Filing bankruptcy is expensive and it cannot be filed for free. Under the new federal bankruptcy laws, credit counseling has been made mandatory. You are required to take credit counseling session at least 180 days prior to filing bankruptcy. And these classes are not free. You have to shell out approximately USD$60 for a class. However, through a waiver program, you can avoid paying for the credit counseling classes if you can prove that you have a very low income and if you have an attorney representing you from a free legal aid program.

Legal representation in bankruptcy is important

It is important to have legal representation and hiring a bankruptcy attorney can be a very expensive affair. You may be given an option of availing “free legal counsel” under a state program. This may prove to be very time consuming because you may be in a long queue and may have to wait for a considerable time period. In majority of the cases, chances of availing free legal counsel are rare.

Cost of filing

You cannot escape the cost of filing bankruptcy. You have to pay the “filing fee” to the clerk of the court when you file bankruptcy. Filing fee is the fee that you pay for the court. This is in addition to the cost of hiring an attorney. If you are planning to file Chapter 7 bankruptcy (liquidation), the amount you have to shell out is USD$299. The cost of filing for Chapter 13 bankruptcy or repayment and reorganization plan is USD$274.

As far as the attorney fee is concerned, it varies from one case to another. It may range between USD$1000 and USD$2000. In some cases, attorneys may charge more if you ask them to accompany you for the 341 meeting. For instance, in Massachusetts, attorneys are required to be present for the 341 meeting. In case the attorney fails to do so, it will be concluded that he is not representing the debtor.

General Motors sought bankruptcy protection and filed Chapter 11 bankruptcy on June 1st 2009. GM’s filing bankruptcy followed on close heels of another auto giant Chrysler filing bankruptcy. GM is trying to emerge as a new company by filing bankruptcy. Reports suggest that this is probably the 4th largest bankruptcy filing in the history of United States. The company is trying hard to avert a lengthy sale that could delay and postpone its emergence as a new company. When Chrysler filed bankruptcy, several bondholders objected to Chrysler’s filing bankruptcy. As such, the sale hearing was delayed for 3 days.

On July 1st 2009, the chief of General Motors Fritz Henderson had to face questions from attorneys that lasted several hours. There are many parties challenging the company’s sale. The opposing parties include unions, bondholders and various consumer groups. When questioned about the company’s current operations, Fritz Henderson the CEO of the company stated that the company’s performance in the month of June had improved.

The CEO of GM went on to say that in case the Treasury doesn’t extend support to the company, GM will have to face liquidation. In fact, the company has 2 options left with. It is either liquidation or sale. GM plans to sell its assets through a process that is referred to as 363 sale, which is a chapter in bankruptcy code. The sale value is USD$90 billion.

What will be the nature of the “New GM?”

The company intends to do away with dealerships, plants debts and other liabilities. The company intends to emerge anew from Chapter 11. The new GM will have approximately USD$17 billion as debt. This is in sharp contrast to USD$54.4 billion GM owed to creditors as of 31st March, 2009.

Major shareholders of New GM

The new GM will have the U.S. government as its major owner with 60% stake followed by the Canadian government that will have a 12.5% stake. United Auto Workers Union will have a 17.5% share. The remaining 10% will go to the unsecured bondholders. The existing shareholders of GM will no longer have any stake in the new GM.

Bankruptcy law can be quite confusing at times. This is because bankruptcy laws are made up of state as well as federal laws. Selecting the correct bankruptcy exemptions and using them to your benefit can be a challenging task. Although the federal government has the power to enact laws, it also empowers the states to decide about bankruptcy exemptions. Exemptions may vary from one state to another. The laws which protect your property from creditors are referred to as exemptions.

Are you eligible for state exemptions or federal exemptions?

Few states have developed their own exemptions and replace the federal exemptions completely. There are a couple of states that offer a choice between state exemptions as well as federal exemptions. For instance, California will offer you a choice to choose between federal exemptions and state exemptions. However, these exemptions are under the jurisdiction of the California state law.

You can use either state exemptions or federal exemptions. You cannot use both exemptions simultaneously. The following states allow you to choose between state exemptions and federal exemptions.

• Arkansas
• Connecticut
• Hawaii
• District of Columbia
• Michigan
• Massachusetts
• Minnesota
• Pennsylvania
• New Jersey
• New Mexico
• Rhode Island
• Texas
• South Carolina
• Vermont
• Washington
• Wisconsin

Just as federal exemptions are different from state exemptions, state exemptions in turn differ from one another. For example, the maximum exemption limit for a car in Texas can be up to USD$30,000. On the contrary, maximum exemption limit in Florida is USD$1,000. In some states, the court appointed trustee cannot take away your home no matter how expensive it is. The same may not be true for another state and the protected value of the house may not exceed even USD$10,000.

