Bankruptcy may be the right move for you, or maybe not.  Bankruptcy lawyers will call what I’m about to say heresy, and I’m pretty sure I’m going to get flamed by my colleagues and friends for saying it. I’m willing to take the risk, and I invite everyone to submit their comments to this post to let me know what they think.

If you’re thinking of filing for bankruptcy I have a piece of advice for you – don’t.

That is, don’t file for bankruptcy unless you’ve taken the time to thoroughly assess your situation and whether bankruptcy is right for you. After all, it’s a last resort. But more to the point, it’s a road you don’t want to travel until you’ve had the chance to know all of your options. That includes:

• working directly with your creditors to reduce payments or interest rates
• credit counseling through a reputable credit counselor such as CCCS or GreenPath

Many people fall behind on their credit card payments and immediately run scared to a bankruptcy lawyer to file a case. When that happens, you’re operating out of pure fear rather than making an educated decision. And though a good bankruptcy lawyer will talk with you about all of your options, it’s best to take the time to act in a clear-headed manner.

IMPORTANT NOTE: Read what I wrote above. I said, “reputable credit counselor.” Emphasis on “reputable.” Don’t call the people who advertise on late-night television and make bold promises of a happy life tomorrow. Most of them have been in business just slightly longer than my toddler has been potty trained (in other words, not so long). Many of these outfits are sheep in wolves clothing, preying on unsuspecting consumers and taking their money.

A reputable credit counselor will tell you point-blank that they can’t help you if it’s a hopeless cause. They won’t try to suck your last dime out of your wallet to line their own, and they’ll be straight shooters on the whole.

For example, let’s say you’re $10,000 in debt to credit card companies. You fall behind a month or two because of a temporary reduction in your income, but are soon able to catch up and make payments again. Your credit card companies may be willing to work with you to get back on track. But if you leap into the arms of the bankruptcy court you’ll never know. Advice? Pick up the phone and find out what the company is willing to do.

Even if you’ve fallen behind a number of months on more than one card, maybe you could pay it all off in the next 2-3 years if only the interest rates were reduced. A credit counselor may be able to work out a consolidated repayment plan to help you accomplish your goal rather than going into bankruptcy.

One benefit of full investigation is that you will be more comfortable with your decision – whatever it may be. If you ultimately file for bankruptcy you won’t wake up in 6 months and wonder whether it was right for you. You’ll just know.

For some, filing for bankruptcy is the best option. Catching up on a past due car loan or mortgage, avoiding an income execution, stopping a lawsuit – these are all situations that call for immediate action that may involve filing for bankruptcy. And if the credit counseling agency can’t put you into a payment plan that includes all of your debts (not just some of them) and will be finished in 2-3 years then bankruptcy might be a better way to solve your problem.

Oh, and those debt settlement places? Not really a great idea for many people. There are serious tax consequences when you settle your debts, and you need to make sure that any debt settlement company can answer all of the important questions before you sign on. In my experience, a good lawyer with experience in bankruptcy can help guide you about the impact of debt settlement far better than anyone else.

The only way to know for sure is to find a lawyer who understands the bankruptcy laws but is also familiar with your other options. There’s a ton of great information online, but let’s face it – you can’t rely on everything you read. Don’t be afraid to talk to people who really “get” the system and can help you find your place within it.

The bankruptcy discharge is the typical end of the Chapter 7 or Chapter 13 case.  A Discharge of Debtor releases you from all collection activities in connection with a discharged debt. Many New York bankruptcy lawyers believe that the only way procedurally to enforce the discharge injunction is by filing an adversary proceeding.

The recent case of In re Nassoko, Case No. 07-11966 (ALG) (Bankr. S.D.N.Y., 2009) cleared this up once and for all, stating that the debtor may file a motion for sanctions rather than the more time consuming and costly process of filing an adversary proceeding. In response to the creditor’s objection to the filing of a motion for sanctions, Judge Gropper correctly stated that

