Will a Bankruptcy Filing Ruin My Credit? Exploring the Impact

Bankruptcy Information You Need to Know

When facing overwhelming financial difficulties, the prospect of filing for bankruptcy can be both daunting and confusing. One of the primary concerns individuals have when considering bankruptcy is how it will impact their credit score and financial future. In this blog post, we will delve into the intricate relationship between bankruptcy filings and credit scores, exploring whether a bankruptcy filing will truly ruin your credit.

Understanding Bankruptcy

Bankruptcy is a legal process designed to help individuals and businesses manage unmanageable debt. It provides a fresh start by either discharging debts (Chapter 7) or establishing a manageable repayment plan (Chapter 13). While bankruptcy offers relief from unmanageable debt, it does come with certain consequences, and its impact on credit is one of the most significant concerns.

The Initial Impact

There’s no denying that a bankruptcy filing will have a negative impact on your credit score. The extent of the impact depends on your credit history and the type of bankruptcy you file for. A Chapter 7 bankruptcy, also known as liquidation bankruptcy, stays on your credit report for 10 years from the filing date. A Chapter 13 bankruptcy, which involves a repayment plan, remains on your credit report for 7 years from the filing date.

Credit Score Drop

The extent of the credit score drop varies from person to person. If your credit was excellent prior to filing, you might experience a more significant drop than someone whose credit was already poor due to missed payments and high debt levels. On average, a bankruptcy filing might lead to an initial credit score decrease of around 100 to 200 points. However, credit scores tend to fluctuate based on a variety of factors, and the drop following a bankruptcy case need not be permanent.

Rebuilding Credit

While a bankruptcy filing does have an initial negative impact, it’s not the end of the road for your credit. The impact diminishes over time, and with responsible financial management, you can start rebuilding your credit sooner than you might think.

Here are some steps to help you rebuild your credit after bankruptcy:

  • Secured Credit Cards: These cards require a deposit and can be a great way to start rebuilding credit. Make small purchases and pay them off in full each month.
  • Timely Payments: Pay all bills, including rent, utilities, and any new credit you obtain, on time. Consistent, on-time payments show responsible behavior.
  • Credit-Builder Loans: Some financial institutions offer loans designed to help you build credit. These loans hold the borrowed amount in an account while you make payments, demonstrating your ability to repay.
  • Budgeting: Develop a budget that ensures you can meet your financial obligations. This will help prevent new debt and late payments.
  • Monitor Your Credit Report: Regularly check your credit report for errors or inaccuracies. Dispute any discrepancies promptly.

Conclusion

While a bankruptcy filing does have a negative impact on your credit, it’s not a life sentence for poor credit. With time, responsible financial practices, and patience, you can gradually rebuild your credit score. The important thing is to use the bankruptcy as a fresh start to develop better money management habits and work towards a healthier financial future. If you’re considering bankruptcy, it’s recommended to consult with a financial advisor or bankruptcy attorney to fully understand the implications and options available to you.

Leveraging Chapter 13 Bankruptcy to Reclaim a Repossessed Vehicle

Reorganization Bankruptcy for Consumer Debtors

Experiencing a vehicle repossession can be a distressing event, but there is a legal avenue that might help you regain control of your repossessed vehicle: Chapter 13 bankruptcy. This powerful tool not only provides relief from debt but can also serve as a lifeline for individuals who want to reclaim their vehicles while reorganizing their finances. In this blog post, we’ll explore the basics of Chapter 13 bankruptcy and how it can be used to recover a repossessed vehicle.

A Brief Overview of Chapter 13 Bankruptcy

Chapter 13 bankruptcy, sometimes referred to as a “wage earner’s plan,” is a form of bankruptcy that allows individuals with regular income to develop a repayment plan to pay off all or part of their debts over a three to five-year period. Unlike Chapter 7 bankruptcy, which involves the liquidation of assets to discharge debts, Chapter 13 focuses on reorganizing debts while allowing individuals to keep their property.

