Five years ago when Congress amended the Bankruptcy Code, it felt that people filed bankruptcy because they couldn’t handle their finances. They thought that people simply piled up credit card debt and then blew it off recklessly. Maybe some people did. But lots of people file bankruptcy for other reasons. For example:

• Prolonged unemployment
• Illness and resulting hospital and medical bills
• Disability resulting in inability to work
• Accidents or injuries resulting in inability to work
• Natural disasters such as hurricanes or flooding resulting in homelessness
• Mortgage foreclosure owing to inability to sell one’s home due to market conditions

For people like this, all the financial management and budgeting in the world can’t help. Vocational training, rehabilitation, medical care and housing assistance can help and does help. Bankruptcy is the tourniquet which stops the bleeding. However, real healing and help is needed to put many debtors back on their feet.

Congress, in its wisdom, has ordained that an individual debtor may not get a discharge in bankruptcy unless, after the case is filed, he or she takes a personal financial management course.

Like credit counseling, this can be done on-line, over the phone, or in person. Like credit counseling, this service is performed by a not-for-profit agency approved by the Office of the United States Trustee. It can be in English or another language. Like credit counseling, both husband and wife must take this course. And like credit counseling, it squeezes a few more dollars from already cash-strapped debtors. This course can cost as little as $19 per person or $25 per couple up to as much as $75 per couple.

If you don’t take your personal financial management course, your case will be closed without discharge. All your hard work is wasted. You’ll still owe all the money on all your debts. You’ll have to pay a fee to reopen your case to both the court and your attorney just to file the silly certificate from your personal financial management course. So don’t blow this off.

Your attorney as your Congressionally-designated Debt Relief Agency, will mercilessly remind you to file your personal financial management certificate when representing you in your bankruptcy.

As a consumer bankruptcy attorney, I am often asked:  Why does it seem that in the United States Corporate Bankruptcy is deemed a good business decision and Personal Bankruptcy is deemed to be an Individual failure.  My response is simple:  ”Nothing can be further from the truth.”

Because I am in this business, I see what is really going on, and I can tell you that all bankruptcy filings are really business decisions and should not be taken lightly.  If I were representing a business that was experiencing cash-flow problems, I would have to discuss the problems with the president of the company and the board of directors.  The president and the board makes business decisions on behalf of the company.  Recently, we saw this play out in the real world when Chrysler and General Motors filed for Chapter 11 bankruptcy protection.

When an individual decides to file for bankruptcy protection, they experience all kinds of emotions.  Plus, they are going to be making decisions that will change their lives in some form.  Likewise, the decision to file for bankruptcy protection may involve uprooting their family and taking an entirely different path in the future.  Let’s face it, this market is scary enough without having to add on all of the additional pressures that the unknown brings with it.

So the decision to file for bankruptcy is the same in reality for businesses and individual.  A president and board of directors make a decision that is in the best interests of the company.  Likewise, an individual makes the decision based upon what is in their own best interests or the best interests of their family.  The only thing different is how we, the public, views the events.

But in reality, the decision to file for bankruptcy needs to be boiled down to one question.  If I file bankruptcy, where can I be in five years, and if I don’t file for bankruptcy, where will I be in five years? This question can be altered by changing in the number of years.  Sometimes I ask my clients the question at one year, three years, five years and even ten years.

The decision to file bankruptcy is a difficult one, there is no doubt about that, and no-one will ever say it is an easy decision.  But, it is not the decision to file bankruptcy that is the toughest part in my opinion.   The toughest part is seizing the opportunities in the future.

More on that later.

This post was submitted by Carmen Dellutri, Esq. of The Dellutri Law Group, P.A.

Credit counseling is a requirement that must be fulfilled before an individual debtor is permitted to file a bankruptcy.  The statute, passed by Congress in 2005 and made a part of the bankruptcy code as 11 USC §109(h)(1), reads in relevant part as follows:

…an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received … an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and … a related budget analysis.

The US Trustee, a part of the US Attorney’s Office, is made responsible under 11 USC §111 for certifying the agency that does the credit counseling and has made rules for how the counseling is to be completed. The Executive Office For US Trustees (EOUST) maintains a list of non-profit agencies they have approved to provide credit counseling and issue a certificate of compliance for bankruptcy purposes.

The credit counseling requirement is a waste of the debtor’s money and time. It was placed into the law by corrupt politicians who took money from banking and credit union interests. It is meant to act as a “speed bump” to slow down the process of bankruptcy filing and make it more distasteful for a debtor. There is absolutely no good done by the requirement.

