With bankruptcies on the consistent rise since the economic downturn millions of Americans have questions as to whether bankruptcy is an option and what benefits bankruptcy can offer them. Many of us know someone who has gone through a bankruptcy, but they are generally reluctant to admit it. And many of us are afraid to ask because we are embarrassed about our financial situation. Perhaps because we feel as if it was our fault. Surprisingly, in most cases, it was not.

Bankruptcy is there to protect the American people from becoming destitute and American families from being torn apart when they fall upon hard times.

Banks and credit card companies try to forward the false notion that bankruptcy has been abused and that people should be ashamed of themselves for filing regardless of the effect on their lives and family. Do not allow yourself to be fooled by this. Most people who file bankruptcy only do it once in their lives.

This article is intended to educate you about your bankruptcy options. First we begin with the terms you may hear when speaking with a bankruptcy attorney.

Bankruptcy Terms

To understand bankruptcy, it helps to know the lingo. This not only helps you understand the process, but also be confident in speaking about your debt and your legal options. Here are some terms you need to know:

• Automatic stay: At the beginning of the process your attorney will file a petition for bankruptcy with the Bankruptcy Court. At that point all collection actions against you will stop. Any court judgment handed down before you filed for bankruptcy cannot be enforced against you or your property. This is called an “automatic stay.”

• Discharge: Discharge is what happens to your debt during a bankruptcy. In the typical case your unsecured debts will be forgiven or discharged. The discharge does not apply to secured debt. You will find that it also does not apply to ”non-dischargeable” debts.

• Non-Dischargeable Debts:
  • Student loans (unless you can meet an “undue hardship” test)
  • Child support and spousal support owed, and certain other obligations under a divorce or separation order
  • Most taxes owed from the last 3 years
  • Certain debts you owe due to fraud or other criminal conduct
  • Fines owed to the government
  • Certain debts you owe under a court order because of willful behavior, such as drunk driving or injuring another person or property
  • Debts that you do not list on your bankruptcy filing

• Debtor: Generally you are referred to as the debtor since you owe the debt.

• Creditor: The creditors are on the individuals or businesses that have loaned you money or provided goods or services to you on credit.

Secured Credit[or]: This a creditor who has attached value of their credit against the value of one of your possessions, called a “lien,” when pertaining to a piece of property. If you default on your loan agreement, that creditor can take steps to repossess or foreclose on the car or property.  Please note: These are not limited to vehicles and property.

Unsecured Credit[or]: They include credit card companies, doctors and hospitals who do not have a court order against you. These creditors only have threat of collection and harassment on their side to collect unpaid debts, but in rare instances they can also sue which allows them to attach the debt to property through legal means. At that point they become secured creditors.

• Equity: This is the value of a piece of property after the cost of the debt. Say your house is worth $150,000 and your mortgage it $100,000. Your equity would be $50,000. In many instances of foreclosure today, people have found that the loan has a higher value than the house because of the lagging housing market has made values fall.

• Exempt income: Regular income that the law protects from your creditors so that you can survive and pay hard costs such as rent, lights, food, etc.

• Exempt Property: Property that the law protects from your unsecured creditors. Some examples are:
  • Jewelry and family heirlooms
  • Unmature life insurance
  • Government issued benefits (social security, unemployment, veterans, etc)
  • Household items (furniture, clothing, kitchen items, etc.)
  • Primary automobile (low value or transportation that would cause hardship)
  • Work materials
  • Homestead property

• Lien: This is a term associated with “Secured Creditor” above that secures their loan to the property or item they are lending upon. Generally this is an approved lien, signed and understood by you. An un-approved lien is when a court orders the lien in the case of a civil lawsuit.

• Chapter 7: This is usually filed by a person who is not able to pay his/her existing debts and liquidates all of their valuable assets to pay off their creditors. Generally used by people with few assets and low income.

• Chapter 11: This is primarily used by businesses to re-organize debt and avoid losing the business by forcing creditor negotiation. Individuals can also file this kind of petition, but individuals generally find it the most complicated and time consuming method.