Recovering a Repossessed Vehicle

One of the most compelling aspects of Chapter 13 bankruptcy is its potential to help individuals recover a repossessed vehicle. Here’s how it generally works:

  • Automatic Stay: When you file for Chapter 13 bankruptcy, an automatic stay goes into effect. This stay prohibits creditors, including the lender who repossessed your vehicle, from taking any further collection actions. This means that the lender cannot sell your vehicle while the bankruptcy case is active.
  • Repayment Plan: As part of your Chapter 13 bankruptcy filing, you’ll propose a repayment plan to the court. This plan outlines how you intend to repay your debts, including any missed car payments, over the next three to five years. The plan must be approved by the court.
  • Vehicle Debt: If you want to reclaim your repossessed vehicle, the debt associated with the vehicle is included in your repayment plan. You will need to continue making regular payments on the vehicle loan as well as catch up on any missed payments over the course of the plan.
  • Plan Confirmation: Once your repayment plan is approved by the court, you will begin making monthly payments to a court-appointed trustee. The trustee will then distribute these payments to your creditors, including the lender who repossessed your vehicle.
  • Completion of Plan: If you successfully complete your Chapter 13 repayment plan, which typically lasts three to five years, you will have repaid the missed car payments, along with other debts. At the end of the plan, you will be current on your vehicle payments, and any remaining unsecured debt might be discharged.
  • Reclaiming the Vehicle: Once you’ve completed the repayment plan, and as long as you’ve continued to make regular vehicle payments during the bankruptcy, you should be able to reclaim full ownership of your vehicle. The lender will release the vehicle’s lien, and you’ll regain possession without further interference.

Is Chapter 13 the Right Choice for You?

Chapter 13 bankruptcy offers individuals an opportunity to regain control of a repossessed vehicle while also managing other debts. However, the bankruptcy process can be complex, from eligibility and disclosure of financial information to maximizing the value of your exemptions and obtaining a discharge. Take advantage of the experienced bankruptcy attorneys at Robleto Kuruce. We can guide you through the process, help you understand your options, and provide personalized advice based on your unique financial situation. Chapter 13 bankruptcy can be a lifeline for many, but you should have experienced counsel on your side.

What Do I Get to Keep if I File Bankruptcy?

Keep Your Car and Other Assets After Filing a Bankruptcy Case

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]”In most cases, debtors with  experienced bankruptcy counsel find that they are able to keep all of the assets that they want to retain.”[/perfectpullquote]Want to keep your car after filing bankruptcy? You’re not alone, one of the first questions that people considering filing a bankruptcy case ask is, “if I file bankruptcy, can I still keep my car?” The answer to that question may depend upon a number of factors, but most debtors are pleased to find that they can keep their automobile after filing a voluntary bankruptcy petition. In this post, we will focus on the basic principles that commonly govern whether a debtor is able to retain an asset after filing a bankruptcy case.

Lien Rights of Creditors Bankruptcy Cases

Many of the consumer debtors that we have represented have owned assets subject to a loan.  Most of our clients have purchased their vehicles under a vehicle retail installment contract (in plain terms, a car loan). If your car loan is current when you file your bankruptcy case, you can continue to make your car payment and keep your car.

If you are behind on your car payments, you may still be able to keep your car by catching up on your missed payments over time in a case under chapter 13. In fact, some borrowers who are behind on their car payments when their cases are filed, keep their cars by catching up on the payments directly after their cases are filed, without chapter 13 repayment plans. Every case is different, and clients should discuss the most prudent course of action in their particular cases with a highly experienced and knowledgeable bankruptcy attorney.

Keeping your car through bankruptcy

You may be able to file bankruptcy and still keep your car. Make the most of your fresh start!

Other secured loans (that is, loans used to purchase assets where the lender retains the right of repossession) are treated similarly to automobile loans. For many reasons, loans secured by mortgages are governed by other rules. However, the basic framework remains the same and, if you continue to pay for your mortgage on time, your lender usually cannot foreclose upon your mortgage.

