Five Biggest Fears of Bankruptcy

After interviewing hundreds of individuals contemplating file for bankruptcy in New York, I have collected a list of the biggest fears of filing. The good news is that in a vast majority of cases these fears are unwarranted.

The top five (5) lists include:

  1. Fear of losing one’s job.
  2. Fear of destroying one’s credit for seven (7) years.
  3. Fear of harming the credit of the non – filing spouse.
  4. Fear that bankruptcy will make a debtor ineligible of qualifying for a student loan in the future.
  5. Fear that one will never be able to buy a house if he files for bankruptcy.

I. Clearly, the loss of a job or harming one’s chances of getting a new job is the fear most frequently cited. With few exceptions, one need not be concerned about losing a job due to filing a bankruptcy. Chances are your employers will never know you filed for bankruptcy.

The exception is if you are currently having your wages garnished by your employer. Since filing bankruptcy will stop the garnishment, your employer must be notified to stop the program.

As for a bankruptcy disqualifying a job applicant, most employers do not care if you filed for bankruptcy. The exception is if an applicant is seeking a position in the financial advisory or banking industry. In these industries, the applicant’s credit rating may be a concern, and a bankruptcy may hinder one’s chances.

II. The second most frequently cited concern is how bankruptcy will affect one’s credit in the future. Today bankruptcy will only impact your credit for a short term. twenty years ago if someone filed for bankruptcy, banks would blacklist a borrower for seven (7) years. Today, the primary focus is on one’s credit score. After being discharged from bankruptcy, the debtor can take steps to rehabilitate his/her credit score. By paying all bills on time, avoiding late payments and charge backs, overtime a debtor can significantly improved his/her credit score to an acceptable level. If you take an aggressive approach, the restoration of your credit can be achieved in no more than one to three years, but certainly less than seven years.

III. Many debtors expressed concern that their spouse with good credit could be hurt by the debtor filing bankruptcy. Again, not true. As long as the spouse of debtor filing bankruptcy is not a co – debtor, the filing will not impact on her credit rating. However, if the spouse is a co – debtor, 100% of the obligation of the debt will fall on the shoulders of the non – filing spouse.

IV. How will filing affect the ability of the debtor to obtain student loans in the future? The ability to obtain student loan post – filing bankruptcy will depend upon the financial institution, as there is no set policy.

Student loans are not dischargeable in bankruptcy. Thus many banks are not concerned if a debtor filed bankruptcy. However, even with government issued loans, the student will have to submit a credit report. If the applicant’s credit score is below the acceptable range, the application may be rejected. Due to the uncertainty and varied policies among loan issuing banks, I suggest not filing bankruptcy, if you can avoid it, if you plan to seek a student loan in the near future.

V. The fifth most frequently note of concern is the fear of is not being able to buy a home post filing. A bankruptcy in your credit history is no longer a fear bar for obtaining a mortgage. Today credit scores rule. Anyone with sufficient income and a satisfactory credit score over 680 will likely be approved for a home mortgage. I have seen many people who have filed bankruptcy obtain a bank mortgage within one – two years after their bankruptcy has been discharged.

In conclusion, for those considering filing for bankruptcy, and have fears of the consequences, you should contact your bankruptcy attorney. You may find your fears unfounded. Perhaps bankruptcy is the best solution for you.

For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737

SAFE AT HOME – The Los Angeles Dodgers Bankruptcy

The Dodges filed Chapter 11 Bankruptcy in Federal Court last month. How can a Team worth over $500 Million Dollars go broke?

Fact is that Dodgers are not broke. They have a billion dollar contract with the Fox Network pending the approval of Major League Baseball.

Bud Selig, the commissioner, refused to ratify the Dodgers Fox contract because Mr. Selig, apparently, does not like the way Frank McCourt is operating the Dodgers baseball team.

According to news reports, Frank McCourt has an ultra extravagant lifestyle and spends millions of dollars on swimming pools and houses.

Mr. Selig claims that Mr. McCourt does not follow the rules of MLB and he is draining money generated from the Dodgers and converting those funds for his personal use.

The key legal question is: what happens when private contract agreements – between MLB and an individual owner—conflict with federal bankruptcy rules? The answer is Federal bankruptcy rules trump MLB.

In the end, the Bankruptcy Court will most likely allow the Dodgers to enter into the contract with Fox News, and that influx of cash will allow the Dodgers to exit Chapter 11 Bankruptcy, with the federal judge declaring “Play Ball”.

For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737.

Five Things You Should Know About Chapter 13 Bankruptcy

Chapter 13 Bankruptcy can help you get back on your feet financially. But there are five principles you must know, before you file to prevent surprises and new problems down the road.

Chapter 13 is designed for individuals with debts and who have houses or other assets they want to preserve. If assets or debts are jointly held by husband and wife, you can file one joint petition to cover both spouses.

Whereas, under Chapter 7 bankruptcy, if you qualify, you can write off or walk away from all of your debts. Under Chapter 13 bankruptcy, you must establish a Chapter 13 Plan to pay back all or part of you debt.