What are the residency requirements for bankruptcy exemptions?

In order to avail bankruptcy exemptions, you are also required to fulfill residency requirements. As per the new federal bankruptcy laws that were introduced in October 2005, residency requirements have also undergone changes. It was observed that people intending to file bankruptcy were moving to states where they could avail exemptions according to their convenience. In order to put a stop to such activities, the government introduced the residency requirements.

So, you should have lived for at least 2 years in a particular state to use the exemptions of that state. If you haven’t lived for 2 years, you have to use exemptions of the state you were residing in prior to your current state of residence. There are a couple of states that don’t permit you to use their exemptions unless you are currently residing in that state. Under such circumstances, you have to use federal exemptions. If you haven’t lived in a particular state for 2 years, you can use federal exemptions after 91 days, provided the state in which you are filing bankruptcy permits you to do so.

Choosing between state and federal exemptions

You choose exemptions depending on the property you value most. For instance, if you don’t want to lose your home, you concentrate on homestead exemptions. If the state in which you reside offers larger homestead exemption, you can use state exemptions else you can use federal exemptions, whichever works better for you.

If you find it difficult to meet your minimum financial obligations every month and you have also fallen behind on your payments, it is time you try to strike a balance between your monthly income and expenses. How will you deal with debt collectors? And how will you consolidate your debts? Similar questions may be haunting you always. Falling into debt is a very common problem faced by many people in United States and all over the world. Credit card debts are very common. If you are unable to control your finances properly, you will find yourself dragged into a vicious cycle of debt. Your expenses should never exceed your income. It spells doom. However, there may be instances when you may have to shell out money due to a medical emergency or health problems.

If you are not being able to manage your finances judiciously, take professional help and talk to financial consultants who can assist you in managing your debts effectively. You can also surf the net to get online help. You will come across several debt management articles and tutorials. There are many debt relief options that can help you get out of debt. If you are not being able to decide which debt help option to opt for, a credit counselor can help you in taking a decision. Once it
has been identified that bankruptcy is your only option, next is- how to declare yourself bankrupt?

There are many legal aspects that need to be addressed when you file bankruptcy and these can be best tackled by a bankruptcy lawyer. Under the New Federal Bankruptcy Laws, you have to be eligible for filing for bankruptcy. The New Bankruptcy Law has made it mandatory that you have to undergo a credit counseling session prior to filing for bankruptcy. You also have to undergo the Means Test also to find out if you qualify for Chapter 7 or Chapter 13 bankruptcy. In other words, filing for bankruptcy has been made tougher. In this regard, an attorney will be able to help you with the Means Test and accordingly guide you in your attempt to file bankruptcy.

When you declare that you are bankrupt, there are several benefits you can enjoy. Automatic stay, a court order comes into effect. Your creditors are informed that you have declared bankruptcy and they don’t harass you for making payments for debts. Automatic stay is just the tip of the iceberg. There are several procedures that need to be followed when you file bankruptcy.

Bankruptcy is a federal court procedure that helps you to address your debts under the supervision of a trustee appointed by the court. You can repay your debts either by selling your assets or making payments according to a repayment plan. The most common types of bankruptcy filed by consumers include Chapter 7 and Chapter 13 bankruptcy. Chapter 11 is not uncommon though. Bankruptcy laws also help business houses facing financial stalemate.

There are 94 federal judicial districts that handle matters related to bankruptcy. And bankruptcy cases are filed in almost all districts in the bankruptcy courts. Bankruptcy cases cannot be filed in state courts.

New federal bankruptcy laws were introduced in 2005 to reduce debtors from filing bankruptcy. The new bankruptcy laws have made it compulsory to undergo a credit counseling session before you file bankruptcy.

The individuals providing debtor education as well as credit counseling to consumers intending to file bankruptcy are approved by the U.S. trustee in majority of the states. The bankruptcy administrators are responsible for approving the individuals offering the “special pre-bankruptcy briefing” in 6 districts located in North Carolina and Alabama. A list of debtor education as well as credit counseling providers is maintained by the bankruptcy administrators and the United States trustee.