Reaffirmation of Debts

Reaffirmation Agreement

Discuss reaffirmation of debts with your bankruptcy lawyer.

Your vehicle lender or other secured creditor may request that you sign a reaffirmation agreement. A reaffirmation agreement is an agreement between a lender and its borrower that the pre-bankruptcy rights of both parties will continue in force even after the borrower’s debts are discharged. You may be able to keep your car without reaffirming the loan. Reaffirming a debt may have serious consequences, and debtors should discuss their particular situations with their bankruptcy attorneys before deciding whether a reaffirmation agreement is in their best interests.

The Interplay Between Equity and Exemptions

Debtors who owe much less on their vehicles than they are worth may face another challenge.  An unencumbered asset (that is, one that isn’t subject to a lender’s lien) in a case under chapter 7 of the Bankruptcy Code, may attract the attention of a chapter 7 trustee who may wish to sell the asset and distribute the proceeds to unsecured creditors. Similarly, in a chapter 13 case, parties in interest may object to the confirmation of a chapter 13 plan if the “liquidation alternative test” is not met. The liquidation alternative test requires debtors to pay their unsecured creditors at least as much as they would receive in a hypothetical case under chapter 7. In some chapter 13 cases, unencumbered assets may require debtors to increase their chapter 13 plan payments to provide a greater distribution to the holders of unsecured claims.

Exemptions are the first line of defense that debtors have against losing their unencumbered assets. The Bankruptcy Code enumerates certain exemptions that allow some debtors to retain their vehicles and homes. However, state law determines whether debtors residing in that state may use the federal exemptions contained within the Bankruptcy Code, or another exemption scheme provided under that state’s law. Pennsylvania residents are fortunate in that they may choose between the federal and Pennsylvania state exemption schemes. Selecting the most advantageous set of exemptions and wisely applying available exemptions should be something that you discuss with your bankruptcy attorney before your case is filed. In most cases, debtors with experienced bankruptcy counsel find that they are able to keep all of the assets that they want to retain.[perfectpullquote align=”left” cite=”” link=”” color=”” class=”” size=””]You may be able to continue to make your car payment and retain your vehicle after bankruptcy[/perfectpullquote]

•   •   •

If you have bankruptcy related questions, you may wish to discuss them with an experienced bankruptcy attorney. Our law firm offers free initial consultations.

(412) 925-8194

 

 

We are a debt relief agency.  We help people file for bankruptcy relief under the United States Bankruptcy Code.

© 2018 Robleto Law, PLLC
Pittsburgh Bankruptcy Lawyers

Determine Which of Your Debts Can Be Eliminated in Bankruptcy

discharge in bankruptcy

Bankruptcy debts discharged in Pittsburgh

Bankruptcy Debts Discharged, Part One – Discharge of Student Loans, Credit Card Debt, Medical Debt and Criminal Fines Restitution in Bankruptcy

Bankruptcy debts discharged in any particular consumer case may depend on a number of factors. For people contemplating whether to file a bankruptcy case, the questions about whether certain debts may be discharged through bankruptcy are common. While debtors should discuss their individual circumstances with an experienced Pittsburgh bankruptcy lawyer, certain rules of thumb may help to determine whether a particular debt may be dischargeable in bankruptcy. This two-part series will explore whether certain kinds of debts can be discharged in bankruptcy.

FREE CONSULTATION – 412-925-8194

Are Student Loans Discharged in Pittsburgh Bankruptcy Debts Discharged?

Student loan debts are sometimes the most oppressive financial obligations for debtors in bankruptcy cases. Many people believe that student loans are not dischargeable in bankruptcy.  In fact, student loan obligations may be discharged in a bankruptcy case. While the United States Bankruptcy Code requires a showing of “undue hardship” to discharge most student loan obligations, student loans may still be discharged in a bankruptcy case. What constitutes “undue hardship” may depend on the governing case law in the court in which you file your bankruptcy case. In the region in which the Pittsburgh Bankruptcy Court is situate, the Brunner standard applies to define the meaning of “undue hardship” and imposes a three-part test which debtors must meet to have their student loans discharged.

