Top 11 Ways Bankruptcy Can Help You

1) Can Filing For Bankruptcy Help Stop A Foreclosure?

Stopping a foreclosure would allow someone to save their house, which is why a lot of people file a Chapter 13 bankruptcy. A Chapter 13 would give them a method to stop the foreclosure and become current on their mortgage payment. It would also allow them to pay out arrears because not a lot of people have a lump sum of cash which with they would be able to catch up on their mortgage when they got to being 8 to 12 months behind. The Chapter 13 would basically give them a method to pay it off in a repayment plan over a time period ranging from 33 months to 60 months.


2) Can Filing Bankruptcy Stop The Repossession Of The Person's Vehicles?

This would depend on what the person wanted to do with their vehicle. A Chapter 13 would stop the repossession, and it would work the same way as it would for a foreclosure on a mortgage. The person would be able to put the car into the Chapter 13 payment plan so that it would be paid out through the bank. The person would generally be able to cram down the value of the amount they would have to be paying back, and they could also cram down the interest rate.

When some people who have bad credit go to finance a car, they might end up paying anything between 12 to 25 percent interest on their car loans, whereas in Chapter 13 bankruptcy they would be able to cram it down to about 25 percent to be paid off through the plan itself.

A Chapter 7 would stop car repossessions temporarily because it would buy the person some time to get the funds together so they could pay to catch up on the amount owed on the car and the amount they were behind on the car, although it would not offer the loan term plan that a Chapter 13 would.

A Chapter 7 would be done rather quickly because it would only take about 4 to 5 months but if the person wanted to keep the car, then they would need to find a way to become current on it.


3) Can Filing A Bankruptcy Help Eliminate Some IRS Taxes?

Yes, both parts of the bankruptcy would be able to do this. The person would be able to have that debt discharged in a bankruptcy if they owed taxes and the tax debt was the result of returns that were filed, showing a balance owed or whatever was paid, and those returns were over 3 years old. These debts could be discharged in a either a Chapter 7 or a Chapter 13 bankruptcy.

The debts of tax would generally not have to be paid back in a Chapter 7 if any of the tax owed was over 3 years old, although in a Chapter 13 that debt would become an unsecured debt and the person would generally have to pay back those creditors smaller percentage. A lot of people with tax debt have some old tax debt which is dischargeable, but they also have some current tax debt which would not be dischargeable if it was less than 3 years old.

Filing a Chapter 13 bankruptcy and putting those debts into a bankruptcy would allow the person to pay it back without penalties; any penalties that had been added to the amount through the debt so that their tax debt would be removed. It can help to release some of the person's tax liability depending on the situation, whether or not the returns were filed or if the IRS was filing claims. At this point the IRS would leave the person alone and they would have to deal with the person's attorney directly as far as any problems they may have with the plan.


4) Can A Bankruptcy Help Get Rid Of Credit Card Debt?

Yes, and one of the top reasons people file for bankruptcy is because they are overloaded with credit card debt and high interest rates. In a Chapter 7, the person would be able to discharge or wipe out the whole amount, whereas in Chapter 13, the person would have to pay back a percentage of their debt.

Nowadays, it is hard for people to maintain and stay current with their credit card debt because of how the economy is with people losing their jobs, becoming ill, and the cost of everything like gasoline, food, clothes, taxes going up, and salaries not rising as fast as the costs of these commodities and necessities. People turn to their credit cards to start making their ends meet and eventually those credit cards become maxed out so they end up paying $2,000 to $3,000 a month towards just their credit card bill as a minimum payment whereas they never even used those cards anymore.

Bankruptcy is a good way to resolve this issue because the person would be able to choose to pay their credit card debt, keep a roof over their head, and keep food on the table.


5) Can Bankruptcy Assist With Medical Debt?

Yes, because medical debt is considered the same as the credit card debt, since they are both unsecured debts. A lot of my clients come in as a result of having too much medical debt. There is a huge co-pay because medical costs have gone so high and a lot of these individuals own 80/20 plans where the insurance covers the first 80 percent and the person themselves would be responsible for the remaining 20 percent.

One of my nieces needed a two-day hospital stay for an appendix and her bill came up to $15,000, so the insurance company picked up $12,000 of it and the balance of $3,000 was the responsibility of the parents, and that was just for two-days.

People who have to spend two or three weeks in hospital end up looking at a hospital bill of around $100,000 to $200,000, of which 80 percent would be paid by insurance, so the person would be left with a debt of $30,000 to $40,000. Medical debt is not like it used to be; in the past a person could spend up to $10 a month or $20 a month and they would be happy with that, but it is not like that anymore. Medical providers now want their money as quickly as possible, so people turn to bankruptcy to get relieved of that obligation.