• Chapter 13: This is used by a person who has a regular income and has the ability pay some of their debts over a period of 5 years or less. The debtor seeks a court-supervised repayment plan that they can afford.

Bankruptcy Documentation

For your attorney to fully help you it is best to have all of your documentation assembled prior to meeting with them in order to expedite the process. This also helps them assess the situation and give you a well informed consultation.

The items you will need are:

• Photo ID (driver’s license, pass port, etc)
• Social Security Card
• Deed(s), Note(s) and Mortgage(s) for all real estate
• Titles for all vehicles
• Past 2 years federal income tax returns
• Most recent pay stubs for you and your spouse
• Pay stubs from the last six months for you and your spouse
• Evidence of all non-employment income in last six months for you and your spouse (rental income, social security, etc.)
• Most recent bank statements for all accounts
• Court papers for any lawsuit in which you are currently involved
• Divorce decree (if applicable)
• Prior bankruptcy petition (if applicable)
• All lease or rental contracts
• Secured loans agreements with finance companies (auto loans, installment purchases, mortgages)
• All insurance policies
• Most recent student loan statement (if applicable)
• Evidence of child support or spousal support owed TO you
• Evidence of child support or spousal support owed BY you
• Evidence of income for any household members contributing to household expenses
• Appraisal or opinion of value for real estate
• Copy of credit report (if obtained)
• Copies of all bills or documents showing claims against you

Bankruptcy Lawyers

Now that you know all of the terms and you have all of your documentation together you are ready to speak to a bankruptcy professional with the experience to be able to give you solid advice and knows the ways to make it a smooth and easy process.

The bankruptcy attorneys at Phillips Webster have years of experience and will assess your bankruptcy options for little to no money down depending on your situation. They will be able to sit down with you face to face and explain clearly your legal options to make sure that you have a fresh start.

Call Phillips Webster today for a free initial consultation and to find out your next step.

Learn More About:

• Chapter 13 Bankruptcy
• Chapter 7 Bankruptcy
• Bankruptcy Lawyer

Some people are saying that the economy is recovering. Others say not-so-much. People watch the Wall Street Dow Jones rise above 11,000 and say it is a sign of a strong economy, but then reports of national foreclosures increasing come out and it spurs the question, who are the people really getting rich off of stocks?

Looking around, particularly outside of King County, it doesn’t seem to be too many people in Washington. With Boeing slowly moving to China or South Carolina (China with a southern accent) it seems like things are going to get worse before they get better.

The litmus test on the economy is really outside of New York City, Washington DC, or even Seattle. In fact, the litmus test is even outside of the Pierce/King/Snohomish corridor (we will still examine those counties though, yeesh, we’re not crazy!). It’s in the smaller cities, the Bellingham, Olympia, and Vancouver where the real test is…and it’s grim.

In February we at the Phillips Webster blog reported on the rise in both bankruptcies and foreclosures in Whatcom and Skagit Counties. Now for the rest of western Washington.

South Sound

Bankruptcy filings in the South Puget Sound rose nearly 25% on average in the first quarter of this year as compared to the first quarter of 2009, according to data compiled by the U.S. Bankruptcy Court for the Western District of Washington.

A good start to show the average trend of the south sound is to take Thurston County. Data shows that 300 Thurston County bankruptcies were filed through the end of March of this year, up from 241 filed in the same time last year. For all of 2009, filings rose a whopping 38% to 1,152 from 837 filed in 2008.

On the other hand, Clark County, another fairly heavy population center containing Vancouver and it surrounding areas showed an increase, but only of around 12%. Data shows the closer tax time came the more it increased. By the end of March of this year, as compared to March 2009, bankruptcies were up more than 20%.

Counties with smaller populations in the South Puget Sound saw a modest rise in bankruptcies, which, with their population can mean everything and nothing depending on what industries have closed in the area. For example, Lewis county containing Centralia and Chehalis had a 27% rise in bankruptcies, where as Mason county (smaller in population than Lewis) saw only a 15% rise.

The news isn’t all bad though. Cowlitz county saw only a single digit increase of 9% and the smallest counties such as Pacifica, Grays Harbor, and Skamania showing little to no increase. This is with the exception of Wahkiakum, which had a 100% increase in bankruptcies in March when one person filed as compared to none last year.