People frequently ask, “how do I file bankruptcy”? It’s easy to file a bankruptcy case.  Lots of people do it themselves. It’s hard to do it right, however.  Even some lawyers get it wrong.

Before you can even think about filing bankruptcy, you have to take credit counseling from a credit counselor approved by the Office of the United States Trustee. You can find a list of approved credit counseling agencies here. {ick one approved in your federal district.

Now you can prepare and file a petition.  You have “filed bankruptcy” once you file a bankruptcy petition.  This is a simple form. It tells the court who you are and that you are filing a bankruptcy petition.  By filing a bankruptcy petition, you are asking the bankruptcy court to enter an “order for relief.”  That means that you are asking the Bankruptcy Court to declare that you are officially bankrupt.  You never have to go to court.  Simply filing the bankruptcy petition is enough for you to be declared bankrupt. You have to file the bankruptcy on an official form.  The government has also graciously provided helpful instructions for you to use in preparing your bankruptcy petition. You’d be surprised that few people have actually ever read these instructions.  It might help to read them.  Don’t forget that you’ll have to pay the filing fee unless you are really so broke that you can’t afford it.  Then you’ll need to file another form to prove that you can file “in forma pauperis” without paying a filing fee. Did I mention the “means test”? You’ll have to fill out a special B22 form to cover that point too.

If you think that your done simply by filing the petition, you’re sooooo wrong.  If you simply file a bankruptcy petition, you’ll be thrown out of court. You need to file your credit counseling certificate along with a special form D saying that you actually took credit counseling.  And that you took the credit counseling within 180 days prior to the bankrutpcy case and no earlier than that.  Why you need the form to say that you’ve done what you must have done by filing the form is beyond me.  You also need to file a form C if you have environmentally hazardous or dangerous property. Not only that, you’ll need to file schedules, statement of financial affairs, a declaration of social security number, a declaration of electronic filing as well as many more papers.  We’ll cover these important papers in future articles.

There have been a number of recent news reports about people choosing to “walk away” from their under water homes. One recent example is this CNN story:

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

While some states are “non-recourse,” meaning that the mortgage lender can’t get more than they receive at the foreclosure sale, most are not, and allow the lender to get a judgment against the borrower for any loss it suffers when the house is sold. This includes not only principal, but also interest, late fees, auction costs, trustee fees, court costs and legal fees–which often run into the tens (or even hundreds) of thousands of dollars. And this deficiency can end up as a judgment, not only trashing your credit for years, but allowing the lender to garnish wages, and attach bank accounts and cars.

The solution? Make sure that you know what your rights are before you walk away.

For the last several weeks LTD Financial Services and United Recovery Systems have been running ads in the Houston Chronicle for Collectors.  While this is no big surprise what with the economy like it is, it is surprising to see them admit to some of the benefits they offer:  “great bonus program, plus full benefits”, “above industry standard commission rates”, and contests.   Contests is the one that bugs me.  The bill collectors have a contest to see who can be the meanest? Or, how many people can they make cry? Or, how many people they can get to go borrow the money to pay them? Or, the list could go on. 

So the next time a bill collector calls you and is pushy, you might want to ask him or her to describe the contest that they are participating in, or how much commission is she or he going to make if you make a payment.  Let the collector know that you know they are going to receive an incentive by bullying you into a payment.

Or, you could talk to a bankruptcy attorney to see if bankruptcy is an option for you.  Bankruptcy will stop the debt collector calls.

“Will I lose my home if I file for bankruptcy?” This is one of the most frequently asked questions I hear from prospective bankruptcy clients.   More and more that the answer is “Yes you may very well lose your home but you will not lose it because of the bankruptcy.  If you lose it, it will be because you can’t afford it and bankruptcy just can’t help you save it.”

Filing for bankruptcy does not mean that you will lose your home, and in fact many people who file for bankruptcy keep their homes because they file for bankruptcy protection.   For some people, Chapter 7 bankruptcy helps avoid foreclosure because can wipe out many other unsecured debts like credit cards and medical bills, freeing up the monthly income so the homeowner can make those mortgage payments each month and feed their family.  For other people who might be behind on mortgage payments, Chapter 13 bankruptcy can stop foreclosure, and also eliminate unsecured debts and it can give the homeowner time (up to five years) to catch up the missed mortgage payments.

