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One of the most commonly asked questions by individuals considering a bankruptcy petition is whether student loans are dischargeable debt. Unfortunately, the quick answer to this question is no. Prior to the Bankruptcy Abuse Prevent and Consumer Protection Act of 2005 (BAPCPA), private student loans were dischargeable in bankruptcy proceedings. A private student loan is an education loan that is not guaranteed by the government. Prior to the BAPCPA in 2005, private student loans were treated like other unsecured debt and readily discharged.
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The US Courts website maintains statistics for all bankruptcy filings from 1995 through 2007. Many media outlets have reported that bankruptcies are on the rise; the cumulative data that was released at the end of fiscal year 2007 (September 30, 2007) contradicts these reports. In the 2007 fiscal year, there were 25,925 business bankruptcies filed and 775,344 non-business bankruptcies filed in federal court for a total of 801,269 bankruptcies filed in 2007. In 2006 the numbers were 27,333 business filings and 1,085,209 individuals for a total of 1,112,542.
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In a February 20, 2008 press release, The Sharper Image has announced that it has filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The Sharper Image is home to some of the most unique high-end electronic gadgets with a strong customer base throughout the world. According to the press release, “the Company intends to continue to conduct business as usual while it devotes renewed efforts to resolve its operational and liquidity problems and develops a reorganization plan.”
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The United States Bankruptcy Code from 1978 was rewritten and is now known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Public Law No. 109-8, 119 Stat. 23, April 2005). This reform act took nine years from the start of discussion to actual enactment and went into effect on October 17, 2005. This act is the most recent revision of the Title 11 Bankruptcy Code (11 USC § 101 et seq). This new law has made major changes to both chapter 7 and chapter 13 bankruptcies. Chapter 7 of the bankruptcy code is liquidation and chapter 13 of the bankruptcy code is a reorganization of your debts.
You can receive a full copy of the text via the Government Printing Office; click here for the Reform Act. The House Judiciary Committee also has a redline version of the act online. The redline version shows the line-by-line contextual changes in the act. The American Bankruptcy Institute has made that document available here – Public Law 109-8.
An important step in determining whether or not to file for bankruptcy is your plan to rebuild your credit after your bankruptcy has been discharged. Credit is a necessity; adequate credit is needed for anything from automobile insurance to renting or owning a home. The old adage is the better your credit is going into a bankruptcy petition; the better it is upon discharge.
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If you are reading this site then you are probably in a financial bind and are considering bankruptcy as one of your options for debt relief. Filing for bankruptcy is a federal court procedure. The first step in filing for bankruptcy is to find a knowledgeable bankruptcy attorney. The attorney will sit down with you and go over all of your assets as well as all of your debt to determine which chapter of bankruptcy would be appropriate for you to file; Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Upon determining which chapter you will file the paperwork begins. Your credit reports will be pulled in order to make sure that there are no debts that you’ve missed. The protections offered under the two bankruptcy codes will begin once the bankruptcy petition is filed in a federal court.
Now that you know a bit about getting started you may be asking yourself, is this the right step for me? There are alternatives to filing for bankruptcy but for the most serious of cases bankruptcy is the right step. The bankruptcy laws were changed in 2005 and are written in such a way to help the person gain the most benefit out of filing for bankruptcy. Not only does it give them a fresh start with regards to debt but with the counseling classes it gives the individual more knowledge to make the best of the fresh start.
A very important part of filing your petition for bankruptcy is finding the right bankruptcy lawyer. Just as an employer would interview possible job applicants it is important that you interview possible bankruptcy lawyers. You will want to find a lawyer that either specializes in bankruptcy or devotes a large portion of their practice to bankruptcy cases. Ask them how many bankruptcy cases they have overseen and whether all of the outcomes were positive as things can and do go wrong in bankruptcy proceedings.
You will also want to ensure that you are comfortable with your lawyer on a professional level. The two of you will be spending time together going over sensitive data and a good professional working relationship is key. Make sure you feel comfortable asking questions of the lawyer and that they answer the question to your liking. If you aren’t sure what is being discussed or is to happen then ask, that is what they are there for. Don’t feel the pressure to retain the first lawyer that you interview, if you don’t feel that this is the lawyer for you then thank them for their time and continue on to the next lawyer on your list.
Another important aspect of a bankruptcy lawyer is finding one that is certified for bankruptcy in your state. Your state’s Bar Association should have that information and may even have a lawyer referral service to help you start your list of lawyers to interview.
Once you have found the lawyer you like please be sure to get a statement of fees as you’ll want to know how much the preparation, filing, representation, etc is going to cost. You’ll want to know whether such additional matters as disputes with the trustee and other non-traditional transactions will be covered.
Bankruptcies are filed in a federal court and are under federal jurisdiction even though some laws can vary by state. The bankruptcy laws were rewritten in 2005 so it is imperative that you have the most up-to-date information available. One of the biggest changes in the bankruptcy laws is the requirement for credit counseling. The credit counseling must be approved by an agency approved by the Department of Justice. The main purpose of the counseling is to help you determine if you actually need to file for bankruptcy or if one of the many bankruptcy alternatives would be a better choice for you. In addition to the pre-filing counseling session you will also be required to attend another counseling session upon discharge. The second counseling session helps you learn the finer points of personal financial management including budgeting.
The eligibility rules have also changed to determine who may qualify to file for bankruptcy. The first is to determine if you meet the income requirements to file a chapter 7 bankruptcy. You will determine your average income over the previous six months and compare it with the median income for a family of your size in your state. If your income is less than or equal to the median income then you qualify to file for a chapter 7 bankruptcy. If your income is higher than the median then you must pass the means test.
As with any legal proceeding, there are several different forms that will need to be filled out and submitted when filing your bankruptcy petition. Filling out the forms may prove difficult and that is where having a bankruptcy attorney comes in handy. The list is long and there are different forms required to file a petition as well as different procedural forms that may be used throughout the proceedings. You can view all of the forms on the US Courts website.
When you file bankruptcy you will make a list of all of your assets, including any personal property you have. The personal property will fall into one of two categories – exempt and non-exempt. Exemptions vary by state but in general the following types of items are exempt. Motor vehicles to a certain value (to be determined on a case-by-case basis), reasonable and necessary clothing (fur coats are not usually considered reasonable and necessary), household appliances, reasonable and necessary household furnishings and goods, and jewelry to a certain value (again to be determined on a case-by-case basis).
In addition to the above-listed items, pensions, life insurance policies, part of the equity in your home, tools of your profession, and public benefits (social security, unemployment, etc) may also be exempt. The following items are generally considered non-exempt and will need to be relinquished during the bankruptcy proceedings: stamp, coins, and other collections; family heirlooms; cash, stocks, bonds, and other investments; a second vehicle; a second or vacation home.
The important thing to remember with exemptions is that they will vary not only by state but on a case-by-case basis within the same state. This is when having a very knowledgeable and experienced bankruptcy attorney comes into play. The better your attorney is the better they will be able to apply the bankruptcy laws to your specific case.
