If you are facing bankruptcy, you may worry about the disposition of retirement accounts, such as your 401(k) or your profit sharing plan.
Congress revised the Bankruptcy Code in 2005, and the changes shed light on your concerns.
About the BAPCPA
The revision is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, better known as BAPCPA. As a result of this act, if you are about to file for bankruptcy protection and your net monthly income is more than the median income for your state, you will have to repay a portion of the debt you owe under Chapter 13.
Retirement plan exclusions
The good news is that the assets you hold in qualified plans like your 401(k) and profit sharing plan will be excluded from bankruptcy. There are BAPCPA guidelines for which plans qualify and which do not, and those guidelines include a favorable determination letter from the Internal Revenue Service.
The IRA dollar limit
While the Supreme Court determined that you can exclude an IRA from a bankruptcy filing, the court did not rule on the provision of the federal bankruptcy law that speaks to the dollar amount. The legal system has now addressed that matter. According to BAPCPA, there is protection for up to $1 million in assets held in both Roth and traditional IRAs. Furthermore, you can exclude any funds from a qualified retirement account rolled over into an IRA from the bankruptcy estate altogether.
Protection from creditors
The Employee Retirement Income Security Act also comes into play regarding your retirement accounts. Under Title 1, Section 206(d), ERISA provides qualified plans such as your 401(k) with protection from creditors. Creditors may not levy, garnish or attach the assets you hold in such a plan. The bottom line is that bankruptcy laws can be complicated, but as with the BAPCPA and ERISA, they offer protections that are important to those who are looking ahead to a debt-free life.
When you are a renter, the search for just the right place to live can have its challenges. When you find an apartment or rental house that seems like the perfect fit for you, you don't want any complications getting in the way of you getting approved for a lease. Among the things that could create such roadblocks are debt struggles.
Credit checks are a common part of the application process
So, what your credit score is could impact your likelihood of getting approved when applying for a given apartment or rental property. A recent study estimated what the lease approval odds are for renters at different credit score levels. It found that:
Renters with a credit score above 700 had a 97 percent to 98 percent approval rate
Renters with a credit score between 600 and 650 had an 87 percent approval rate
Renters with a credit score from 500 to 600 had a 67 percent approval rate
Renters with a credit score under 500 had a 48 percent approval rate
According to the study, in competitive markets and for applications for higher-end properties, a low credit score could be particularly problematic for a renter.
Repairing your financial situation
So, for renters, leaving debt struggles unaddressed can have some added consequences. It could make your next apartment search much more difficult. So, promptly and properly addressing debt problems can be critical. Such actions could help you get into a position to repair your credit, which could prove quite important when the time to move comes around. What actions would be appropriate depends on your situation. Under some circumstances, bankruptcy could be a key option to explore. Promptly and carefully reviewing your options can be critical when debt problems come up.
Once you make the decision to file for bankruptcy, you will want the process to go as smoothly as possible. However, you are probably nervous. You have no idea what to expect.
When you are under a good deal of stress, mistakes are easy to make, but here are five common missteps that could be damaging to your petition for bankruptcy.
Submitting an incomplete list of creditors
Skipping a creditor when you prepare your list may be a simple error given all the various bills you might have. On the other hand, you may want to keep a special account out of the mix. However, the law requires you to include all creditors when you file for bankruptcy.
Trying to hide assets
You may have an additional bank account you feel tempted to keep from view. You might consider transferring money to a friend or family member for safekeeping until you finalize the bankruptcy. Keep in mind that hiding assets is against the law. By doing so, you could jeopardize your filing, you might have to pay a fine and you could even face a prison sentence.
Repaying a family obligation
Perhaps you wish to repay a debt owed to a relative ahead of your filing because you do not want to include it in the bankruptcy process. The bankruptcy trustee may see that as a “preferential” payment and disallow it, in which case, your relative would have to return that money and pay it to the trustee.
Enjoying a spending spree
Many people think they can go on a spending spree before filing for bankruptcy. They reason that charging more debt to their credit cards at this point would not matter. Do not become a member of this misinformed group; the additional debt may not be dischargeable. Stop using your credit cards.
Not acting promptly
An experienced bankruptcy attorney will tell you not to delay filing for bankruptcy because your delinquent debts will just continue to snowball. You may have lost your job. You may be struggling under a mountain of medical bills. Whatever the circumstances, bankruptcy is a legal solution for getting out of debt. The faster you act, the faster you can enjoy a fresh new start for your life.
When a company faces financial difficulties and goes into bankruptcy, Chapter 11 is the type most businesses use. Sometimes, however, the hoped-for advantages might not work.
Toys "R" Us recently ran into this problem and is now in the process of converting its Chapter 11 protection for Chapter 7.
