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Debts That Bankruptcy Does Not Discharge Bankruptcy does not discharge all types of debt. In both Chapter 7 and Chapter 13 bankruptcy, there are certain types of debt that will not be discharged or erased. Let’s begin by looking at debts that are not discharged in a Chapter 13 bankruptcy. A Chapter 13 discharge affects only those debts allowed by your bankruptcy plan. Any debts not specifically addressed in your plan may remain, and you will be required to pay them in full – even after the discharge. Debts that are not usually discharged under a Chapter 13 bankruptcy include: claims for child support and alimony, educational loans, drunk driving debts, criminal fines, and certain long-term obligations such as home mortgages, that extend beyond the term of the plan. An experienced bankruptcy attorney can explain which debts are erased in your Chapter 13 bankruptcy and which debts will remain. Likewise, a Chapter 7 bankruptcy does not discharge every kind of debt. Typically, intentional acts of wrongdoing, such as fraud, are not dischargeable. Other types of debts that are not going to be dischargeable are debts that have a very important social or political aspect to them. These debts usually include taxes, student loans, alimony, spouse support, and child support. Additionally, a Chapter 7 bankruptcy does not discharge debts associated with a divorce or marital separation agreement (i.e. a property division judgment). Taxes owed to the United States government, or any state, county, or government agency are not typically dischargeable. However, income taxes can be discharged if all of the following criteria are met: 1. The taxes are more than three years old at the time the bankruptcy was filed. 2. If your tax return was not filed on time, more than two years must have expired since the return was filed. 3. If there was an assessment, more than 240 days must have expired from the date of the assessment before the bankruptcy was filed. 4. There has been no fraud. For more information about what debts will remain after your bankruptcy, consult with an experienced bankruptcy attorney.

Is My Income Too High To File Chapter 7? If you earn a good living, you may be wondering if your income is too high to file Chapter 7. Most people considering bankruptcy should be able to file under Chapter 7. However, if your income is above the median family income in your state, you may be forced to file Chapter 13. Higher income earners must complete a “means test” that requires detailed information about your income and expenses. If the test shows that you © Copyright, 2009. These articles were written for a client, and are provided for sample purposes only. You are not allowed to republish or repost these articles.

have a certain amount of income left over that could be paid to unsecured creditors, then the bankruptcy court can decide that you cannot file a Chapter 7 bankruptcy. The income cap for filing Chapter 7 bankruptcy is based on the median income in your state, your total household income for the past 6 months (prior to filing), and your household size. Even if you are filing Chapter 7 bankruptcy alone, you would still have to qualify based on household income. For qualification purposes, your income is calculated as your average gross income (before taxes) for the last six calendar months. This excludes any benefits under the Social Security Act. If you are married, your spouse’s income is included unless you complete separate tax returns and have declared separate households. The state median income used for comparison is calculated by using: • • •

The Census Bureau’s figure for median personal gross income in your state, The number of people who have the same number of people in their household as you. This figure is adjusted for inflation since the last census.

Using the qualifications listed above, if your income is above the state median income, you do not qualify to file for Chapter 7 bankruptcy. Be aware, however, that this calculation can be affected by various legal interpretations, such as whether unemployment compensation is a benefit under the Social Security Act. Consult an experienced bankruptcy attorney to determine whether your income is too high to file Chapter 7 bankruptcy.

How Will Bankruptcy Affect My Credit? If you’re considering filing for bankruptcy, you may be wondering, “How will bankruptcy affect my credit?” By law, a bankruptcy can remain on your credit report for up to ten years. This means that you will have a much harder time getting credit. You'll likely have an extremely difficult time getting a home loan, and you will no longer have the benefit of using credit cards. However, you can recover from this. During the 10-year period while the bankruptcy is on your credit report, you may receive credit card offers with very high interest rates (sub prime rates). This is because lenders view you as a “high risk borrower” due to your past bankruptcy. You will need to work diligently to improve your credit score, and re-establish trust with creditors by paying your bills on time. Typically, it is easier to re-establish credit with a Chapter 13 bankruptcy, than with a Chapter 7 bankruptcy. Chapter 7 bankruptcy is the blackest mark you can have on your credit. In Chapter 7, most of your debts are discharged (with the exception of child support and alimony). This makes qualifying for a new loan or a new credit card very unlikely for at least two years, possibly longer. However, you may be able to qualify for © Copyright, 2009. These articles were written for a client, and are provided for sample purposes only. You are not allowed to republish or repost these articles.

a federal student loan, since federal law prohibits discrimination against students based on credit factors. Chapter 13 bankruptcy is also referred to as “reorganization” and it does not discharge all of your debts. Instead, it provides you with a repayment plan to pay off your debts in manageable amounts and timeframes. A Chapter 13 bankruptcy will have a negative effect on your credit report, but it does show your willingness to pay your debts rather than to completely discharge them. This should help you obtain new credit within a year or so. Many people believe that bankruptcy means you can’t buy a home for at least 10 years. However, this is not true. You may be able to get a home loan beginning two years after a Chapter 7 bankruptcy has been discharged, and one year after filing a Chapter 13 bankruptcy. FHA and VA mortgage loans can be obtained as soon as one year after filing for either Chapter 7 or Chapter 13 bankruptcy.