E-Loan also raises a procedural objection to the steps followed by the Debtor in seeking relief, arguing that Bankruptcy Rule 7001 requires an adversary proceeding to be filed because the Debtor is seeking relief relating to “a proceeding to recover money or property” or a “proceeding to obtain an injunction.” Fed. R. Bankr. P. 7001(1), (7). This is not correct. “[A] debtor may enforce a discharge under 11 U.S.C. 524 by means of a contempt motion.” Texaco v. Sanders (In re Texaco Inc.), 182 B.R. 937, 945-46 (Bankr. S.D.N.Y. 1985); see also In re Weichmann, 200,1 Bankr. Lexis 1797, at *3 (Bankr. N.D. Ill. Oct. 30, 2001) (holding that “a contempt order is the appropriate remedy for violations under 524(a)(2), and that any monetary relief awardable is in the form of sanctions, rather than damages.”); In re Bock, 29,7 B.R. 22 (Bankr. W.D.N.C. 2001) (same). This is consistent with the principle that it is unnecessary to proceed by way of adversary proceeding when requesting sanctions accompanied by damages for violation of the automatic stay under 362 of the Bankruptcy Code. See In re Hooker Investments, Inc., 116 B.R. 375, 378 (Bankr. S.D.N.Y. 1990).

I can’t speak to other jurisdictions, but New York clearly allows for the faster, less costly option of filing a motion for sanctions in the case of a violation of the bankruptcy discharge injunction.

What does this mean for consumers in New York who are subject to continued collection activity after the issuance of the bankruptcy discharge?

For one, the process is faster than the old, clunky procedural way of filing an adversary proceeding against the offending creditor.  You can get relief in as little as 60-90 days rather than having to deal with the cumbersome process of filing and serving an adversary proceeding.

Second, the process is far less expensive for the offending creditor.  This is important for you, the person who filed for bankruptcy, because the creditor will likely be paying your legal fees as part of any settlement.  Lower fees make it easier for the creditor to settle quickly in your favor.

Bankruptcy lawyers see our clients when things are pretty rotten in your life. You’ve got these awful overdue bills, the debt collectors are hounding you day and night, and your personal life feels like it’s in shambles. You can’t sleep, you’re fighting with your spouse over the pile of bills on the kitchen table, and life sucks.

That’s the reality of the situation, isn’t it? Life sucks all around. You don’t have enough money to do the things you need to do to keep it all together. And suddenly, nothing else matters as much.

Your job suffers, your family suffers, your friendships suffer.

And by the time you work up the nerve to call one of the countless bankruptcy lawyers in your area, you’re at the end of the line. You’re convinced you’re a failure, and just getting the courage to tell a total stranger about it just feels even worse.

You’re convinced you’ll never get credit again, you think you’ll lose your job and everyone’s going to find out you’re a total loser.

But here’s the thing you don’t realize – bankruptcy lawyers (if he or she is worth his or her weight in salt, that is) understand all of that. And we can’t reasonably tell you that everything is going to be alright, no matter how much you want us to. Bankruptcy lawyers concentrate on trying to make the bills go away, but we can’t look into the future and tell you that you’re going to wake up awash in happiness and wealth.

We can’t tell you that the credit card offers will roll in. We want to, but we can’t. Because these days, credit is tighter than ever – even for the most credit-worthy of people. Heck, there are some bankruptcy lawyers who can’t get a decent car loan or refinance at a good rate anymore. Because the credit markets are a mess, the economy is in the toilet, and everything we’ve come to rely upon as a society has been turned upside down.  Bankruptcy lawyers know lots of things, but we can’t predict the future.

But we can tell you one thing if nothing else – we can make the phone calls stop. We can end the sleepless nights. We can put you back to Square One, when you’re not totally under water with no options in sight.

That’s bankruptcy. Strip away the Chapter 7, Chapter 13 mumbo-jumbo, the court proceeding and the money you’re going to have to shell out for a good lawyer to dig you out of the mess. At the end of it all, you’re going to be able to start over.

And that’s pretty cool, right?

Forget about the future, about whether you’ll be able to buy a house or a car. You’ll get to that later, when you’ve got some financial stability and can budget for a down payment. You’ll end up with what you want if you can afford it, and that’s the way it should be.

But you’re not going to have to worry about XYZ Collection Agency calling you at 6:00pm on a Sunday when you’re sitting down to dinner. You won’t have to live in fear of a lawsuit or a wage garnishee. Your spouse won’t be yelling at you all the time about taking care of that credit card bill.

We get it. We see it every day. Many days, we see it more than once. We know about your suffering, about the pain you’re in. Some of us have been there in the past. But even if we haven’t been staring down the barrel of that gun, we do the same things you do – we worry about the future, about our families, about our livelihoods. We take the kids to school, pick the up and wonder if we can give them a better life than we have.

We understand you. And that’s why we do this, why we fight for you. Why we do our best to use the law to protect you. Why we get angry at the bill collectors, at Congress when they make it hard for you, at the judges and trustees who sometimes seem like they’re working against you at every turn.