When you are filing bankruptcy, you are also required to pay fees for the same. The filing fee has to be paid to the Clerk of Court for United States Bankruptcy Court. In case you are filing Chapter 13 bankruptcy, the fees you have to shell out is USD$274. If you are filing Chapter 7 bankruptcy, the fees you are required to pay is USD$299. And if you are planning to file Chapter 11 bankruptcy, you will be required to pay USD$1039. The filing fees for Chapter 12 bankruptcy is USD$239. The fee you pay for filing bankruptcy has several components.

Fees are required to be paid by the debtor’s attorney through registered credit card if the debtor’s attorney files bankruptcy electronically. As per the new federal bankruptcy laws, the debtor’s attorney has to take the responsibility of verifying the debtors information and the expenses are required to be borne by the debtor. The verification is done to ensure that the information provided by the debtor that is recorded in the bankruptcy court and to the attorney is accurate.

For similar reasons, attorneys are taking outside help to verify the correctness of details provided by the debtors. As per the new federal bankruptcy laws, you are required to take a credit counseling session. You will be required to pay fees for the credit counseling session too.

The Attorney fees vary greatly. The attorney fees differ greatly because the fees charged by the attorney depend on the complexity of the case. Every case in bankruptcy is treated differently and has different requirements. The facts related to every case are also different. The number of creditors to deal with and facts related to the case are 2 parameters on which cases differ. However, you are required to make payments to the attorney only once as fixed fee. Thereafter you are not required to shell out any more cash to the attorney for representing you legally. Usually attorney fees start from USD$1000 in case of Chapter 7 bankruptcy. If you qualify for Chapter 13 bankruptcy, majority of the attorneys charge the minimum fee that is approved by the court which is USD$3,000.

When you file bankruptcy under any Chapter of Bankruptcy Code, any action taken by a creditor, collection agency or any government entity can be stopped with the help of automatic stay. It is an injunction against any action taken by the aforesaid entities. It helps debtor and also protects their property under certain circumstances. In case of Chapter 13 bankruptcy, even co debtors are protected.

The automatic stay prevents the following actions

• Collection calls
• Repossessions
• Foreclosure sales
• Filing lawsuit against you
• Wage garnishment etc.

How long does automatic stay remain?

Automatic stay remains till the time the judge doesn’t lift the stay at the creditor’s request. It is valid till the time a debtor doesn’t get a discharge.

In Chapter 7 bankruptcy, the automatic stay may prevent foreclosure from taking place on a debt that is secured by real estate. However, the stay gets lifted and the creditor is allowed to proceed when debts are discharged. In this case, it is also assumed that there is no “non exempt equity” left in the property.

In case of Chapter 13, the automatic stay remains valid through the entire period of the Chapter 13 plan.

What happens if the automatic stay is violated?

The court takes several weeks to send notices to the creditors. During this period if the creditors file lawsuit against you, it is treated as null and void.

How does automatic stay help you in the following?

• Foreclosure

If you are on the verge of facing foreclosure, automatic stay can delay the foreclosure proceedings temporarily. However, sooner or later, the creditor can proceed with the foreclosure process. In case you intend to retain the house, filing Chapter 13 bankruptcy is a better option as compared to Chapter 7 bankruptcy.

• Eviction

In the event, you are being evicted from your home; automatic stay can help you to some extent. However as per the new federal bankruptcy laws, the landlord can proceed with eviction. In case an eviction order was already pending against you and you file bankruptcy, the automatic stay cannot prevent the eviction from taking place.

• Utility disconnection

If you have fallen behind on payments and the service provider is threatening to disconnect gas, electric and water connections, automatic stay can stop this for a period of 20 days.

• Wage garnishment

Automatic stay can prevent wage garnishment. As per norms, not more than 25% of your salary can be used for satisfying court judgments.

File bankruptcy protection

The Mortgage bankruptcy bill also referred to as “Conyers Bill” was enacted in the year 2007 by legislation. The Conyers Bill is controversial because it has brought about modification in the new federal bankruptcy laws that were introduced on 17th October 2005. The mortgage bankruptcy bill aims at helping homeowners retain their home ownership in the event they file bankruptcy.

The bill is applicable for homeowners who availed mortgage loans after January 1st 2000 and thereafter filed Chapter 13 bankruptcy. You have to provide evidence that your finances don’t permit you to make mortgage payments. As such, you are not in a position to pay your arrears. The main reason why homeowners file Chapter 13 bankruptcy is to save their homes from foreclosure. Chapter 13 bankruptcy allows you to enjoy debt relief by restructuring your debts. As such the bankruptcy courts can change terms of your existing mortgage.