Discharge of student loan obligations in bankruptcy must be done by filing an adversary proceeding, or a lawsuit, against the student loan creditor. That law suit will seek a determination that repayment of student loan debts constitutes an undue hardship and that the student loan obligation is dischargeable in bankruptcy. [perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]You may be eligible to discharge your student loan obligations. Talk to an experienced bankruptcy lawyer today[/perfectpullquote]

to determine if you can discharge your student loan debt.

Are Credit Card Obligations Bankruptcy Debts Discharged in Pittsburgh?

Generally speaking, credit card obligations are dischargeable in bankruptcy. Congress has emplaced certain protections in the Bankruptcy Code to prevent abuse by limiting discharge for cash advances in the days leading up to the filing of a bankruptcy case. Pittsburgh bankruptcy courts enforce the Bankruptcy Code with exacting attention. In like fashion, the Bankruptcy Code may bar discharge of late-incurred charges for luxury goods. Consumers must honestly discuss their credit card use before the filing of a case with their bankruptcy attorneys. Honest disclosure to your bankruptcy lawyer can often prevent unneeded difficulty in the entry of a discharge order.

FREE CONSULTATION – 412-925-8194

Open field of bankruptcy discharge

debts dischargeable in bankruptcy cases

Are Medical Debts Bankruptcy Debts Discharged?

Pittsburgh bankruptcy cases where the bankruptcy court enters a discharge order almost always result in medical debts being discharged.  Usually medical debts are unsecured obligations that do not enjoy priority protection under the Bankruptcy Code. For that reason, medical debts are dischargeable in most Pittsburgh bankruptcy cases.  While a particular obligation arising from medical debt could be non-dischargeable in bankruptcy, such exceptions are exceptional.  Discuss whether your medical debt may be discharged before you file your bankruptcy case in Pittsburgh with your own Pittsburgh bankruptcy lawyer.

Are Pittsburgh Criminal Fines or Restitution Orders Bankruptcy Debts Discharged?

Typically criminal fines and restitution are not discharged in bankruptcy cases.  States are empowered to exercise their police power and, with some exceptions, federal bankruptcy law under the United States Bankruptcy Code does not inhibit that exercise of the rights of states.  If you have question whether a particular debt might be dischargeable in your bankruptcy case, consult an experienced bankruptcy lawyer in Pittsburgh during a free initial consultation.

FREE CONSULTATION – 412-925-8194

Up Next: Bankruptcy Debts Subject to Discharge Including Mortgages, Car Loans, Tax Debts, Child Support and Alimony and Judgment Awards in Pittsburgh

Watch for our next installment in this series where we will continue to take up the question of exactly what kinds of debts can be discharged in a bankruptcy case. If you have any particular concerns about whether a certain debt may be discharged in a bankruptcy case, you should contact an experienced Pittsburgh bankruptcy lawyer today for a free initial consultation.  In Pittsburgh, call 412-925-8194 today.

(c) 2017.  Robleto Law, PLLC.  Robleto Law, PLLC is a law firm of bankruptcy attorneys based in Pittsburgh, Pennsylvania.  Our help may involve bankruptcy relief under the United States Bankruptcy Code. We are a debt relief agency. We help people file for relief under the United States Bankruptcy Code.

Taking the Mystery and Mean Away From the Bankruptcy Means Test

Means Test and Chapter 7 Bankruptcy

It Has Never Been Easier to Determine Whether You Qualify for Relief Under Chapter 7 of the United States Bankruptcy Code in Pittsburgh.

Means TestIn 2005, Congress put in place very substantial changes to the United States Bankruptcy Code through an amendment known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).  The BAPCPA amendments set new requirements for eligibility to be a debtor under chapter 7 of the Bankruptcy Code and to receive a discharge under chapter 7.  Importantly, debtors must now undergo a means test if their income exceeds the then-applicable median income for consumers of debtors’ household size in the state in which they reside.