Why Chapter 11
Toys "R" Us was losing business due to online competition. The company failed in its attempts to find a buyer and filed for Chapter 11 in September of 2017. This form of bankruptcy protection allows a company to keep its doors open. The big toy retailer wanted to cut debt and restructure so it could become a healthy company again, but apparently that idea has not worked out.
Going to Plan B
After failing to pay its debts, the UK division of the company is now under what is called administration, the British equivalent of bankruptcy. The company has also told its employees that there is no money for severance pay. Here in the US, Toys "R" Us is exchanging its Chapter 11 protection for Chapter 7, which will allow the liquidation of all its assets. The company will also close all its remaining stores. One bright note is that talks are reportedly under way to sell the Asian and European divisions.
The new process
The first step under Chapter 7 is that Toys "R" Us will file notice that it plans to cease doing business. Next, an appointed trustee will sell off company assets. An experienced bankruptcy attorney will tell you that during this phase, the public will probably be able to take advantage of going-out-of-business sales. The proceeds from the sale of assets will go to pay administrative and legal expenses first, and then the debts to secured creditors, with unsecured creditors such as vendors getting whatever is left. It is not often that a giant retailer is forced to consider bankruptcy, but the experience of Toys "R" Us shows that there is more than one remedy a company can considered when it is facing financial peril.
Filing for bankruptcy is a big step in your financial life. However, if you are overwhelmed with debt, you may have determined it is the only realistic thing to do.
You have a family, a home and a job, and you are leaning toward filing Chapter 13, but you still have questions, not only about the process itself but also about the long-term consequences.
Looking to the future
You are certainly not alone in considering bankruptcy: In 2016, about 800,000 people filed across the country, reports Yahoo Finance. You should keep in mind, however, that bankruptcy stays on your record for as long as 10 years. Also, if you should become debt-ridden again, it will be years before you could file for a second time. Remember that if you become interested in a new job, the prospective employer will probably run a credit check, which will bring your bankruptcy to light. The same thing will happen if you want to rent a house.
The debts that remain
Some debt remains under Chapter 13. Here are a few examples:
Certain fines, such as those you owe for a DUI conviction
Any fraudulent debt you may have incurred
Of course, few if any of these examples may apply to you. If you choose to file Chapter 13, you can look forward to the end of certain kinds of creditor action, such as wage garnishment, vehicle repossession and the threat of foreclosure on your home.
The next step
Having done a good deal of homework on Chapter 13, the next step is for you to seek legal guidance and get answers to all your questions. Ultimately, the decision to go forward with Chapter 13 rests with you. Obviously, this is a big decision to make, but armed with the information you seek plus experienced legal representation, you will likely find that you are much more comfortable with the idea of filing for bankruptcy.
The meeting of creditors relative to a bankruptcy filing is more formally known as the “341 meeting.” This name comes from Section 341 in Title 11 of the United States Code.
When you file for bankruptcy, you will have to attend this meeting along with your attorney and your trustee. It may sound a bit scary, but the 341 meeting is not as arduous an event as you might think.
At this first meeting of equity security holders and creditors, you as the debtor must appear and answer questions under penalty of perjury. The examination enables the trustee to better understand your circumstances and to begin an efficient administration of your bankruptcy case.
You may feel somewhat relieved to know that the 341 meeting does not occur in the presence of a judge. The trustee assigned by the United States Trustee is in charge of conducting the hearing, which will only last a few minutes. Your creditors will receive notification of your filing for bankruptcy, and while they may decide to attend, they usually do not; they do not waive their rights if they choose not to appear. Under oath, you will answer questions about subjects such as your assets, liabilities, financial circumstances and conduct in handling your debts. Remember that your attorney will be with you; you do not have to manage this hearing alone.
What not to do
The one thing you must not do is fail to appear at the 341 meeting. If that should happen, or if you appear but do not answer the questions asked, the trustee can request the dismissal of your bankruptcy case. The court could also order you to cooperate with the trustee or else hold you in contempt.
Part of the process
Think of the 341 meeting as a natural part of the bankruptcy process. Completing this meeting brings you one step closer to resolving your debt, removing that dark cloud hanging over your head and heading off on the path to a much brighter future.
You would like to go into your marriage feeling supremely happy and confident about your future. However, your soon-to-be husband is going through bankruptcy, which casts a bit of a damper on your expectations for wedded bliss.
You are afraid that the bankruptcy issues could adversely affect your excellent credit rating. Fortunately, there are ways to prevent that from happening.
The main concern
Marriage does not mean that the credit scores of bride and groom become linked. You can keep your finances separate to a large degree, but if you and your soon-to-be husband share credit, you could see a problem. An example of this is cosigning on a car loan. Let us say that your husband takes care of the monthly payment. If, at some point, he should default on the loan, the lender can come after you. The remedy for this kind of situation is simple: keep your car loan, your retirement accounts, your credit cards and your checking and savings accounts separate. Your sweetheart is going through bankruptcy; he will understand.