North Sound

The North Puget Sound actually has actually shown some promise. First off, after reporting that Skagit County, home of Mount Vernon, had a massive rise bankruptcies earlier in 2010, there was actually a fairly good turn around after the article (of course). So by the end of March the county ended up 12% below 2009’s filing. We assure you Skagit County, we are humbly eating our hats for any disparaging words we may have written.

Whatcom County on the other hand continued their slide. Bellingham has suffered under the economy and it shows in the number of filings. With a total of 226 so far this year, Whatcom County is still up by 27%. Clallam County also had it a little rough with a 17% increase. But these were nothing compared to the top percentage of bankruptcies on the whole list, Jefferson County, with a 110% increase.

Though Island County is looking a little rough with an overall first quarter of 2010 increase of 12%, the rest of the small population counties in the north are ahead of the game. Kitsap county came in with 10.5% fewer bankruptcies than 2009 and San Juan County with 24% fewer bankruptcies than last year.

The Big Three

King, Pierce, and Snohomish counties together hold the largest population center, well, north of the Bay area and west of Chicago. All three counties saw in increase. Seattle and King County saw in increase in bankruptcies of 28%. The reason why that’s significant is because that’s an increase of 425 people filing for bankruptcy in the quarter.

Pierce County and Tacoma saw a similar increase in bankruptcies in the first quarter of 2010 with a 21% increase totaling 211 more filings than 2009 at the same time. This was only beaten by the smaller populated and arguably wealthier Snohomish County by a small margin with a 14% increase and a total of 122 bankruptcies.

“They continue to be high, and I do think it’s a reflection on the economy,” Seattle-based bankruptcy court clerk Mark Hatcher said about filings throughout Western Washington. Total filings rose almost 18 percent to 6,441 in the first quarter of the year from 5,477 in the first quarter of 2009, Hatcher said.

Washington Bankruptcy Attorney

Since 2007 when the real estate bubble burst into a giant mess, like a bearded man chewing gum, the number of bankruptcies steadily rose. After the 2005 congressional “reform” that made it so much harder for the average citizen to file for bankruptcy protection, bankruptcies have still risen. What the reform didn’t touch was Chapter 11 bankruptcies.

One of the big indicators is also the bankruptcies of business. As you can see below there was a pointed increase in chapter 11 bankruptcies since the beginning of the global downturn.

This trend is carried on in a huge manner in 2010 with 74 filings in the first quarter out pacing 2009 at the same time by 144%. Chapter 11 bankruptcies will increase another 40% from 2009 if they keep on the same track.

These indicators show that bankruptcies are offering protection for people in this slow and staggering economy. You are still able to get relief from your debts and have a positive financial future. To review what bankruptcy can do for you call the experienced bankruptcy attorneys at Phillips Webster for a free consultation.

Learn More About:

• Chapter 13 Bankruptcy
• Chapter 7 Bankruptcy
• Bankruptcy Lawyer

You see, current bankruptcy code for consumers, both chapter 13 and chapter 7, don’t allow student loans to be dismissed or even renegotiated. Some say it is that very provision that has made student loans so attractive.

You may read articles about how student loans are suffering because doctors and philosophy majors alike aren’t paying, otherwise known as a “default.” Through the boo-hooing, reality stands idly in the background as student loans become a trillion (with a “t”) dollar industry. No wonder everyone from credit agencies to Saudi Arabia are investing in the American student loan system.

The system as it stands needs to change. “The prospect of being thousands of dollars in debt upon graduation is scaring off potential future leaders from going to college. No one should have to graduate from college and owe $40,000 in loans with just a bachelor’s degree in tow,” U.S. Sen. Dick Durbin, D-Ill, one the Congress’s main student-loan reform leaders.

Bankruptcy and Student loans

Though there has been some grumbling about the current congress, on thing that can’t be said is that they haven’t done a ton for college level students in the form of Pell Grants and they’re about to sweeten the deal. U.S. Rep. Danny K. Davis, D-7th, U.S. Sen. Dick Durbin, D-Ill., U.S. Rep. Steve Cohen, D-Tenn., and U.S. Sen. Al Franken, D-Minn, are the sponsors of the Private Student Loan Bankruptcy Fairness Act of 2010.