In the past, people would not get sued for medical debt but nowadays people do get sued and their wages can be garnished. Bankruptcy would give the person a fresh start with their medical debt. The good thing about medical debt is that even if someone filed bankruptcy on the hospital, the hospital would still not be able to refuse service to the person because basically if the insurance company paid them 80 percent of the bill, then the hospital would have already made their money from the person, and getting the 20 percent discharged in a bankruptcy would not make them go broke.


6) Does Bankruptcy Put A Halt To Collections, Lawsuits, Judgments And Wage Garnishments?

Yes, because all court action would be ceased once someone filed bankruptcy. Any type of lawsuits, garnishments, repossession, foreclosure or any kind of legal actions to try to recover either money or an asset from the person would be stopped by filing the bankruptcy, to the extent it would even affect divorce proceedings.

In my county the judge would require for the person to get relief and for them to get permission from the bankruptcy court so that they could continue with the divorce. Any court action pending against the person would be stopped by a bankruptcy filing, either Chapter 7 or Chapter 13, because it would stop everything regardless of which one the person filed.


7) Will Filing A Bankruptcy Put A Stop To Harassing And Persistent Phone Calls From Creditors?

Yes, filing bankruptcy would put an end to that. Creditors have gotten very creative about their collection efforts so they do not even call people at home; they call them at work instead. They somehow get the person's cell phone number, and if they start calling the person's cell phone then they also end up calling the person's relatives to try to collect money. They might even contact the person's neighbors.

They have access to certain databases that would tell them who the person knows. These databases also help them find these people's phone numbers so that they could call and try to put an additional pressure on the person to pay the debt, which can become embarrassing. A lot of people who come in complain that the insurance company called their mother or father and told them that the person owed a certain amount of money and that they were trying to find them.

A creditor would have to stop any further collection or efforts once they got notice of a bankruptcy filing. Most creditors would leave the person alone after they were told the person had filed for bankruptcy so they would just sit back and wait for the filing. They usually like to see some type of filing within 60 days after being informed because they would generally start calling again if they did not see any cases, although the collection calls would stop from when the person just let them know they had retained an attorney.


8) Will Bankruptcy Will Help Steer Someone Away From Fraudulent Debt Negotiation Services?

Yes. There are commercials on TV about companies offering debt negotiation services where they claim to be able to reduce the amount someone owed or that they could reduce the interest rate. Some of these companies are legitimate, but some of them do not fully disclose what the person could expect if they did hire them.

A lot of people do not know that if they went to one of these debt settlement companies and hired them to negotiate with the credit card company, then if they were successful with the credit card company and the credit card company agreed to reduce the debt and interest rate and accepted the normal payment that was forgiven, then that debt would become a taxable income for the person.

They would send the person a 1099 for the next tax year, for which the person would have to claim the income or the money that was a forgiven debt as income on their tax return. That income would not have been taxed, so depending on what tax bracket the person was in, they would be looking at a substantial tax bill because of this forgiven debt.

These companies also would not tell the person their credit score or credit report would be just as damaged going through one of them as if they had filed for bankruptcy. They also do not tell the person that the creditors would actually have the option whether or not they wanted to participate with those companies, because some of them will not even negotiate with these people.

The top three reasons to not use these kinds of companies would be that firstly, in a bankruptcy, the person would not get 1099 for the forgiven debt. The creditor would not have an option regarding whether or not they would participate because they would have to and they would have no option if the person filed bankruptcy.

The person would be paying back far more than what they should and they would also have to pay their very high fees. Before deciding whether to go with one of those people, the person should talk to a bankruptcy attorney and find out what they could do for them. They should do this before they decided which way to go because bankruptcy carries a stigma that the person would never recover although they would. It would take about 2 or 3 years to recover after the bankruptcy was over and by then the person would not even remember they had even filed it.


9) How Does One Recognize Fraudulent Debt Negotiation Services?

Firstly, these companies would charge the person an enormous amount of money. Some companies charge a percentage based on how much debt they settled for the person. A lot of people who go into these plans are actually making payments on this debt.

I cannot say whether or not they are really fraudulent other than the fact they just do not fully disclose the ramifications of what is going with them, like the 1099 for the debt and that not all creditors who they were dealing with would have to participate in the program. They do not fully disclose all of that and they say they can help although in the a bankruptcy the creditors would not have an option as far as not participating in the bankruptcy because they would have to be listed and all of the person's debt would have to be listed in the bankruptcy because it would be required by law.