That’s the secret. We don’t say it often enough because we’re so busy trying to help you out. To make your life better. To get you on your feet. But if you ask, we’ll stop for a minute and confirm that.

Scared? Don’t be. We’re here. We may sit behind this big (often messy) desk but we’re just like you. And we know that there’s not much difference between us, just a few missteps.

We get it.

How did your bankruptcy lawyer make you feel?� If you’re a bankruptcy lawyer, what’s your opinion?� Put your comments in below – I’d like to hear what YOU have to say.

Photo courtesy of fangleman.

Chapter 7 bankruptcy is a wonderful way to eliminate your debts, but a complex process.  You may be wondering how the process works. For many filers, bankruptcy can be an overwhelming process, but understanding how bankruptcy works can make the process a bit less frightening.

Here are the 9 steps involved with filing Chapter 7 bankruptcy:

1. Meet with your lawyer. You’ll work together to identify your creditors, assess how much debt you owe, and determine your recent income. Your lawyer will advise you which debts can and cannot be discharged. If you plan to keep your home or a car you’re still making payments on, your attorney will also tell you how to accomplish this.

2. Compile your documentation. You’ll need to get the names and addresses of all of your creditors, document the amount that you owe each one, and provide income and other documentation.

3. Complete credit counseling. Before your attorney files your case, you’ll have to attend a credit counseling course. Your attorney can help you find an approved course – in many cases, you can even complete it online.

4. File your bankruptcy petition and related documents. Once everything is in place, your lawyer will file your bankruptcy petition, including documentation of your debts and income, with the bankruptcy court.

5. Attend the meeting of creditors. You will meet with the bankruptcy trustee, your attorney, and possibly a few of your creditors. The questions you will be asked are quite standard, so there’s no reason to stress about this meeting.

6. Attend a financial management class. Here, you will learn how to rebuild your finances so you don’t end up in bankruptcy again. Your attorney can help you find a financial management class.

7. Obtain discharge of your debts. As long as there are no creditor objections, you should receive a discharge within a few months of filing your bankruptcy petition. Once you have obtained a discharge, you are free and clear of your debts, except those you elected to keep or those which could not be discharged, such as student loan debts.

8. Review post discharge credit reports. You’ll want to make sure that all appropriate debts show as discharged on your credit report. Doing this ensures that you have a “clean slate” to rebuild your financial life.

9. Begin to rebuild. Save a portion of each paycheck for financial emergencies, and get a credit card as soon as you can so you can begin improving your credit score. Over time, you can obtain lines of credit, a car loan, and even a home loan to rebuild your credit.

Photo by Nate Kay.

If you’ve been thinking about filing bankruptcy, you have probably wondered what your life will be like afterwards. Many consumers assume that, since your credit report will list a bankruptcy for ten years, they’ll be unable to obtain any kind of credit at all.

It is true that you’ll deal with the effects of bankruptcy for as long as it stays on your record… but it won’t be as bad as you think. The older the bankruptcy becomes, the less important it will be to potential lenders… as long as you rebuild your credit and handle your finances responsibly.

The first year after bankruptcy will be the hardest. Lenders will see that you have had recent financial troubles, and will often be hesitant to issue a credit card or lend you money. Getting an unsecured credit card could prove quite difficult, although there are a few lenders that may be willing to give you a low limit card (usually $200 to $500).

If it is not possible to obtain an unsecured credit card, it’s a good idea to get a secured card. The card will be pre-paid, so it will work more like a savings account, but it will give you a way to book hotel rooms, purchase airline tickets, and travel without cash. Also, many secured card lenders will report your timely payments to the three major credit bureaus. This will give your credit score a boost, making it easier to get an unsecured card or a line of credit.

You might be able to get a car loan after your bankruptcy has been discharged for a year. Be prepared for a substantially higher interest rate than you’re used to, though. The longer you wait after your bankruptcy, the lower your interest rate will be.

Bankruptcy will also keep you from getting a mortgage loan for two years. After that, if you have taken steps to rebuild your credit, you may be able to obtain an FHA loan with down payment as low as 3% of the purchase price.

In some respects, bankruptcy will affect you for the next ten years. By being financially responsible, though, you can minimize these effects, and get back to a normal life surprisingly quickly.

For more information on fighting back against harassing bill collectors go to www.NewYorkBankruptcyHelp.com and download a copy of my free book, Escape from the Slithering Bottom Feeders: How to Stop Harassing Bill Collectors and Fight Back Legally and Effectively So You Can Sleep Better at Night.

