Cash and Debt ManagementLegal Issues and BankruptcyThe legal system in this country can be very intimidating. It’s full of forms and unfamiliar language. If you get an official-looking document, you might even be tempted not to open it. Who knows what it might say?
Open it anyway, and try to read it. The most important things to look at are the dates. When there is a legal action against you, you’ll have to respond by a certain date. This is very important! If you don’t respond, you may lose any chance you have of getting charges dismissed or negotiating a settlement.
Next, get legal help. If you already have an attorney or you are enrolled in a company legal plan, that should be your first step. Otherwise, talk to friends and family and ask for referrals. Or call the local Bar Association for a list of attorneys who specialize in debtor/creditor law.
Once you have legal help, ask lots of questions. You need to understand what’s going on, and how it can affect you.
One way you can keep your legal fees down is to organize your records. Are the claims against you correct in every detail? Do you have any documents that will refute them? The more legwork you do, the less work your attorney has to do. That translates into lower legal bills for you (unless you are paying a flat fee).
Lastly, stay as calm as you can. There’s nothing like a lawsuit for raising your blood pressure. But the more composed you are, the better able you will be to make decisions and deal with issues.
Bankruptcy
If you have pared your expenses to the bone, have tried to work things out with your creditors, have spoken to a credit counselor, and still can’t resolve your financial problems, then it’s probably time to talk with a lawyer about bankruptcy.
Bankruptcy is a remedy of last resort for those who see no other way of getting rid of their debts. In spite of the soothing ads you see on television, courtesy of bankruptcy attorneys, it is a long, painful and expensive legal process. It will impact your credit rating for up to ten years.
To those who can’t find a way to solve their financial problems, however, it gives a fresh start. Once you have filed the petition, creditors may not take action against you. It stops the letters and phone calls which can make life so miserable.
How Much Will Bankruptcy Cost?
Chapter 7 attorney fees can vary widely. Chapter 13 fees are higher, because the restructuring is much more complicated. In addition, there are court fees. If a trustee is appointed, he or she will also have fees.
Two Types Of Bankruptcy
The two types of bankruptcy primarily used for individuals are: Chapter 13 -- Reorganization, and Chapter 7 -- Liquidation.
Chapter 13 is a court supervised reorganization of debt. It is known as ‘wage earner’ bankruptcy, because it is usually filed by those with substantial income and assets. You may be able to keep most, if not all, of your assets. Debts are not wiped out, but reorganized. Some of the debts may be reduced by an arrangement with your creditors. What remains must be paid off in a three-to-five year period. (This does not mean that your mortgage must be paid off in that time; only the amount in arrears.) You must start paying your debts off within thirty days of filing the bankruptcy petition.
Chapter 7 is a liquidation of debt. It is filed by a large percentage of those petitioning for bankruptcy. It wipes out most debts, except those listed in the section titled "Debts Which Survive Bankruptcy". If you plan to keep your house and your car, you keep the debt associated with them, too.
All of your assets, except for certain exemptions, are sold to pay off the debts to be discharged. The federally exempt items are listed below. Some states have slightly different rules.
Exempt Property
In bankruptcy, you are entitled to keep certain property, called exempt property or exemptions. State laws vary as to what property cannot be taken by creditors to satisfy debts. A majority of states require you to use only the state exemptions. The others allow you to use either the federal or the state exemptions.
Here is a partial list of federal exempt property. See your attorney for the current federal and state exemption amounts.
Your interest in real estate up to the exemption amounts.
Your interest in a car up to the exemption amounts.
A stated amount of personal property such as furniture, clothing and animals.
A stated amount of jewelry.
A stated amount of professional books or tools.
Health aids prescribed by a doctor for yourself or your dependant.
Your right to receive Social Security, unemployment, welfare, veteran’s benefit, disability, alimony, support or separate maintenance payment necessary for your support.
Also exempt is your right to receive a payment under a stock bonus, pension, profit sharing, annuity or similar plan.
Debts Which Survive Bankruptcy
Bankruptcy, even Chapter 7, does not cancel all your debts. The following survive:
Alimony and child support.
Debts you incurred through fraud. If you lied on a financial statement to a bank, for instance, that debt will not be discharged.
Debts you haven’t listed in your bankruptcy petition, even if you left them off by accident.
Debts from a prior bankruptcy.
Fines and penalties.
Many types of educational loans.
Most taxes.
Large charges and debts incurred right before the petition was filed.
The most important thing, when dealing with lawyers and litigation, is to realize that everything will take a lot of time, cost a lot of money, and seem very complicated. If at all possible, avoid legal action. If you can’t, try to stay calm and be patient. It won’t last forever.
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