the bankruptcy process is the filing of the bankruptcy petition.  When a petition is filed, an automatic stay goes into effect, protecting the Debtor from harassment and their property from all types of collection activity by their creditors.

3. Next, the Debtor will attend the Meeting of Creditors.  A typical Debtor will not appear in Court, or be seen in front of a judge.  In both types of personal bankruptcy, the Debtor will appear at an informal proceeding, called the 341 Meeting of Creditors.  This hearing, which is named after Section 341 of the Bankruptcy Code, is held 20-40 days after the petition is filed.  The Debtor is required to attend this hearing and is questioned by the Bankruptcy Trustee and/or any creditors that choose to attend (although they almost never do).  This proceeding is very short, lasting typically 3-5 minutes.

4. Complete your Pre-discharge credit counseling or money management course within 45 days of the first scheduled Meeting of Creditors.

5. Within 60-75 days after the Meeting of Creditors you will receive a discharge.  A discharge is a release of the debtor from personal liability for their debt.  A discharge is a permanent order directing the creditors to refrain from taking collection activity against the Debtor.