412-925-8194

Eligibility for Chapter 7 Bankruptcy – Median Income Analysis

Debtors whose income does not exceed the relevant median income need not undergo further means testing.  Median incomes information is calculated and published by the United States Census Bureau and median income data is adjusted periodically.  The Office of the United States Trustee publishes median income information on its website.  As of the date of this entry, the median income applicable to debtors in the Commonwealth of Pennsylvania with a household size of one is $50,501.  A household of two in Pennsylvania can earn up to $60,508 without further means test analysis.  A three-person family in Pennsylvania has a median income of $74,083.  With four people the Pennsylvania median income is $89,690 and increases by $8,400 for each additional member of the household.
Median Household Income in the United States: 2015

[Source: U.S. Census Bureau]

The Bankruptcy Means Test Exception Applicable to People with Primarily Business Debts

Individuals whose debts are primarily business debts are excused from the means testing analysis.  The means test analysis under section 707(b) of the Bankruptcy Code applies to individual debtors whose debts are primarily consumer debts.  A Pittsburgh bankruptcy lawyer will be able to help you make the determination of whether your debts are primarily consumer debts or whether you may be exempt from further means testing because of the primary nature of your indebtedness.

The Chapter 7 Means Test and the Presumption of Abuse

The chapter 7 bankruptcy means test is codified in section 707 of the Bankruptcy Code and individual chapter 7 bankruptcy debtors in Pittsburgh and throughout the United States must submit an Official Form 122A-1, Chapter 7 Statement of Your Current Monthly Income.  Debtors must disclose information relevant to their income and household size to determine whether they need to complete the means test.  The means test itself is incorporated into Official Form 122A-2, Chapter 7 Means Test Calculation.  Debtors must draw income data for the means test from the income during the six-month period preceding the filing of their bankruptcy cases.  The Bankruptcy Code permits debtors to subtract from their household any portion of the income of a non-filing spouse that is not dedicated to the payment of household expenses or expenses of debtors’ dependents.  The means test also provides that certain expenses be deducted from a debtor’s adjusted current monthly income to determine monthly disposable income.  That monthly disposable income is then multiplied by 60 to determine a debtor’s five-year disposable income.  If a debtor’s disposable income over five years is less than a certain threshold value (currently $7,700), then the presumption of abuse does not arise.  If the five-year income exceeds the threshold value and a cap value (currently $12,850), then the presumption of abuse arises but the debtor may still elect to complete a statement of special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.  A showing of special circumstances may justify continued eligibility for relief under chapter 7.  If a debtor’s five-year disposable income is between the threshold and cap values, the presumption of abuse will not arise unless the five-year disposable income is at least 25% of the debtor’s total nonpriority unsecured debt.

Close Call on the Means Test?  Discuss it with a Pittsburgh Bankruptcy Lawyer!

The increase in the administrative cost and duration of a chapter 13 bankruptcy case from a chapter 7 bankruptcy case is considerable.  In many cases a chapter 13 bankruptcy may be warranted but for other individuals a fresh start under chapter 7 of the Bankruptcy Code will offer the optimal path away from financial distress.  A free consultation with a Pittsburgh bankruptcy attorney could help you understand all of your bankruptcy nonbankruptcy options before making any decision.

412-925-8194

Bankruptcy in Pittsburgh – I Want to Keep My Car!

File Bankruptcy and Keep the Car

bankruptcy keep my carCan I File Bankruptcy and Still Keep My Car – Talk to a Pittsburgh Bankruptcy Lawyer Now!

412-925-8194

If you’re considering filing a voluntary bankruptcy case under chapter 7 of the Bankruptcy Code or entering into a repayment plan under chapter 13, you may be interested to know how a bankruptcy case might affect your vehicle loan.  Most workers need their vehicles just to bring themselves to work and back.  In most Pittsburgh bankruptcy cases, people can file bankruptcy and keep their cars.  Generally, as long as one continues to pay on his or her vehicle, she may retain it.

