Bankruptcy Basics

By Heather Faucher | Posted on September 16, 2009 | Filed Under Bankruptcy 

Bankruptcy was created to benefit both debtors (consumers or businesses who owe money to others) and their creditors (a person or business who is owed money) by making sure that debtors get relief from debts that they truly can’t afford to pay, as well as ensuring that creditors get paid from any assets that the creditor doesn’t need to live on. In 2005, the U.S. Bankruptcy Code was modified to make it more difficult for debtors who can afford to pay off at least some of their debts to file for Chapter 7 bankruptcy, which forgives most if not all of a consumer’s debt. Instead, most of these debtors are required to file for Chapter 13 bankruptcy, under which they re-pay most or all of their debts under a 3 to 5 year payment plan.

So, how do you know whether you’ll need to file for Chapter 7 bankruptcy or Chapter 13? Read more

Back to School Basics: When Are Student Loans Dischargeable Through Bankruptcy?

By Heather Faucher | Posted on August 20, 2009 | Filed Under Bankruptcy 

Ahhh, fall is in the air. Back to school time for many across the land–including college students and recent college grads now swimming in student loan debt and struggling to make ends meet in the current economy. For those whose finances are dire enough, it may be time to consider bankruptcy. One often-asked question from people considering filing for bankruptcy is, “Can I get my student loans like the Federal Stafford, Federal PLUS and private loans forgiven through bankruptcy?”

Unfortunately, the answer to that question is probably not. Section 523(a)(8) of the US Bankruptcy Code, at 11 U.S.C. states that “an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or an obligation to repay funds received as an educational benefit, scholarship, or stipend; or any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual” are not dischargeable through bankruptcy unless “excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents”.

This means that all qualifying educational loans made solely to pay the higher education expenses of an eligible in situations where the student is the debtor, the debtor’s spouse, or the debtor’s dependent will not be forgiven during the bankruptcy process. The loans must apply to schools that are Title IV eligible and the student must be enrolled on at least a half-time basis. Of course, if the student used credit cards to finance tuition, that type of debt still will be dischargeable even if it was used to finance higher education expenses.

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Bankruptcies on the Rise…

By Heather Faucher | Posted on July 22, 2009 | Filed Under Bankruptcy 

Both consumer and commercial bankruptcy filings are racing upward again and are expected to reach a stunning 1.5 million this year, according to a report from Automated Access to Court Electronic Records (AACER). While that number may still be below the record of 2 million filings hit in 2005, it’s still a sharp increase over last year’s 1.1 million filings.

A serious bankruptcy reform measure was signed into law in 2005, which seemed to stem the tide of bankruptcy filings over the next year. The law was intended to curb bankruptcy abuse and make it harder for people to simply erase their debts. The plummeting economy is swinging the bankruptcy pendulum back up, however. Rising job losses, tighter credit, dwindling 401(k) accounts, and dwindling paychecks means consumers are struggling even more than ever to make ends meet and keep creditors at bay.

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Lesser of Two Evils?…

By Heather Faucher | Posted on July 3, 2009 | Filed Under Bankruptcy 

All across the nation, homeowners are facing the financial squeeze from the ailing economy. From outright job loss, to cutbacks in salary, to declining home sales and skyrocketing health care costs, many now must make an awful choice. Which is “better” for their credit reports? Letting their homes be foreclosed on, or declaring bankruptcy?

Like so many other things in life, there’s no easy black and white answer to this question. Either road can definitely be a hard one to travel. A foreclosure, for instance, will stain your credit report for 7 years. A bankruptcy’s going to show up for 10. Don’t immediately assume, however, that foreclosure is automatically the better choice just because it shows up for less time on your credit report.

“A foreclosure is very serious to mortgage lenders,” says Ray Hooper, Education and Housing Director for the Consumer Credit Counseling Service of Greater Dallas, a non-profit agency that tries to help people facing foreclosure keep their homes. “They’re going look at a foreclosure more seriously than they will a bankruptcy that doesn’t include the house.”

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Beating the Bankruptcy Boogie Man

By Heather Faucher | Posted on June 4, 2009 | Filed Under Bankruptcy 

For many people, bankruptcy is just as scary to contemplate as the boogie man or monsters lurking beneath the bed. Sometimes, they have valid reasons to be reluctant to even consider the possibility of filing for bankruptcy. Other times, they’re just jumping at shadows or rumors meant to scare them back underneath their financial blankets.

Here are some common misconceptions about filing for bankruptcy:

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