The way it would be handled is also set out in the law, so it would all be more or less black and white. They would not have an option as far as participation, so although that would not really make it fraudulent, it would just come under a failure to disclose all the facts before someone made a decision to go with them.

Even though the person might not want to call it fraudulent, it probably would be, because I would personally like to know everything that was supposed to happen before I made a decision how to handle the debt that I was looking at negotiating or filing bankruptcy for. It would be best to talk to the debt settlement companies as well as a bankruptcy attorney so that the person could get all the information they needed before they made a decision which way to go.


10) Can Bankruptcy Help A Case Or Get Someone Stabilized After A Loss Of Employment?

Yes, a bankruptcy could help someone get stabilized after loss of employment. The cost of living today is very high, with utilities, food, medicines, mortgage payments and rent payments all costing a lot of money, so it's hard for someone to recover if they were laid off for a week or two weeks, or even longer. Hopefully they would get unemployment benefits, but usually that does not even come close to the money they had been making previously.

I hope people use the money they make from their employment to pay their mortgage, pay their car loans and keep food on the table instead of paying credit card companies, because I tell my clients that the most important thing is to keep themselves taken care of and to keep gas in the car so they would be able to go back to work. It's hard to recover from a loss of income over any period of time and the longer the period of time, of course the harder it would be to recover at all.


11) Does Bankruptcy Give People A Second Chance In Life And An Opportunity Start Afresh?

The words "fresh start" are used in the first section of the Bankruptcy code, which means that it is designed to give individuals who have suffered a financial setback a fresh start so that it brings them up to ground zero from where they can move forward instead of having to dig themselves out of a hole. Getting a fresh start once the bankruptcy was over would definitely be better than digging oneself out of a hole over several years.

Bankruptcy stops collection efforts and gets rid of all the unsecured debt thereby giving the person a fresh start. I have handled thousands of bankruptcies and it really does help and it does work.

People should not look upon it as a negative thing because making the decision to file a bankruptcy should be researched, and they should seek professional help to do it because it does work and it does give a fresh start. It takes about 2 or 3 years to recover when the bankruptcy is over, which would be far less time than paying back thousands of dollars in unsecured debt because of a lawsuit or a judgment against the person, it would be a lot harder to recover from that than to recover from a bankruptcy.

Other Ways Bankruptcy Can Help You

There are some very specific areas where a bankruptcy can help that people do not know about. If someone bought a car and owned it for two-and-a-half years, but it was not 910 days, then the person would need to pay high interest rates so long as they had owned the car till 910 days, whereas after the 910 days they would be able to cram the interest rate down.

In these instances, people generally roll over negative equity into the car they would be buying, because after 910 days they would probably owe twice of what that car was worth. A Chapter 13 bankruptcy would allow them to get rid of that negative equity and get rid of that high interest rate and just pay back what that car was worth at an interest of about 5 or 5.5 percent.

The other thing is that unfortunately some people drive around without insurance because of the cost of insurance, so if they got in an accident and were unable to cover the damages they caused, considering the accident was their own fault, their license would be suspended and the insurance company for whoever they had hit in the accident, would come after them for the damages caused to the other person's property.

People do not realize that Bankruptcy would be able to stop that from happening and it would also allow the person to get their license back without having to pay reinstatement fees because once the insurance company sued someone for not having insurance, the state of Ohio and probably any other state, would suspend the person's license.

This would mean the person would not be able to get to work, they would not be able to go home and it would cause a whole host of other problems. Filing bankruptcy would allow the person to get their license back, get rid of that insurance claim and move on.

Another thing people do not realize is that when going through a divorce where part of the divorce involved a huge property settlement with the person's soon-to-be ex-spouse, that property settlement would be dischargeable under a Chapter 13 bankruptcy. If someone was going through a divorce and had a house with a little bit of equity on it, but they negotiated a deal or felt they could try to sell the house so they could pay their spouse the $25,000 of equity in the house, then a Chapter 13 bankruptcy would rid the person of that obligation and they would not have to pay a dime to their spouse.

There are several unique things in a bankruptcy that can help someone get a fresh start, although the person should make sure when they talked to an attorney, to tell him everything that was going on in their life and why they were in his office. There are things about filing the bankruptcy that can help the person but they would not know about it unless they spoke to a bankruptcy professional who could help them weed out and discover those areas where the bankruptcy could really benefit them in the long run.