If you have ever been in trouble with your bank, you have most likely been reported to Chex Systems. Perhaps you’ve had some NSF checks, or maybe you closed an account without settling a negative balance with the bank. No matter the reason, once you are reported to Chex Systems, managing your finances can be a bit difficult.

Chex Systems is a reporting agency for banks, much like credit bureaus are for lenders. Any problems reported by a bank, including NSF checks and negative balances, will show up on your report. After an item is added to your record, it will stay there for five years.

Nearly all banks use Chex Systems to evaluate potential new customers. Chex Systems does not approve or deny account applicants; it is up to the bank to decide how to use the information. However, if you have reported items, it can be quite difficult to get a new checking account.

There are a couple of methods you can use to work around being reported on Chex Systems, though. If you’re lucky, you might be able to locate a bank near you that does not obtain Chex Systems reports, or will be willing to overlook negative items on your record. Some banks may be willing to forgive a few bounced checks, but if you’ve had more serious problems, this may not be a viable option.

The other option is a “second chance” bank account – a quick Google search will help you find many of these accounts. The banks that offer them typically do not run credit checks or use Chex Systems reports. They will typically issue you a prepaid debit card, but many will not grant check writing privileges. Still, if you need a bank account to pay bills, this might be a viable solution. For many people, living without checks isn’t much of a problem anyway, since most bills can be paid online with a debit card.

Life after being reported to Chex Systems can be rather difficult, but with a bit of research, it is possible to get an account… even if you have to adjust to not writing checks.

For more information on fighting back against harassing bill collectors go to www.NewYorkBankruptcyHelp.com and download a copy of my free book, Escape from the Slithering Bottom Feeders: How to Stop Harassing Bill Collectors and Fight Back Legally and Effectively So You Can Sleep Better at Night.

If you have discovered that your debt has become unmanageable, and you don’t see any way out of your financial situation, you may be considering bankruptcy as a solution.

As many people can tell you, though, bankruptcy can be quite stressful. Here are some techniques you can use to reduce your bankruptcy related stress.

First, it’s important to understand that the effects of bankruptcy won’t last forever. Sure, it’s embarrassing to declare bankruptcy, but a few years from now, it won’t have much of an impact on your life at all. You’ll be able to get credit cards (usually within the first year), buy a car, and even purchase a home.

Think of it this way – if you chose to hang on to your debts, where would you likely be three years from now? Unless you receive a windfall, you’d probably still be dealing with the stress of trying to pay off your debts.

Second, ask a friend or family member if you can vent about your financial situation. Most people will not judge you, and will be glad to lend a sympathetic ear – you might discover that people close to you have dealt with similar difficulties. Talking about your stress can be a good technique for clearing your mind, so you can deal with your bankruptcy more calmly.

Third, get a plan together for your finances after the bankruptcy. You’ll feel much better about discharging your debts if you have developed a strategic plan for rebuilding your credit and your savings. If doing this yourself seems a bit overwhelming, talk to a financial counselor – he or she can help you chart a path to financial stability.

Finally, take some time away from the situation. This might not be the right time for a Mediterranean cruise, but a night at the movies, a walk in the park, or even an evening talking with a friend can help ease your mind.

For more information on fighting back against harassing bill collectors go to www.NewYorkBankruptcyHelp.com and download a copy of my free book, Escape from the Slithering Bottom Feeders: How to Stop Harassing Bill Collectors and Fight Back Legally and Effectively So You Can Sleep Better at Night.

So you’re getting a higher education as a means to start or further your career, but the debts you’ve amassed over the past few years are vying for your attention. You may have thought about using your student loans to pay down credit cards or other debts… but is it really worth it?

When you sign a student loan agreement, you are telling your lender that you will use the loan to pay for expenses directly related to your education. This can incude living expenses, and personal debts are arguably a part of these expenses. Your lender would likely not be pleased to learn that you used your student loans to make credit card payments, but if you incurred credit card debt as a result of being in school – say, you had to reduce your work hours to attend classes – it would be possible to argue that your debts were related to your education.

The trouble begins when you have completed your education and it’s time to start making payments on your student loans. It’s possible that you have saved credit card finance charges by using your student loans to pay off your credit cards, but the entire time you were in school, your loans have been quietly accruing interest. By the time you have to begin making student loan payments, you will have incurred more in interest charges than if you had simply paid off your debts through part time or full time income.