So why do I tell people they may lose their home?  Because when we look at their income and compare it to the expenses they have, there isn’t enough money to cover the house payment and to take care of the other needs of the family.  Foreclosure is sometimes unavoidable.  Often the clients’ incomes  cover the monthly mortgage, utilities, car payment, gasoline and food but when we look at the other things that don’t come up every month like car or house repairs, clothing, medical or vet expenses, and travel to see family, it becomes clear that there just isn’t enough money to cover everything and something has  to go.  If the mortgage is much higher than what a rental would cost, sometimes it makes sense to move.

In a perfect world, homeowners would sell the house and move if they can’t make the payments.  If the mortgage is higher than what the house is worth, this might not be possible.    Short sale may be an option, but the homeowner might owe a deficiency balance on any unpaid mortgage due and/or the lender(s) may not agree to the short sale.  Additionally, there may be tax consequences from forgiven debt on any unpaid balance.  Sadly, sometimes the homeowner’s better option is to just walk away from the house and file for bankruptcy.

Walking away from your home is extremely difficult, whether you are chosing to move voluntarily or you are being forced out.   My colleague Chip Parker, an attorney in Florida who is known for his foreclosure defense practice wrote an excellent article on the difficulty of parting with a home, and I don’t believe I can express the emotions involved any better than he did.  I do know the sadness of leaving a home where many memories were made, and I know it often isn’t easy even if the decision was made voluntarily.  I also know that when the move is complete, what was left behind was a house because home travels with you.  This is much easier said than done, but something too many families face today.

written by Susanne Robicsek, Charlotte NC Bankruptcy Lawyer

See also:

Chip Parker discusses walking away from your home on First Coast Connect By Chip Parker, Jacksonville Consumer Attorney

What Is The Procedure For Foreclosure And What Can Be Done To Stop It? by Susanne Robicsek Charlotte North Carolina Bankruptcy Lawyer

How Bankruptcy Helps To Balance Your Budget by Susanne Robicsek Charlotte North Carolina Bankruptcy Lawyer

Walking Away” from Your Home? Not Always a Good Idea by Brett Weiss, Maryland Bankruptcy Attorney

Bankruptcy Can Help You Find A Debt Free Life by Susanne Robicsek Charlotte North Carolina Bankruptcy Lawyer

When Does It Make Sense to Let the House Go? by Brett Weiss, Maryland Bankruptcy Attorney

I Thought Bankruptcy Was Supposed To Cure My Money Troubles by Rachel Lynn Foley Kansas City MO Bankruptcy Attorney

Mortgage Assistance or Chapter 13 Bankruptcy? by Susanne Robicsek Charlotte North Carolina Bankruptcy Lawyer

Budgeting is Critical in a Chapter 13 Bankruptcy Case by Adrian Lapas, Eastern North Carolina Bankruptcy Attorney Goldsboro NC Bankruptcy Attorney

Foreclosures and Bankruptcy by Douglas Jacobs, California Bankruptcy Attorney

Home Loan Foreclosure No Longer a Tax Trap? by Kent Anderson Oregon Bankruptcy Attorney

If you are filing a bankruptcy case because of massive medical bills while you are pursuing a major medical malpractice claim, you have opened quite a kettle of fish.

It is very important that you tell your bankruptcy attorney all about your medical malpractice case. To see why, click here.

The Cast of Characters

• Your bankruptcy attorney
• Your medical malpractice trial attorney
• The opposing medical malpractice defense attorney
• The bankruptcy trustee
• Your creditors in your bankruptcy case

Each of these players have quite a bit of interest in both your bankruptcy case as well as your medical malpractice case.

You must disclose the medical malpractice case in your bankruptcy papers. You also want to claim any exemption to which you might be entitled.

The bankruptcy trustee has the right to pursue that bankruptcy case in your name

The bankruptcy trustee will want to work closely with your medical malpractice attorney

The defense attorney will take advantage of any failure to disclose the medical malpractice claim in your bankruptcy case.

Points to remember:

• Your medical malpractice claim might be worth more than the claims in the bankruptcy estate
• If that’s true, then the bankruptcy trustee can’t settle the case without your permission and authority. If he tries to do that, you need to scream bloody murder
• It’s better to work cooperatively with the trustee through your medical malpractice attorney to get the largest recovery possible.
• Remember that many of the claims in your bankruptcy case might be medical bills which will be covered by the medical malpractice claim or settlement.
• Don’t sell your medical malpractice claim to scam artists who want to buy it in advance on the cheap.