This protection has been in place since 1978 and was intended to safeguard federal investments in higher education. Congress made massive sweeping changes in the chapter 13 and particularly the chapter 7 bankruptcy code in 2005 that made it harder for consumers to file for bankruptcy. In the change they added private student loans. They did this to pander to the powerful banking lobby. Before changes were made to the bankruptcy code in 2005, only government issued or guaranteed student loans were protected during bankruptcy.

Rep. Davis’ proposed bill restores the bankruptcy law pertaining to private student loans. With minor changes to the language, the bill will read like it did before 2005, making privately issued student loans once again dischargeable in bankruptcy.

The current legislation reads in Section 523(a)(8) of title 11, United States Code:

The changes read:

Rep. Durbin, a senior member of congress who first introduced similar legislation in June of 2007, said private loans usually carry higher interest rates than government issued student loans and often reap huge profits for lenders, such as banks.

This legislation also helps minorities added Rep. Davis, “Because Blacks are disproportionably lower income they tend to borrower more from private lenders.”

Students are about to get a big fat break that students in the past didn’t receive. On the heals of the Supreme Court decision that allowed Francisco J. Espinosa, an airline ramp agent, from California, to dismiss his student loan debt in his bankruptcy. That, since student loans have been around, was a giant no-no. But in United Student Aid Funds v. Espinosa, No. 08-1134 Judge Clarence Thomas said that the company that was holding the loan was informed and they didn’t reply in time to stop the bankruptcy in what some people call “snooze, you lose” judiciary theory.

“[The] bill takes an additional step toward restoring fairness in student lending by placing student loan companies in the same position as virtually all other private lenders,” said Durbin.

Congress ended a $6 billion subsidy to private student loan lenders two weeks ago in the Health Care and Education Reconciliation Act of 2010 signed into law last month by President Obama, which now allows college students to borrow directly from the federal government.

Davis said, “private student loans should be interest free to borrowers since lenders receive interest free loans to lend to them.” This makes the student loans an investment rather than a free profit machine for private lenders.

Student Loan Relief

Under the new Education Reconciliation legislation, which will take effect July 1, all new federal student loans will be delivered and collected by private companies under performance-based contracts with the U.S. Department of Education.

Part of the expanded income-based repayment plan, new borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, would have the balance forgiven after 20 years. If a student decides to go into public service, such as teachers, nurses, and military, they will see any remaining debt forgiven after just 10 years.

This gives students a huge incentive to begin their career teaching, particularly when they’re young. This will hopefully add a constant cycle of fresh talent into the education system.

The bill also increases the maximum size of Pell Grants. These do not have to be repaid, but top out in 2009-10 year at $5,350.  That is a few hundred dollars more than the current cap, but further increases are provisioned within the bill. The 2010-11 year (starting July 1, 2010 and closing June 30, 2011), the max will increase to $5,550. The total will max out at $5,975 by 2017. Some lawmakers hoped for a cap of $6,900. This doesn’t mean that later legislation will allow for more.

The bill and all of the changes were aggressively lobbied against by private student lenders, banks, and other financial institution. It strips away the middleman from the student loan process, potentially saving the government, and thus taxpayers, significant amounts of money.

Bankruptcy and You

Now, returning things back to normal may not seem like a major triumph, but it certainly is a step in the right direction, because this would be the first time the 2005 bankruptcy legislation had a chunk chipped out of it. Most of the 2005 legislation specifically helped private lenders. Now the government has once again become a legitimate competitor in the future of American students, which is a good step in the right direction.

If you or someone you know are drowning under a sea of debt due to credit cards and student loans after graduation there may be a way to get relief and begin a life where you can fulfill your professional intentions. Call Phillips Webster for a consultation on you bankruptcy options.

Learn More About:

• Chapter 13 Bankruptcy
• Chapter 7 Bankruptcy
• Bankruptcy Lawyer