The Conyers bill permits bankruptcy courts to lower the rate of interest, do away with excess fees. It also allows courts to modify the principal mortgage balance. By modifying the mortgage loan terms, you get an opportunity to get your finances back on track. And if you adhere to the new repayment plan, the lenders get back their cash in due course and do not initiate foreclosure proceedings.

The mortgage bankruptcy bill extends protection to the financially stranded homeowners. However, if you fail to abide by the payment plan worked out in Chapter 13 bankruptcy, the lender can take help of the bankruptcy courts. Under such circumstances, you can request the court to switch over to Chapter 7 bankruptcy. Once you revert to Chapter 7 bankruptcy, the foreclosure proceedings may begin. The mortgage bankruptcy bill protects homeowners but not all can avail the benefit. If you are not being able to decide what is best for you if you “fail out of bankruptcy”, consult a bankruptcy attorney who can suggest options that suits your needs best.

Filing bankruptcy is associated with a social stigma. This makes bankruptcy filings even more difficult. The probable reasons for filing bankruptcy include unemployment, increasing insurance costs, medical emergencies, mortgage debt and credit card debts etc. However, as per the prevailing market conditions, liquidity crunch is a prominent cause of filing bankruptcy. The number of people filing bankruptcy is on the rise and is expected to escalate in 2009.

Due to the liquidity crunch, people don’t have cash at their disposal. As such they are using credit card for meeting their basic needs too. Since the credit card companies have changed payment policies and reduced credit limits, the credit cardholders were not notified about the same. This created a lot of confusion among the credit cardholders. Majority of the credit cardholders were taken by surprise when they received their credit card statements.

When enquired, the credit card issuers stated that the change in the payment policies as well as lowering of the credit limits had to be implemented as a safety net to save them from further financial loss. As consumers found themselves getting deeper into debt, they find no other alternative but to file bankruptcy.

Due to increase in the number of bankruptcy filings, new federal bankruptcy laws were introduced in October 2005 to put a check on the number of people filing bankruptcy. However, the subprime mortgage crisis and the subsequent recession left consumers with no other option but to file bankruptcy.

Although the new federal laws were introduced, it failed to minimize the incidence of bankruptcy filings. The economic shortfall has left consumers in financial distress.

Statistical data showing projected bankruptcy filings for 2009

• Financial experts are of the opinion that the lower limit of bankruptcy filings will be 5,075 for every business day. As there are 250 business days in 2009, the number of bankruptcy filings may be 1,260,000. This figure is computed assuming that there will be no further growth in the rate of filing bankruptcy.
• However, it has been observed that rate of bankruptcy filings have escalated by 54% over the last 18 months. So, if we set an upper limit for bankruptcy filings in 2009, it shouldn’t exceed 7,600 bankruptcy filings per day. This comes to around 1,610,000 filings in 2009.

It is a fact that even of the bankruptcy filings in 2009 doesn’t exceed the upper limit; it won’t be before early 2011 or end 2010, when the economy will finally turn around to be referred to as a stable one.

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Bankruptcy can be a good option for getting out of debt. Nevertheless, there are many aspects that need to be considered and that is best done with the help of a lawyer. If you are planning to file bankruptcy, before you embark upon this journey you need to have a sound understanding of the process. It is not necessary that you should have knowledge similar to a bankruptcy attorney but the concept should be clear. And you should know what you are heading for and what you are attempting at.

Bankruptcy is a federal court proceeding and by filing bankruptcy you get an opportunity to revamp your finances and attain financial stability. The most common types of bankruptcy filed include Chapter 7 and Chapter 13 bankruptcy.

In Chapter 7 bankruptcy also known as “liquidation bankruptcy”, your assets are liquidated so that your creditors get their money back. You should be aware of the exempt and non-exempt assets.

Previously, filing for bankruptcy was easy and you could declare yourself bankrupt at any point of time. The fed introduced the new federal bankruptcy laws in 2005. Since then bankruptcy filings have become tougher.

If you are planning to file Chapter 7 bankruptcy, you have to undergo a Means Test. In Means test, your monthly income is calculated and compared to the median income of a household in the state you are living. In case your monthly income is less than the median income, you are eligible for Chapter 7 bankruptcy or else your lawyer asks you to file Chapter 13 bankruptcy.

In Chapter 13 bankruptcy, you are not required to give away your assets for liquidation. Instead you are required to pay as per a new repayment plan. Your income should be good enough for you to make payments every month. You manage to get out of debt within 3 to 5 years.

These are the some of the basics of bankruptcy that it is important to develop awareness on. There are many websites offering vital information related to bankruptcy. It is your hard earned money and you should know how to reorganize your finances in a balanced and appropriate manner.