Because so many income tax filers are afraid to owe the IRS, they have more taxes deducted from their paychecks throughout the year than is required.  They would rather pay a little extra in taxes each pay period than to find themselves in a jam on April 15. 

As soon as the W2 statements and other tax documents arrive, they quickly file their tax return and patiently await the big refund.  Statistics show that a whopping 75% of all tax payers receive a refund and that the average amount is $ 2,300.  I’ve had clients receive refunds of more than $ 6,500.

This presents an interesting dilemma for those who may need to file bankruptcy, but who also are expecting a tax refund.  From January to April, go to any 341 meeting of creditors across the country and you are likely to hear the bankruptcy trustee ask, “Are you expecting a tax refund this year?”

So here is the question: Can you wipe out your creditors in a Chapter 7 bankruptcy and still keep your income tax refund?  For most debtors, the answer is yes.  Here are three tips to consider.

Adjust your Withholdings

If you typically get a large refund year after year, you should adjust your withholdings so fewer taxes are deducted from your pay.  This will accomplish two things.  First, you will be downsizing your future refund and make it less attractive to the trustee.  Second, by having the correct amount of taxes taken from your pay, you are freeing up your true income.  You will then have more of your actual income to cover necessities and be less inclined to rely on credit.

Consider Waiting To File

If there is little time to adjust withholdings, and a large refund is expected, consider filing your bankruptcy petition AFTER the refund arrives.  The bankruptcy trustee will know you received a large refund, so be prepared to answer questions as to how it was spent. 

Clearly, you should not use any portion of your refund to repay debts to friends or family members.  In the eyes of the bankruptcy court, this would be considered playing favorites with your creditors.  If the trustee discovers a preferential treatment, he will take steps to get the money back.

There are acceptable ways to spend the money and not get in trouble.  You should have no problem spending the refund on necessities like food, clothing, medicine and vehicle repair.  If you have any questions, be sure to consult a qualified bankruptcy attorney.

Consider Your Exemptions

Every state has protection laws which allow a debtor to keep property.  Some states, like Rhode Island, even allow protection using Federal exemptions.  Whether state or federal, exemption laws can be used to protect income tax refunds.

Depending on the size of the refund, and value of other property trying to be protected, most who file bankruptcy can protect their income tax refund.  Once again, consult a skilled bankruptcy lawyer to determine when to file your case and how best to protect your refund.

Mark Buckley is a Rhode Island bankruptcy lawyer and CERTIFIED FINANCIAL PLANNER professional.  If you live in Rhode Island and have debt problems, call (401) 467-6800.

1099 C forgiveness of debt is really income to you in the year the debt was written off.  WHAT?  You bet.  A creditor is required by law to issue a 1009 C to any individual who settles a debt or has a debt written off that is in excess of $600.   This is a very big trap that people with lots of debt find themselves in.  If you have received one of those in the mail, you may have to declare the amount on that form as income. (see  your tax person)  Then you will have to pay tax on it.

Using a debt management firm to settle your debts?  don’t be surprised when the 1099  C comes in the mail.  House sells at foreclosure sale ,the bank has not  been paid all the money.  You should be on the look out for a 1099 C.

The 1099 c is required to be issued by any creditor that settles a debt, or writes the debt off and the amount is over $600.  You settle your $5000 credit card bill for $3000.  You will eventually get a 1099 c for $2000 and you will have to declare that as income  on your return.  You will end up paying tax on it.  The balance left on the mortgage after your property is sold at sheriff sale or by a short sale.  The mortgage company will issue you a 1099 C for the difference.

There are 2 exceptions to the 1099 C rule for most debt.  The first applies when you are insolvent as the time the debt is written off.  This is defined by the IRS.  The second is if you file bankruptcy before the debt is written off and the 1099 c is issued, there is no income to declare.  If you file bankruptcy after the 1099 C is issued you still have to declare that as income.

There is a third exception that is only good for real estate.  It is the Mortgage Forgiveness Act of 2007.  It applies to the homeowners of residential real estate only.  It also only applies to homeowners who had the debt written off during 2007 to 2012.  The IRS’s website has examples to help you determine if you can qualify for this exception.

The 1099 C and its consequences are often overlooked before making the decision to file bankruptcy.  Its impact should be considered and can be reason to choose to file bankruptcy.