Top Bankruptcy Myths Many people have misconceptions and false ideas about bankruptcy and its effects. Let’s look at some of the top bankruptcy myths. Myth #1: All debts are completely wiped out in a Chapter 7 bankruptcy. This is a popular myth that is completely false. In a Chapter 7 bankruptcy, certain types of debts cannot be discharged or erased. These debts include alimony, child support, governmentissued or guaranteed student loans, and debts acquired as the result of fraud. Also, if you owe money to someone as part of a legal settlement, it’s very unlikely that a judge will discharge that. Debts acquired as a result of legal settlements are rarely discharged. Myth #2: If you're married, both you and your spouse must file for bankruptcy. This myth is not necessarily true, especially if one spouse has a lot of debt in his name only. However, if you and your spouse have a lot of debt in both your names, then you’ll probably want to file jointly. Otherwise, your creditor can demand payment for the entire debt from the spouse who didn’t file. Consult with a knowledgeable bankruptcy attorney to determine whether both spouses should file. Myth #3: You can only file for bankruptcy once. You can file for bankruptcy multiple times. However, according to the new bankruptcy law that was passed in October 2005, you are required to wait longer between bankruptcy filings. Currently, you can only file for Chapter 7 bankruptcy once every eight years, and Chapter 13 once every two years. You are required to wait four years between filing a Chapter 7, and a Chapter 13 bankruptcy. Multiple bankruptcy filings can wreak havoc on your credit score, since each bankruptcy filing can remain on your credit record for up to 10 years.

© Copyright, 2009. These articles were written for a client, and are provided for sample purposes only. You are not allowed to republish or repost these articles.

Myth #4: Everyone will know I've filed for bankruptcy and my reputation will be ruined. Unless you’re a celebrity, famous person, or a major corporation, it’s very unlikely that people will know about your bankruptcy (aside from your creditors). Bankruptcy is a public legal filing; however, there are thousands of people filing for bankruptcy each month, so very few news publications have the space, time, or desire to publish all bankruptcy notices. Myth #5: I can max out my credit cards, and then file for bankruptcy. This type of situation could be classified as fraud, depending on the circumstances involved. The trustee in your bankruptcy case will review all your purchases right before your bankruptcy filing. Your trustee will determine whether you purposely attempted to defraud creditors.

Debt Collection Harassment Debt collection harassment and abuse can take a heavy toll on borrowers who are behind on their payments. Fortunately, there are federal and state laws designed to protect you from debt collection harassment. These laws apply regardless of whether you owe money on the debt being collected. A debt collection service can demand payment, but can do little else. Unfortunately, many debt collectors do not comply with the law, and can become abusive and harassing. Assuming the creditor has not taken the client’s house, car, or other property as collateral on a loan, then legally the creditor can do three things. The creditor can: 1. Stop doing business with you. 2. Report your default to the credit bureau. 3. Sue you in court. Fortunately, many creditors do not follow-through on their threats to sue you. And even if they do, you can defend yourself by paying the debt. Even if your creditor gets a judgment against you, this judgment does not force you to pay the debt. It only gives the creditor the right to seize a part of your income or property. Here are some tips for how to avoid debt collection harassment. One of the best ways to manage debt collection harassment is to prevent harassment before it starts. If you are behind on payments, call the creditor and explain your situation. Don’t avoid the creditor simply because you are behind on making payments. Consider whether you actually owe the money, or whether you have a defense that could eliminate all (or part) of the debt. Consider negotiating with your creditor, or with the collection agency, to resolve outstanding balances. One of the simplest solutions to stop debt collection harassment is to write a cease letter. Federal law requires collection agencies to stop their collection efforts after they receive a written request to stop. This law does not apply to creditors collecting their own debts © Copyright, 2009. These articles were written for a client, and are provided for sample purposes only. You are not allowed to republish or repost these articles.

– however, often creditors will stop contacting you after a cease letter is received. Be sure to keep a copy of the written cease letter and mail it using certified mail (return receipt requested). This provides you with proof that the collector or creditor received your letter. If writing a cease letter is not effective to stop debt collection harassment, consider having your attorney draft a letter to the collection agency or creditor. As long as your attorney responds to the collection agencies inquiries, federal law requires collection agencies to stop contacting you (if it is known you are being represented by an attorney). Also, your lawyer may be able to raise legal claims for violating debt collection harassment laws.

© Copyright, 2009. These articles were written for a client, and are provided for sample purposes only. You are not allowed to republish or repost these articles.