Chapter 13 Bankruptcy.  If you’re behind on your car payment, you may wish to use chapter 13 to retain that vehicle.  Under chapter 13, debtors may pay into a plan over a period of three to five years and, during that time, they may cure and reinstate certain loan balances.  In most cases, even when a debtor is substantially behind on a vehicle payment, chapter 13 may still offer a pathway to keep that car.

Chapter 7 Bankruptcy.  Often debtors are not in a position to repay creditors but still want to keep their automobiles.  In those cases, they may usually retain them as long as they keep current on their vehicle payments.   Particularly in this context, its very important to know whether creditors are secured or unsecured and whether they may have priority claim status.  In order to ensure that you are able to retain your interest in your vehicle, contact Robleto Law today.

412-925-8194

We are a debt relief agency.  We help people file for relief under the United States Bankruptcy Code.  (c) 2017 Robleto Law PLLC  |  Pittsburgh Bankruptcy Law Firm

 

Bankruptcy May Help Get Your Repossessed Vehicle Back

Was Your Vehicle Repossessed in Pittsburgh Before You Were Able to File for Bankruptcy Relief?

Making ends meet in tough times can be difficult enough even before your vehicle is repossessed.  Without your vehicle, you may find it difficult to get to work or a job interview making your troubled financial condition even worse.  If you have experienced a vehicle repossession in Pittsburgh, you may be able to get your car back for good by filing a voluntary petition for relief under the United States Bankruptcy Code.

car repossession

How Vehicle Repossession Works

Vehicle sales in Pennsylvania are typically financed through a retail sales installment contract.  That contract provides the lender with a security interest in the automobile until the loan is paid off.  If a borrower cannot or does not pay regular monthly payments and falls behind, the lender may exercise the legal right to take possession of their collateral and sell it.  Under the Uniform Commercial Code, lenders are required to send notices to borrowers following repossession, advising them of the disposition of the vehicle and what the borrower must do in order to get the vehicle back.  Borrowers may have the right to cure their loans meaning bring the loan current by paying the current and past due amounts owed along with the costs of repossession.  Other borrowers may find that the only rights listed in the notice they received from their lender is a right to redeem the vehicle meaning payment of the entire amount still owed to the lender.

If the lender sells a repossessed vehicle, it must send the borrower a second notice with information about the sale and whether there was a surplus or if the borrower owes a deficiency to the lender.  The form and content of the notices issued by the lender are very important and the failure of a lender to provide notices as mandated by the statute can give rise to a claim for damages against the lender.

Getting Your Repossessed Automobile Back After Filing Bankruptcy

Vehicle lenders are often familiar with the bankruptcy process and will make arrangements with your bankruptcy lawyer for the prompt return of your vehicle.  In certain cases, your bankruptcy lawyer may need to petition the bankruptcy court for the turnover of your vehicle to you.  You will still be required to pay the amounts due to your lender but you may be able to do that over a period of three to five years in a case under chapter 13.  Additionally, in certain circumstances, you may be able to “cramdown” on lender in a case under chapter 13 and compel it to accept only the value of the vehicle even if you owe considerably more than the vehicle is worth.  In a case under chapter 7, you may also be able to redeem your vehicle for less than the amount you owe.  In Pittsburgh, your bankruptcy lawyer may be able to arrange for you to receive a loan for the value of the vehicle that could save you a considerable amount of money, giving you even more freedom to make the most of your fresh start.

Talk to Your Pittsburgh Bankruptcy Lawyer to Determine if You Can Get Your Repossessed Vehicle Back by Filing a Bankruptcy Case

Whether you can get your vehicle back by filing a bankruptcy case may depend on several factors.  Timing is very important.  The filing of your bankruptcy case will give rise to the “automatic stay” which will prevent the lender from selling your vehicle.  However, if you file your bankruptcy case after your lender has sold your vehicle, you may find that you will be unable to get it back.  If your car is repossessed in Pittsburgh, you should call an experienced bankruptcy lawyer immediately.  Give yourself the best chance to get a fresh start and get back on your feet.  Expert bankruptcy professionals may be able to help you get your car back quickly through a bankruptcy case.