If you can possibly avoid it, it’s a good idea not to use student loans to pay off debt. In the long run, you’ll end up paying quite a bit more for these debts – you could have paid them off in a year or two, but by rolling them into your student loans, you’ll be paying interest on them for a decade or more.

For more information on fighting back against harassing bill collectors go to www.NewYorkBankruptcyHelp.com and download a copy of my free book, Escape from the Slithering Bottom Feeders: How to Stop Harassing Bill Collectors and Fight Back Legally and Effectively So You Can Sleep Better at Night.

If you are planning on filing Chapter 7 bankruptcy, you probably know that most of your debts will be discharged. There are some debts, though, that bankruptcy will not erase. Most notably, in many instances, you will still retain student loan debts. This can prove to be a quite a challenge, especially if you owe several thousand dollars for your college education.

Although you typically cannot discharge your student loan debts, there are still a few options you can take advantage of to keep from getting into further financial trouble. For example, you may be able to apply for a forbearance if you find you can’t make your student loan payments.

A forbearance postpones your payments for a short period of time, usually between six and twelve months, giving you time to get your post-bankruptcy finances in order. Bear in mind, though, that your payments will be higher after the forbearance, because they will continue to accrue interest.

If you are unemployed, you may also be able to obtain a hardship deferment. This frees you from making payments for a short period (usually six months), but your lender may require that you submit proof that you are actively seeking work.

A student loan consolidation is another option that can help you effectively manage your student loan debt. Consolidations are credit based, so you may have to wait a year or two after your bankruptcy discharge to take advantage of this option. If you can get a consolidation loan, though, all of your student loans will be lumped together, and you will only have one payment each month. More importantly, you can use a loan consolidation to extend the term of your loan to thirty years, instead of ten. Although you will pay significantly more in interest, this will serve to reduce your monthly payments.

Although student loans usually can’t be erased through bankruptcy, these strategies can help you manage your student loan debts, giving you the chance to rebuild your financial stability.

For more information on fighting back against harassing bill collectors go to www.NewYorkBankruptcyHelp.com and download a copy of my free book, Escape from the Slithering Bottom Feeders: How to Stop Harassing Bill Collectors and Fight Back Legally and Effectively So You Can Sleep Better at Night.

If you’re like most people, you’ve likely experienced at least one time in your life when you needed to pay bills or buy essentials, but didn’t have the funds to cover your expenses. You might have considered taking out a payday loan to float you for a while, especially if you didn’t have access to funds from credit cards or savings. Unfortunately, the consequences of getting a payday loan can be rather severe.

The idea behind payday loans is quite simple. You give a check to the payday lender for a small amount of money (typically between $500 and $1000), and the lender pays you the value of the check in cash, less a lending fee. After the term of the loan has come to an end (payday loans typically last less than two weeks), the lender deposits the check.

While this seems reasonable, it is very easy to run into problems with payday loans. First, the lending fees are quite high, sometimes as much as 25% of the amount of the check. Paying a 25% charge to borrow money for a week or two can quickly eat into your income.

Second, if you can’t cover the payday loan when the term ends, you’ll have two choices: either take out another payday loan to cover the first one, or let the check bounce. Both scenarios have serious financial consequences.

If you take out another payday loan, you’ll have to pay another lending fee. Say your first payday loan was for $1,000 with a 25% fee. You’ve promised to pay back $1,000, but you only receive $750. If you take out another loan, you’ve lost another $250, and now you’ve spent $500 to essentially borrow the same $1,000. It’s easy to see how that can put you in real trouble – if you have to take out four consecutive loans, you’ve lost the entire amount you borrowed to fees, plus you still owe the $1,000 you borrowed.

If the check bounces, your problems will really get bad. You’ll have to pay a returned check fee on top of the loan amount and lender fees. If you don’t cover the debt right away (within a week or less), the lender may be able to sue you for double the amount you owe – in some cases, even more.

While taking out a payday loan can get you through a temporary financial crisis, it should be uses as a last resort. Even if your setback is truly temporary, you’ll still end up paying an exorbitant amount to borrow the money. If your financial problems are longer term, the fees charged by payday lenders can put you in financial ruin.

For more information on fighting back against harassing bill collectors go to www.NewYorkBankruptcyHelp.com and download a copy of my free book, Escape from the Slithering Bottom Feeders: How to Stop Harassing Bill Collectors and Fight Back Legally and Effectively So You Can Sleep Better at Night.