The mortgage issue
You plan to buy a home after you are married. This is another common cosigning situation, but it requires a decision. You will probably be able to qualify for a larger loan if the two of you apply for a mortgage together because the lender will take both your incomes into consideration. However, because your soon-to-be husband has a bad credit rating, it might be better for you to apply on your own. You will likely get a better interest rate.
An attorney will tell you that your sweetheart’s bankruptcy should not disrupt your marriage plans as long as you take a few common-sense steps. First, make sure your intended shares all the bankruptcy information with you so you will not be blindsided by anything down the road. Second, protect yourself by keeping your financial life separate from his. Third, consider the financial boundaries for your marriage separately and together going forward. Honesty, good planning and shared goals will help you have the happy future you deserve.
Everyone goes through hard times, and sometimes, those difficulties result in great loss. If you are facing a foreclosure, you may consider a few different mortgage assistance options.
However, it is important people select the best options for their particular situation. There are a few key factors to consider when choosing the right assistance for you.
Depending upon what part of the foreclosure process an individual is in, certain options may not be available. Therefore, it is important people take the time to understand the foreclosure laws. Knowing there is still time to get back on the right financial footing can help to create peace of mind as well.
Eligibility and guidelines
Those who qualify for one type of assistance do not automatically qualify for all of them. It is important to understand the eligibility requirements for each type of assistance. Also, certain types of assistance may have specific guidelines. For example, individuals must meet certain requirements to obtain and maintain a forbearance. This knowledge is critical, and it is important to fully understand what the guidelines require and if homeowners are able to meet them consistently throughout the course of the assistance program.
A proper attorney can be very helpful in securing mortgage assistance that truly helps homeowners retain their homes while rebuilding their financial property. For the greatest level of effectiveness, individuals should find attorneys with certain characteristics, including:
Strong communication skills
These are a few of the main things to look for in an attorney for any case. The individuals must work closely with the attorney during this process, so it is undoubtedly beneficial for them to choose counsel they feel they can trust.
A pending foreclosure may be resolved with the right mortgage assistance plan. By acknowledging and accounting for these factors, homeowners set themselves on the right track to select and implement the best mortgage option for their situations.
Dealing with overwhelming debt is stressful and difficult enough without your creditors hounding you nonstop. Between paper notices, phone calls and in-person contact, you may feel like there is no escape from the endless communication.
While creditors have the right to contact you, the Fair Debt Collection Practices Act protects you from having to deal with behavior that escalates to harassment. You do not have to put up with that no matter how much you owe. Take these steps to end creditor harassment.
Recognize the signs
First, you must understand what qualifies as harassment. Debt collectors are not allowed to do the following:
Call you multiple times to annoy or abuse you
Call others, including your employer
Use inappropriate or profane language
Hide their identity
Lie to you about what you owe
Thoroughly document all contact with creditors to use as evidence if they begin to harass you.
File for bankruptcy
Filing for bankruptcy will automatically put an end to the communication from debt collectors. If they continue, they are breaking the law and can suffer penalties for the misconduct. In addition, starting the bankruptcy process puts a stay on wage garnishments, foreclosure and repossession. Your assets receive protection until your bankruptcy proceedings are complete, determining what you can keep, what you have to pay and what discharges you are eligible for.
Hire an attorney
Do you not want to file for bankruptcy? Even if you want to choose a different form of debt relief, you can still end creditor harassment by hiring legal representation. Your attorney can mandate that debt collectors stop calling you and call him or her instead. Your lawyer will handle all communication with creditors to ensure compliance with the law. If you do want to go with Chapter 7 or 13 bankruptcy, it is still advisable to utilize the services of an attorney to prevent costly mistakes and delays.
Credit cards are great tools for improving your credit score if you use them responsibly. However, if you are not careful, you might end up with an unmanageable amount of debt. But how do you know if you are in too deep? You might know you have some debt, but it can be difficult to know exactly when you have gone over the edge.
While you might need to prioritize credit card bills sometimes, you should always avoid skipping any payments. If you are constantly unable to afford your credit card bills, you are in trouble. As you keep skipping payments, your credit score will become more damaged.
2. You use credit cards to cover necessities
Your income should cover basic living expenses such as clothing, food and gas. If you find yourself needing to use credit to handle these purchases, you are probably in financial trouble. Consistently being unable to live within your means results in a growing credit card debt that may become too much to manage.
3. You can only afford minimum payments
According to personal finance journalist Rebecca Lake, it is easy to fool yourself into believing your credit card debt is not too bad if you are able to cover the minimum amount each month. The truth is this is a warning sign of disaster. Only paying the minimum will cost you significantly on interest charges and will consistently leave you on the brink of consumer debt.
If you see these warning signs in your life, you have options. You might be lucky and be able to reverse the trend, or you might be too far gone and need to discharge your debt through bankruptcy. But no matter how much debt you have, you can start over and rebuild your financial future with the right help.
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