Saving Your Home With Chapter 13 Bankruptcy

Chapter 13 bankruptcy puts a stop to foreclosureConsumer Reorganization Through Chapter 13

If you are behind on your mortgage payments, filing a chapter 13 bankruptcy may help you avoid foreclosure.  If you are behind on payments to the point where a foreclosure complaint has already been filed by your lender, filing a bankruptcy case will immediately halt it.  The moment a bankruptcy case is filed, something called the automatic stay is put into effect.  The automatic stay is a powerful provision of the Bankruptcy Code which prevents any creditor or party-in-interest from continuing litigation against you or depriving you of your property.

Chapter 13 bankruptcy also helps you repay your past due mortgage payments.  Often, once you are several months behind on mortgage payments, you lender may refuse to accept any payment less than the total amount of the arrearages plus penalties and interest as payment, and consider the payment of a single mortgage payment a partial payment.  This perpetuates the vicious cycle.  A chapter 13 bankruptcy case allows you to pay off any arrearages over a three or five year time period – making catching up far more manageable.  Often times, chapter 13 bankruptcy is the only practical option for those substantially behind on their mortgage payments.

There are other solutions for debtors with no other problematic and significant debt beyond mortgage arrearages.  Mortgage modification, an arrangement to mitigate the lender’s loss and lower your monthly mortgage payments, can serve as a solution as well.  Modification is a negotiation and loan restructuring process which back loads your mortgage arrearages and sometimes (though not always) lowers your monthly mortgage payment.  This process often extends the term of your loan allowing your even greater advantages than might otherwise be available in a chapter 13 case limited to five years.

If you are behind on your mortgage payments and have mortgage arrearages  in excess of what you can pay back, give us a call for a free consultation to discuss a solution based on your individual goals and problems with debt.

The History of Bankruptcy

Despite the somewhat negative connotations that some people associate with bankruptcy, this type of consumer protection has been in existence since at least the time of the Greeks. This indicates that societies have nearly always recognized that sometimes, the best choice for the individual and for the community is to declare bankruptcy and start over with a “clean slate.” The following is a brief account of the history of bankruptcy; an approximate time span of nearly 4,000 years.

Bankruptcy among the Greeks

When Greece was the world’s leading military power and cultural center, only men could become debtors. But when a man became insolvent and could no longer pay his debts, he could be forced into indentured servitude for years in order to repay his debts – often under deplorable conditions.

However, because women, children and slaves were considered the property of men, they could also be sold into slavery or indentured servitude. This means that going bankrupt could literally cost a man his entire life including his family.

Bankruptcy among Romans

Two thousand years later the term bankruptcy is theorized to have been born in the form of its earliest Latin ancestor for the words “broken bench.” During this time, lenders often operated from a public bench that would be broken in the event the lender went bankrupt. This is the equivalent of a modern “out of business” sign.

Unfortunately, Romans often jailed or tortured people who were unable to pay their debts, and many were sold into slavery or traded for property, cash, influence or power.

Spain’s National Bankruptcy

Spain became the first country to officially go bankrupt. This occurred under the rule of Phillip II as he presided over one of the darkest periods in human history: the Spanish Inquisition. The Inquisition brought in a lot of money, but it was also hemorrhaging money as well, and with Phillip’s blundering expansionist nature, it wasn’t long until the entire country was overextended and unable to repay its debts, declaring a series of bankruptcies in the middle of the sixteenth century.

Other countries would follow over the next two hundred years, including France and Russia. (Wikipedia entry for Sovereign Default. Accessed 07/20/2012)

Bankruptcy in Early America

The Revolutionary War bankrupted the newly founded America, but the country quickly recovered and for many years thereafter took a dim view to bankruptcy. Consumers and businesses that went broke were often subject to ridicule and even criminal charges and jail time.