Principle 1:

Under Chapter 13, you must pay back 100% of you secured debt. An example of secured debt is your home mortgage. If you are behind in your mortgage, you have to include 100% of your arrears in your Chapter 13 Plan.

The good news here is that you may not have to pay back any or all of you unsecured debts. Unsecured debt includes credit cards, medical bills and personal loans not secured by real estate. The amount required to pay back will depend on your available income.

Principle 2:

Duration of Chapter 13 Plan is either Three years (36 months) or Five years (60 months). This timetable depends on your mean income by family size. If your income exceeds the mean income as established by the US Bureau of Labor Statistics, then you may be required to establish the longer 60 months plan. This would depend on the size of your debt as well as your total family income. Make sure you calculate your Chapter 13 Plan before you file your Petition.

Principle 3:

Non-dischargeable debt may be included in a Chapter 13 Bankruptcy. You are probably aware that certain debts, such as taxes and student loans are non-dischargeable under Bankruptcy. But you can include these debts in your Chapter 13 Plan. The net effect may be beneficial as you will be able to reduce the amount of your unsecured debt includable in you Chapter 13 Plan. In fact, a Chapter 13 Plan may be confirmable with as little as 5-10% of unsecured debt included in ones plan.

Principle 4:

Annual reviews could cause your Chapter 13 Plan to be revised downward or upward, pending on the change in your income.

Whether you initially establish a three years or five year Plan, you are required to submit tax returns, W-2s and paystubs, upon request by your Chapter 13 Trustee. If you benefit from a significant increase of your income, compared to your income at the time of your filing, the Trustee may compel you to revise your Plan. Naturally, this would only apply to you if your approved Plan is less than 100%. A 100% Plan is a Plan whereby you are paying back 100% of your debt.

Conversly, if you experience a drop in your income you may make a motion to modify your plan downward, to pay your creditors a lower amount. A downward modification would only be approved, if the revised Plan is deemed feasible by the Court. To be feasible, secured creditors would have to be paid 100% of all arrears and non-dischargeable debt must be paid in full, as well as all administration expenses if your income changes. Inform your Bankruptcy attorney if your income should fall to see if you can benefit from these changes.

Principle 5:

Generally your Federal and State Income Tax Refunds must be turned over to your Bankruptcy Trustee, in most situations. The exception to this turnover requirement is if your initial plan covers 100% of your outstanding debt.

Thus, in most cases all future Tax Refunds go to the Trustee while during the life of your Plan. If you anticipate receiving tax refund at the end of the year, you should be aware that while your Chapter 13 Plan is in effect, you may be required to surrender both Federal and State returns to the Court Trustee. Prior to filing a Chapter 13 Petition and Plan, you should consult with your attorney to ascertain the tax implication of filing a Chapter 13 Petition. A taxpayer does have some control over the size of a Tax refund. A good bankruptcy attorney can assist you in preventing loss in income at the end of the year.

For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737.

How Will Bankruptcy Affect Your Future

While filing a Bankruptcy will likely affect your credit in the short term, the long term effects, with a few exceptions, will be minimum. Today the financial and credit world runs on “credit scores”. If an individual has a high credit score, 680 or higher, having a personal bankruptcy in one’s credit history will have little or no impact on getting a loan after a year.

The key to success is to rehabilitate your credit after you go bankrupt. As you restore your credit, your credit score will gradually rise to an acceptable level. How do you restore your credit rating? First you must pay all your bills on time, cell phone, utilities and credit cards. If you build a history of “no lates, no charge backs, and no disputes”, after a period of 6-9 months, you will start to see your credit score improve.

If you retain one or two credit cards after filing a bankruptcy, start using those cards, prudently. But, you must pay the cards in full every month. If you stopped using all your cards before Bankruptcy, open one or two credit cards accounts for the sole purpose of building up your credit. In other words, do not charge anything on your credit cards you cannot pay off at the end of the month.

If you think that the banks will not issue you a new credit card after bankruptcy, think again. You will be amazed how quickly the banks will be willing to open a new account for a person who recently filed bankruptcy. They are in the business of lending money and they know, (1) You are no longer in debt and (2) You cannot file bankruptcy for another eight (8) years. So now you have become a good risk to the bank. For most banks, the scourge of bankruptcy is gone.

How will filing bankruptcy affect your present job or job prospects?

As for the effect of filing a bankruptcy on one’s present employment, it is highly unlikely that there will be any repercussions. In fact, unless you owe your company or your boss any money, they will never know you filed for bankruptcy.

There is no law that requires one to notify their employer if they file for bankruptcy. However, there may be a company policy in some financial institutions that require notifications. This would likely be limited to positions that involve the handling of monies for clients. That policy information must be easily ascertainable from your company.

As for a new employment, some companies may require a credit score report as part of the employment application. But not every company will disqualify an applicant if he has filed for Bankruptcy in the past. Obviously, the more time has passed since the bankruptcy, the less of an impact there will be on the job prospect.

In most cases, an explanation for the bankruptcy will satisfy the employer. This is especially true if the reason for giving Bankruptcy is beyond the control of the individual. Examples are, medical problems, divorce, the current financial crisis or torts against the debtor.

For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737