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.
As you consider bankruptcy, you may be unsure which type to file for. There are two types for personal bankruptcy: Chapter 7 and Chapter 13. Each takes a different approach to eliminating debt.
Knowing the benefits of each may be a contributing factor in your decision. However, the best way to know which is right for you is by consulting a bankruptcy attorney because there are requirements you must meet for each type.
Chapter 7 wipes out most of your obligations to repay unsecured debt and is best if you do not have many or high-value assets.
You eliminate most debts: Chapter 7 does not require you to pay anything to most creditors. Exclusions include child support and recent taxes.
You can take advantage of state exemptions: Although you can only retain some types of property, other assets may have protection under Illinois exemption laws.
You finish the process sooner: Your case is usually over within a few months, whereas with Chapter 13, you have a commitment to a repayment plan for three to five years.
It is important to note that your income may be too high to qualify for this type.
Chapter 13 entails a plan to repay a portion of unsecured debts.
You get to keep your property: Unlike Chapter 7, you can keep more of your assets because you are still paying for them.
You learn better money management: Following a plan and sticking to a strict budget will help you prevent going bankrupt again.
You can rebuild your credit faster: Chapter 13 stays on record for a minimum of seven years, but you can qualify for secured credit cards within months and for loans in under two years. Making on-time payments will help raise your credit rating.
No matter which you file for, bankruptcy also puts an immediate end to creditor harassment, repossessions and wage garnishment. Bankruptcy may be frightening or stressful, but it gives you a fresh financial start, and the negative consequences will not last forever.
The good news first: Plenty of people have been able to buy a house after their bankruptcies were settled. Now for the bad news: Well, there actually is not any. You do have to exercise some patience and diligence, but these are good characteristics to have anyway.
Realtors.com recommends you wait at least two years before buying a new property so your rates will be more affordable. This time frame also gives you the opportunity to prove yourself in other ways, such as credit trustworthiness.
Rebuild your credit
On the topic of credit trustworthiness, a secured card is a great way to begin rebuilding your credit. Installment loans such as a car loan are a good help, too. Word of warning: Qualifying for a car loan can be difficult if you try to do so right after bankruptcy. What helps is putting down a sizeable down payment and paying off the loan far faster than you technically have to (paying off a five-year car loan in only a year, for example). This way, the impact of higher interest rates should not seriously affect you.
Save for the down payment
Speaking of down payments, you should try to save up for your home’s down payment as well. Lenders are more likely to approve your application (and for lower interest rates) if you are able to put down at least 10 percent; even better is 20 percent.
All that said, it is important to buy a house for the right reasons. If you do not think you will stay in the home for at least 15 years, renting may be in your best interest until you can rebuild your finances even more. Consider erring on the side of caution, and pay no more than 25 percent of your monthly income on mortgage bills and house expenses. Also, build an emergency fund before you buy your house.
A lot of the talk around bankruptcy focuses on finances. That makes sense, as bankruptcy is often about matters such as drowning in medical debt and credit card bills. However, while the legal process provides the fresh start you need financially, it may not help you much with the feelings that are threatening to overwhelm you.
The truth is that even though many Americans are only one big medical emergency away from being in your shoes, it is still common to suffer feelings of embarrassment or weakness when the time comes to file the paperwork. The emotional component of bankruptcy may go beyond these surface anxieties, too. For example, you may have lost property that meant a great deal to you, or you may face heavy disapproval from family members.
Acknowledge your feelings
Identifying the emotions you are going through is an important part of the healing process. It is okay to mourn your losses. It may also help to recognize which elements were outside of your control and free yourself from blame. This is not the same as denying accountability for mistakes, but even guilt over past actions can be turned around and viewed as a life lesson that applies to the clean slate you are claiming. If you see filing for bankruptcy for the brave move it is, you may gain a sense of confidence as you face life with new strategies under your belt.
Once you have accepted your situation, you may still have to face others who are not willing to be kind. Planning ahead may help. If you are afraid that family members will criticize you, write down possible responses so they do not catch you flat-footed. For example, one option could be to name notable people who have had to file. When planning these responses, you may also want to craft replies that discourage nosiness and protect your privacy.
A financial therapist may be able to help you recover some of your self-esteem. You may also find that a good bankruptcy attorney is a source of moral support, in addition to the legal advice and assistance you receive. Now that you have the chance to start anew in life, hopefully, many good nights of sleep are just around the corner.
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