1898 Bankruptcy Act

Numerous bankruptcy laws and acts were passed between the end of the 1700’s and 1898, when corporations were officially extended bankruptcy protections and the basis for most modern bankruptcy laws were put into place by congress.

Bankruptcy Act of 1938

This Act expanded significantly upon the 1898 Act, most importantly improving the voluntary status of petitioners and the appointment of trustees to handle bankruptcy cases.

1978 Bankruptcy Reform
This Act made bankruptcy far more attractive to people and businesses struggling with debt. The Act spelled out the numerous bankruptcy types that we know today, including Chapter 7 liquidation and Chapter 13 reorganization – the two most common types of bankruptcy.

A lot has changed with bankruptcy over the years, but one thing that hasn’t changed is the fact that if you’re drowning in debt and you need help, bankruptcy may be the right choice for you. Find out for yourself right now with an immediate, free consultation from an expert with our Pittsburgh Bankruptcy Firm. Call the number at the top of your screen and learn more about taking advantage of consumer protections that were set aside to help people in financial distress. Don’t wait – make the call now.

Fewer US Bankruptcies after the Affordable Care Act? Probably Not.

Speculation abounds that the Affordable Care Act – commonly referred to as Obamacare – will have a significant impact on the number of bankruptcies in the United States. Many experts think that as a result of healthcare being more affordable and accessible, fewer people will declare bankruptcy as a result of medical bills. However, the issue isn’t as clear cut in this regard as it may seem, and there’s compelling evidence to suggest that the ACA will have little to no impact whatsoever on the number of bankruptcy filings.

The Affordable Care Act is speculated to reduce the number of bankruptcies because it will significantly lower the total medical debt of many people. The Act is theorized to accomplish this feat via the following provisions:

*Medicaid is to be expanded at the state level, offering more people care at higher income levels

*People at certain income levels will have their health insurance costs subsidized by the federal government

*The same rates will be available to people regardless of age and location. The same coverage will also be available

*More people will be able to get approved for coverage despite pre-existing conditions

All of these benefits will reduce the rate of bankruptcy filings because they will reduce the amount of medical debt that many Americans are saddled with. In thousands of cases filers often quote medical bills as being a primary reason for declaring bankruptcy. In fact, a 2007 research study published in the American Journal of Medicine stated:

“Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills.” (1)

So at first glance it’s easy to see why some people might rush to the easy conclusion that the Affordable Care Act will alleviate a large number of bankruptcies considering that the number one cause of filings is related to overwhelming medical bills. However, this doesn’t appear to be the case, and the very same study offers up its own evidence to the contrary.

In direct continuation from the above referenced passage:

“Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.”

In reality, the study tells us that even though medical bills were cited as the primary cause of bankruptcy, 75% of those who filed already had medical insurance. Therefore, it’s not exactly prudent to argue that the ACA will reduce the US bankruptcy burden. In fact, the issue seems to go much deeper than just medical bills. And considering that people who could not afford healthcare before won’t be in much of an improved position to afford it now, it’s difficult to imagine exactly how the ACA is going to affect bankruptcy filings in the years to come.

However, the effects of the Act won’t be seen for some time, and before they can be reasonably measured it’s possible that the Act will be repealed or drastically revised. In the meantime, bankruptcy remains a powerful consumer protection regardless of the types of debts involved.

To learn more about your personal financial options and to find out if bankruptcy or reorganization is right for you, call the number at the top of your screen now for an immediate bankruptcy consultation, or use our simple contact form and we’ll get back to you straight away.

 

 

(1) David U. Himmelstein, MD, Deborah Thorne, PhD, Elizabeth Warren, JD, Steffie Woolhandler, MD, MPH, Department of Medicine, Cambridge Hospital/Harvard Medical School, Cambridge, Mass;Department of Sociology, Ohio University, Athens; and Harvard Law School, Cambridge, Mass. Medical Bankruptcy in the United States, 2007: Results of a National Study